Washington state auditor indicted on tax-related charges

By Eric M. Johnson SEATTLE (Reuters) - Washington state auditor Troy Kelley, a Democrat elected in 2012, pleaded not guilty on Thursday to charges of possession of stolen property, filing false tax returns and lying to federal agents. A Seattle grand jury issued a 10-count indictment against Kelley, 50, of Tacoma, for his alleged scheme to keep stolen money and hide it from both the Internal Revenue Service and those due a refund for home purchases or mortgage refinancings, acting U.S. Attorney Annette Hayes said. "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," she said. After weeks of speculation about a possible federal indictment, Kelley was formally charged on Thursday in U.S. District Court in Tacoma. After entering a not guilty plea, Kelley gave a brief public statement saying he was taking a leave of absence to prepare his defense. "I believe the indictment has no merit," he said. "They are a long way from proving any wrongdoing. More directly, I'm very confident, very confident, that I'll be able to prove my innocence." Kelley added that he intended to return to the auditor's office in the coming months with his name cleared. The criminal conduct allegedly spanned years prior to Kelley's election to state office though some occurred following his election, Hayes said. Washington state Governor Jay Inslee, a fellow Democrat, called for Kelley's resignation on Thursday, saying the indictment would interfere with his work as auditor. The criminal allegations focus on Kelley's former document-tracking business for title companies during real estate sales and refinancing transactions in which he is accused of not returning money owed to borrowers from about 2003 to 2008. He was charged with one count of possession and concealment of stolen property related to more than $1.4 million of unused processing fees that should have been returned to borrowers, punishable by up to 10 years in prison. He also faces four counts of false declarations and one count of attempted obstruction of a civil lawsuit, punishable by up to 20 years in prison. Kelley was also charged with failing to pay federal taxes, obstructing related IRS collections, filing false income tax returns and making false statements to IRS agents in April 2013, Hayes said. (Reporting by Eric M. Johnson and Victoria Cavaliere in Seattle; Editing by Will Dunham, Diane Craft and Eric Beech)