Most of us don’t have to think about our taxes for a

Most of us don’t have to think about our taxes for a while after yesterday’s filing deadline. Not so for Troy X. Kelley.

As those who have been following recent revelations about his financial gymnastics might have expected, state auditor Kelley today was indicted by a federal grand jury for filing false tax returns during the last decade. Elected to his first term in 2012, Kelley, 50, a Democrat and former state legislator, is also accused by the U.S. of obstruction, making false declarations, and possessing stolen property.

The ten-count indictment was followed by widespread calls for Kelley’s resignation, including a demand from Gov. Jay Inslee that the auditor “resign immediately.”

But Kelley insisted he’s been wrongly accused by the government, which used “a secret grand jury” to “weave together an ill-conceived narrative” of charges. He said he will take only a temporary leave of absence, beginning May 1. He pled not guilty this afternoon at Tacoma federal court and at a 4 p.m. press conference read a statement saying he “never, ever thought I was breaking the law.” He took no questions, letting his attorneys argue his case and predict he’ll prove the criminal charges wrong.

The indictment swirls around accusations that were detailed in a March 30 Seattle Weekly story reporting Kelley, then a legislator and ex-owner of a Tacoma escrow-services business, admitted in a 2010 sworn court statement to transferring $3.8 million in funds between five banks, coast-to-coast. Kelley also opened a tax-free offshore trust account that was the likely final destination of the transfers.For the first time, we’ve learned from the indictment what Kelley refused to tell voters in 2012 and the public this year after news broke of the U.S. investigation: In a 2010 lawsuit claiming he misappropriated $1.2 million from a title company, he paid $1,050,000 to quietly settle the claim out of court. He also sought, unsuccessfully, to have the case sealed.Between 2006 and 2008, he “grossly underreported” his income and business receipts and failed to declare and pay taxes on illegally obtained fees, the U.S. claims, giving himself a $100,000 tax break. As well, in 2011 and 2012, when he ran for auditor, he illicitly claimed personal and campaign-related expenses. He allegedly lied to IRS agents by claiming his company was still doing work for the title companies. But his business had closed and he claimed his records had been destroyed in a 2008 Everett fire; other records were lost, he claimed, when his computer crashed. (Under oath in the civil lawsuit, Kelley conceded his records had only suffered smoke damage and he couldn’t clearly explain why electronic records were lost).

During the lawsuit, he confessed to not paying taxes on the millions. In 2012, he claimed to have paid all his taxes, and today said he “has been paying” his tax obligations. The government contends that’s not true.

Says acting U.S. Attorney Annette Hayes, in a statement, “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.”

Kelley was accused in a 2010 civil lawsuit of obtaining most of the $3.8 million by overcharging customers of his client title firms. One of them, Old Republic Title, said he overbilled escrow customers more than $2 million. Federal prosecutors call that “stolen money,” and say it constitutes the main charge of the indictment. They further allege Kelley obstructed the civil litigation by repeatedly lying under oath, resulting in four counts of false declarations and one count of attempted lawsuit obstruction.

Additionally, the U.S. claims Kelley failed to pay federal taxes and obstructed IRS efforts to collect taxes from him, constituting a charge of corrupt interference and two counts of filing false income tax returns. He is also charged with making false statements to IRS agents during a 2013 interview.

In his statement today, he said, “I am obviously disappointed that the U.S. Attorney’s office has taken this action. I believe the indictment has no merit and want to note that none of the allegations touch on my work as an elected official in any way.”

He said investigators “have probed and prodded, seemingly moving from one aspect of my former career to another. Presumably they have used the secret grand jury process to construct a case against me, questioning dozens of witnesses and examining every aspect of my professional life until they could weave together an ill-conceived narrative from which to base the charges.”

The last two years, adds Kelley, the father of two and husband to a University of Puget Sound professor, “have been extraordinarily difficult for my family and me. My constituents, friends and coworkers have all called for me to address the allegations and rumors surrounding the government’s investigation, but since the government has never disclosed the specifics of its allegations to me, I could not. I hope everyone now understands why I remained silent.”

randerson@seattleweekly.com

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