Auditor candidate denies misappropriating funds

Originally published online on October 10 on a Seattle NPR affiliate website

The job of the Washington State Auditor is to root out waste, fraud and abuse in government. But the Democratic candidate for that position, State Representative Troy Kelley, has come under scrutiny for his private business dealings. This includes wiring millions of dollars around to an account that was eventually linked to a bank in Belize. That was key evidence in a lawsuit against Kelley.

On the morning of Monday, August 2, 2010 Troy Kelley sat down in front of a video camera at a law office in downtown Seattle, wearing a button-down Oxford shirt, no tie. He raised his right hand and took an oath.

For much of the next 8.5 hours Kelley was deposed by a lawyer for one of his clients, Old Republic Title. Escrow companies had hired Kelley’s firm to handle some of the mechanics of closing a real estate transaction. Old Republic was suing Kelley for allegedly misappropriating $1.2 million in customer fees. Kelley denies any wrongdoing.

Old Republic attorney Scott Smith turned Kelley’s attention to a series of large bank transactions.

“I want to ask you about your transfer of funds in June 2008. We’re talking about $3.8 million approximately?

“Yes,” Kelley answered.

The money came from three business accounts Kelley maintained at Columbia Bank. On June 12 that year, Kelley swept those accounts and wired the money to a new account he’d opened at Wells Fargo bank. But it didn’t stay there long.

“The following day or as soon as those funds were cleared to be good you then wired them into a second account, correct?” Smith asked.

“Yes,” responded Kelley.

And then Kelley did it again and again. In fact, over the course of 15 days, records show Kelley initiated seven wire transfers through four financial institutions in three states. In his deposition, Kelley told attorney Scott Smith he did all this on the advice of an estate planning lawyer in California.

Smith asked Kelley who the estate attorney advising him to wire transfer these funds.

Kelley gave the name Alan Eber.

Eber sells DVDs on how to protect your assets and maintains websites with names like: http://www.offshoreprotectiontrust.com. Eber did not respond to our calls for comment. Kelley in a statement says he took the advice of “respected tax experts.”

But Old Republic attorney Scott Smith told me in an interview the fact Kelley retained Eber says a lot.

“The reason he went to Mr. Eber in Los Angeles is because Mr. Eber is the guy who can help you hide assets from creditors,” Smith says.

It’s perfectly legal to protect one’s assets. But it’s not okay to hide your assets if the purpose is to defraud your creditors. Then you can run afoul of the civil Uniform Fraudulent Transfer Act.

It turns out, just before Kelley sent his money on a bank-to-bank scramble, class-action lawsuits had been filed against two of his title company clients, including Old Republic. The allegation in those lawsuits was that homeowners didn’t get refunds they were owed. Kelley wasn’t named in the lawsuits, but his company was on contract with the title firms to manage the transactions in question.

That raises red flags with California attorney Jay Adkisson who specializes in creditor-debtor law. Adkisson is not familiar with the specifics of the Troy Kelley situation, but says if someone came into his office, “and say ‘hey look, you know there’s these lawsuits going on, I haven’t been sued yet, but you know maybe I would be sued, can I do something?’ I would probably be real nice to them and offer them a cup of coffee and punch their parking ticket and bid them good day and that’s about all I’d do because that’s just not proper planning.”

A few months after the Troy Kelley wire transfers, he was subpoenaed to turn over his records as part of one of the class action lawsuits against his clients. The same day he was served, documents show Kelley linked the account where most of the money had landed to an offshore account in Belize.

During the Kelley deposition, attorney Scott Smith zeroed in.

“Ever been to Belize?” he asked.

“Never been to Belize,” responded Kelley.

When asked why Belize? Kelley responded once again that he did so on advice of attorney Alan Eber in California. When all of this came out in September, Kelley held a news conference. And reporters asked about the account in Belize.

“That was set up with a minimum balance by an outside attorney," he said. "When I found out about it, it was closed.”

However, the paperwork indicates Kelley personally signed the International Wire form setting up that link to the account in Belize City. The account in Belize was opened in the name of a trust.

“Belizean law allows you to put money into a Trust based in Belize and the moment that it goes into the trust it avoids liability from creditors,” explains attorney John Way. He does tax and estate planning in Olympia.

Again, it’s not illegal to move money offshore. But California attorney Jay Adkisson says these days there’s a certain “taint” to it.

“You know the old saying sunny climes are for shady people. There’s a real perception that people are taking stuff offshore they’re not doing it for the good of mankind.”

In a statement Kelley says: “All of my accounting and estate planning decisions ... have been fully compliant with the law. Any assertion or implication to the contrary is simply incorrect.”

In the end, Kelley and Old Republic settled the lawsuit. Kelley paid an undisclosed amount, but admitted no wrongdoing. Old Republic recently offered to reveal the amount of the settlement, but that would require Kelley to agree. He has not.