Federal grand jury returns ten count indictment of State Auditor Troy Kelley

State Audi­tor Troy Kel­ley has been indict­ed by a fed­er­al grand jury for fil­ing false tax returns, mak­ing false dec­la­ra­tions, obstruct­ing jus­tice, and pos­sess­ing stolen prop­er­ty, the Unit­ed States Attor­ney for West­ern Wash­ing­ton announced today.

The ten count indict­ment was returned by a jury in the U.S. Dis­trict Court in Seat­tle. Kel­ley is due to be arraigned in the Taco­ma divi­sion this afternoon.

“Mr. Kel­ley spun a web of lies in an effort to avoid pay­ing his tax­es and keep more than a mil­lion dol­lars that he knew did not belong to him, but instead should have been returned to thou­sands of home­own­ers across this state,” said Act­ing U.S. Attor­ney Annette L. Hayes in a state­ment. “I com­mend the FBI and the Inter­nal Rev­enue Ser­vice Crim­i­nal Inves­ti­ga­tion for their dili­gent work to piece togeth­er the volu­mi­nous records that form the basis for the charges in this case.”

The Fed­er­al Bureau of Inves­ti­ga­tion and the Inter­nal Rev­enue Ser­vice joint­ly allege that Kel­ley made a lot of mon­ey by steal­ing from the peo­ple he worked with while he was in the mort­gage recon­veyance business.

From 2003 to 2008, Kel­ley ran a busi­ness that was sup­pos­ed­ly respon­si­ble for track­ing doc­u­ments per­tain­ing to real estate sales and refi­nanc­ing agree­ments.  Kel­ley’s arrange­ment with his clients pro­vid­ed that he was sup­posed to return mon­ey to bor­row­ers while keep­ing the resid­ual bal­ance as his fee.

But appar­ent­ly, he got into the habit of keep­ing it all and end­ed up pock­et­ing over $2 mil­lion in stolen mon­ey. Hence the indict­ment for pos­ses­sion of stolen prop­er­ty. The oth­er counts are linked, as the U.S. Attor­ney’s state­ment explains:

When the amount with­held by title com­pa­nies became the sub­ject of civ­il lit­i­ga­tion, the indict­ment alleges KELLEY obstruct­ed the lit­i­ga­tion, repeat­ed­ly lying in a dec­la­ra­tion and in depo­si­tions while under oath.  For this con­duct KELLEY is charged with four counts of false dec­la­ra­tions and one count of attempt­ed obstruc­tion of a civ­il law­suit.  Fur­ther, the indict­ment alleges KELLEY failed to pay fed­er­al tax­es and obstruct­ed the IRS in its efforts to col­lect tax­es from him.  He is charged with cor­rupt inter­fer­ence with Inter­nal Rev­enue laws and two counts of fil­ing false income tax returns.  Final­ly, KELLEY is charged with mak­ing false state­ments to Inter­nal Rev­enue Ser­vice agents who ques­tioned him about his scheme in April 2013.

To say that these are seri­ous charges would be an understatement.

Kel­ley’s cred­i­bil­i­ty is com­plete­ly gone. He may be inno­cent until proven guilty under the laws and cus­toms of this coun­try, but it looks to us like the feds have an excel­lent case and are pre­pared to go to tri­al with it.

Kel­ley may believe that when all is said and done, he’ll be cleared, but he sim­ply can­not admin­is­ter his office while a defen­dant in a major fed­er­al case. He should resign from his posi­tion imme­di­ate­ly, as every­one from Gov­er­nor Jay Inslee to Wash­ing­ton State Demo­c­ra­t­ic Par­ty Chair Jax­on Ravens is demanding.

But, judg­ing from the long state­ment he put out today, in which he claimed to be the vic­tim of an unjust inves­ti­ga­tion, it sounds like he has no inten­tion of vol­un­tar­i­ly resign­ing. In the clos­ing para­graph, he declares, “Begin­ning May 1st, I will take a tem­po­rary leave of absence from my duties as Wash­ing­ton State Audi­tor to allow my office to con­tin­ue to do its impor­tant work with­out dis­trac­tion. I ful­ly intend to resume my duties after I put these legal mat­ters to rest.”

Kel­ley seems to be in denial. Why isn’t he resign­ing now? Why is he wait­ing until May 1st to start this leave of absence that he plans? How does he think he’ll be able to resume his duties when the case against him may take months and pos­si­bly years to resolve, dur­ing which time the 2016 gen­er­al elec­tion will take place?

Kel­ley seems to be think­ing only about self-preser­va­tion, which is unfor­tu­nate. It’s not how we expect some­one in his posi­tion to act.

If Kel­ley con­tin­ues to stub­born­ly refuse to resign, he can expect to face an effort to recall or impeach him. Those are the two meth­ods by which an elect­ed offi­cer can be invol­un­tar­i­ly removed from office. Arti­cle V of the Wash­ing­ton State Con­sti­tu­tion out­lines how the process of impeach­ment works:

SECTION 1 IMPEACHMENT — POWER OF AND PROCEDURE. The house of rep­re­sen­ta­tives shall have the sole pow­er of impeach­ment. The con­cur­rence of a major­i­ty of all the mem­bers shall be nec­es­sary to an impeach­ment. All impeach­ments shall be tried by the sen­ate, and, when sit­ting for that pur­pose, the sen­a­tors shall be upon oath or affir­ma­tion to do jus­tice accord­ing to law and evi­dence. When the gov­er­nor or lieu­tenant gov­er­nor is on tri­al, the chief jus­tice of the supreme court shall pre­side. No per­son shall be con­vict­ed with­out a con­cur­rence of two-thirds of the sen­a­tors elected.

SECTION 2 OFFICERS LIABLE TO. The gov­er­nor and oth­er state and judi­cial offi­cers, except judges and jus­tices of courts not of record, shall be liable to impeach­ment for high crimes or mis­de­meanors, or malfea­sance in office, but judg­ment in such cas­es shall extend only to removal from office and dis­qual­i­fi­ca­tion to hold any office of hon­or, trust or prof­it, in the state. The par­ty, whether con­vict­ed or acquit­ted, shall, nev­er­the­less, be liable to pros­e­cu­tion, tri­al, judg­ment and pun­ish­ment accord­ing to law.

SECTION 3 REMOVAL FROM OFFICE. All offi­cers not liable to impeach­ment shall be sub­ject to removal for mis­con­duct or malfea­sance in office, in such man­ner as may be pro­vid­ed by law.

The House could begin impeach­ment pro­ceed­ings against Kel­ley soon, as it is still in ses­sion, and is like­ly to be in ses­sion through the month of may due to the stale­mate over the state bud­get. A major­i­ty of rep­re­sen­ta­tives would have to vote for impeach­ment to begin a tri­al in the Senate.

The alter­na­tive would be a cit­i­zen-ini­ti­at­ed recall.

The recall is one of sev­er­al pro­gres­sive bal­lot reforms added to Wash­ing­ton State’s Con­sti­tu­tion dur­ing the Pro­gres­sive Era.

In Wash­ing­ton, unlike oth­er states, an elect­ed offi­cial can­not be recalled with­out cause, which is why we don’t see many recall attempts. But with today’s indict­ment, it seems grounds exist to recall State Audi­tor Troy Kelley.

Here’s what the Wash­ing­ton State Con­sti­tu­tion says about recalls:

ARTICLE I. SECTION 33. RECALL OF ELECTIVE OFFICERS. Every elec­tive pub­lic offi­cer of the state of Wash­ing­ton expect [except] judges of courts of record is sub­ject to recall and dis­charge by the legal vot­ers of the state, or of the polit­i­cal sub­di­vi­sion of the state, from which he was elect­ed when­ev­er a peti­tion demand­ing his recall, recit­ing that such offi­cer has com­mit­ted some act or acts of malfea­sance or mis­fea­sance while in office, or who has vio­lat­ed his oath of office, stat­ing the mat­ters com­plained of, signed by the per­cent­ages of the qual­i­fied elec­tors there­of, here­inafter pro­vid­ed, the per­cent­age required to be com­put­ed from the total num­ber of votes cast for all can­di­dates for his said office to which he was elect­ed at the pre­ced­ing elec­tion, is filed with the offi­cer with whom a peti­tion for nom­i­na­tion, or cer­tifi­cate for nom­i­na­tion, to such office must be filed under the laws of this state, and the same offi­cer shall call a spe­cial elec­tion as pro­vid­ed by the gen­er­al elec­tion laws of this state, and the result deter­mined as there­in pro­vid­ed. [AMENDMENT 8, 1911 p 504 Sec­tion 1. Approved Novem­ber, 1912.]

The Con­sti­tu­tion also says:

ARTICLE I. SECTION 34. SAME. The leg­is­la­ture shall pass the nec­es­sary laws to car­ry out the pro­vi­sions of sec­tion thir­ty-three (33) of this arti­cle, and to facil­i­tate its oper­a­tion and effect with­out delay: Pro­vid­ed, That the author­i­ty here­by con­ferred upon the leg­is­la­ture shall not be con­strued to grant to the leg­is­la­ture any exclu­sive pow­er of law­mak­ing nor in any way lim­it the ini­tia­tive and ref­er­en­dum pow­ers reserved by the peo­ple. The per­cent­ages required shall be, state offi­cers, oth­er than judges, sen­a­tors and rep­re­sen­ta­tives, city offi­cers of cities of the first class, school dis­trict boards in cities of the first class; coun­ty offi­cers of coun­ties of the first, sec­ond and third class­es, twen­ty-five per cent. Offi­cers of all oth­er polit­i­cal sub­di­vi­sions, cities, towns, town­ships, precincts and school dis­tricts not here­in men­tioned, and state sen­a­tors and rep­re­sen­ta­tives, thir­ty-five per cent. [AMENDMENT 8, 1911 p 504 Sec­tion 1. Approved Novem­ber, 1912.]

RCW 29A.56.110 pro­vides:

When­ev­er any legal vot­er of the state or of any polit­i­cal sub­di­vi­sion there­of, either indi­vid­u­al­ly or on behalf of an orga­ni­za­tion, desires to demand the recall and dis­charge of any elec­tive pub­lic offi­cer of the state or of such polit­i­cal sub­di­vi­sion, as the case may be, under the pro­vi­sions of sec­tions 33 and 34 of Arti­cle 1 of the Con­sti­tu­tion, the vot­er shall pre­pare a type­writ­ten charge, recit­ing that such offi­cer, nam­ing him or her and giv­ing the title of the office, has com­mit­ted an act or acts of malfea­sance, or an act or acts of mis­fea­sance while in office, or has vio­lat­ed the oath of office, or has been guilty of any two or more of the acts spec­i­fied in the Con­sti­tu­tion as grounds for recall. The charge shall state the act or acts com­plained of in con­cise lan­guage, give a detailed descrip­tion includ­ing the approx­i­mate date, loca­tion, and nature of each act com­plained of, be signed by the per­son or per­sons mak­ing the charge, give their respec­tive post office address­es, and be ver­i­fied under oath that the per­son or per­sons believe the charge or charges to be true and have knowl­edge of the alleged facts upon which the stat­ed grounds for recall are based.

For the pur­pos­es of this chapter:

1. “Mis­fea­sance” or “malfea­sance” in office means any wrong­ful con­duct that affects, inter­rupts, or inter­feres with the per­for­mance of offi­cial duty; 
   1. Addi­tion­al­ly, “mis­fea­sance” in office means the per­for­mance of a duty in an improp­er man­ner; and
   2. Addi­tion­al­ly, “malfea­sance” in office means the com­mis­sion of an unlaw­ful act;
2. “Vio­la­tion of the oath of office” means the neglect or know­ing fail­ure by an elec­tive pub­lic offi­cer to per­form faith­ful­ly a duty imposed by law.

As the indict­ment of Kel­ley alleges that some of his ille­gal con­duct took place while he was Audi­tor, a cit­i­zen could argue to a judge that Kel­ley has com­mit­ted an act of mis­fea­sance or malfea­sance, and is thus eli­gi­ble to be recalled.

Assum­ing that a judge allowed a recall effort to go for­ward, a large num­ber of sig­na­tures would need to be col­lect­ed, “equal to twen­ty-five per­cent of the total num­ber of votes cast for all can­di­dates for the office to which the offi­cer whose recall is demand­ed was elect­ed at the pre­ced­ing elec­tion” (RCW 29A.56.180).

Orga­niz­ers of a recall would have two hun­dred and sev­en­ty days to col­lect sig­na­tures, or about eight months. Fol­low­ing val­i­da­tion of sig­na­tures, a recall elec­tion would be sched­uled to take place with­in forty-five to nine­ty-days.

Kel­ley has no chance of get­ting reelect­ed in 2016, so if he con­tin­ues to refuse to resign, a recall might move up the date of his depar­ture by six months to a year or more, depend­ing on how fast recall orga­niz­ers could col­lect sig­na­tures. A recall effort that appears to be gath­er­ing steam might pres­sure Kel­ley into resigning.

I bring all this up because we need and deserve a state audi­tor who has the trust of the pub­lic. Troy Kel­ley says he’s an inno­cent man and he is pre­sumed to be inno­cent until proven guilty, but these charg­ing papers say he’s a crook, and there’s no way he can gov­ern, let alone gov­ern effec­tive­ly, while under indictment.

Kel­ley should resign from office to focus on his crim­i­nal defense. He no longer has the abil­i­ty to serve the peo­ple of the State of Washington.

If he is unwill­ing to do so, he should be removed from office.

POSTSCRIPT: Turns out some­one filed papers to recall Troy Kel­ley even before he was indict­ed. The Seat­tle Times filed a sto­ry regard­ing the peti­tion sub­mit­ted by for­mer State Rep­re­sen­ta­tive Will Kned­lik.