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Thursday, April 16th, 2015

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.

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  1. I say impeach him.

    # by Gretchen Anna Sand :: April 22nd, 2015 at 2:06 PM
  2. Kelley needs to resign immediately. He can’t possibly serve as auditor now.

    # by Romeo Deloitte :: April 25th, 2015 at 7:08 PM
  3. I bet Kelley will be gone within a few weeks. As soon as the other shoes drop, whatever those are…

    # by Roger Barrett :: May 15th, 2015 at 5:58 AM