This story has been updated
Calling former Washington State Auditor Troy Kelley a "patriot," but also someone who took actions that "were wrong and were criminal," a U.S. District Court judge on Friday sentenced him to one year and one day in prison and one year of supervised release.
The sentence, handed down by U.S. District Judge Ronald Leighton in Tacoma, was significantly less than the 87 months federal prosecutors had requested, but harsher than the five years probation and six months of home detention the defense had requested.
“I stand before you today as a father and as a husband and as a man whose life has been torn to pieces for everyone to see," Kelley told the judge prior to the sentence being issued. “I want to go back to work, I want to try to help provide for my family, I want to look to the future." He added that he would never "do anything to make myself vulnerable like this again."
Kelley has maintained his innocence throughout two trials. His first trial, in 2016, ended with a deadlocked jury, except for an acquittal on charges that Kelley made false statements to the Internal Revenue Service.
Prior to issuing his sentence, Leighton challenged defense attorney Angelo Calfo's characterization of Kelley's actions as "more of a contract breach than a theft."
“Troy Kelley knew what he did was wrong," Leighton countered. "He knew what he was doing was illegal, his actions to hide his actions speaks volumes of his intent and ... there has been no humility."
Kelley, a Democrat, was convicted in December 2017, following his second trial, of possession of stolen funds, making false declarations and filing false tax returns. He was acquitted of five money laundering charges and a conviction for tax obstruction was later dismissed.
The case against Kelley stemmed from his work in the real estate services industry during the pre-Great Recession bubble prior to his election as state auditor in 2012.
During the nearly two hour sentencing hearing, Leighton said he was focused primarily on the possession of stolen funds, as opposed to the tax evasion or false declarations.
“Mr. Kelley would not have ever been sentenced to jail time for the tax evasion," Leighton said. "The scheme to promise refunds, not performing that task and hiding that fact, is what’s in my mind gonna determine the sentence.”
From the early-to-late 2000s, Kelley ran a small real estate services firm called the Post Closing Department that tracked property closings to ensure that banks cleared their lien after a loan was paid off. This is known as a reconveyance.
Kelley's clients were title and escrow firms. They would collect a reconveyance fee of between $100 and $150 at closings and then forward that fee to Kelley's company.
According to federal prosecutors, Kelley was entitled to retain a $15 to $20 tracking fee, but was obligated to refund the remaining funds to borrowers if they weren't needed to complete the reconveyance. In most cases, the banks cleared their interest in a property without the Post Closing Department having to intervene.
But prosecutors said Kelley often retained the entire fee unless customers complained, in which case he would issue a refund.
Kelley's defense argued that home sellers agreed to pay the fees and got a service in return, and therefore no theft or possession of stolen money occurred.
"The borrowers were not harmed because they received a service in exchange for the money that was paid," Calfo said at the sentencing.
Kelley, who did not testify at his trials, also maintained he was entitled to keep the fees and that his conduct was consistent with industry practices at the time.
In making the case for leniency, Calfo sketched a portrait of Kelley as a "dedicated" husband and father, member of the National Guard and "civic-minded" member of the community.
“I just think the need for a harsh sentence doesn’t exist,” Calfo told the judge.
Prosecutors countered that Kelley engaged in a fraud and cover-up that spanned a decade and involved more than 10,000 borrowers who did not get refunds they were owed. Assistant U.S. Attorney Andrew Friedman also argued that Kelley's background—as an attorney, former Securities and Exchange Commission employee and tax expert—made him more accountable for his actions.
"Mr. Kelley understood the meaning of the rule of law and his decisions to violate that, to lie, to steal, to cover up is more serious because of that," Friedman said.
Friedman accused Kelley of a "stunning lack of acceptance of responsibility" and said Kelley had used some of the funds that should have been refunded to homeowners to finance his 2012 campaign for state auditor.
"It's hard to think of anything more appalling," Friedman said.
Prior to issuing his sentence, Leighton called it "a sad and tragic day" and said "this was in one sense a crime of small consequences." But Leighton also said of Kelley, “I think he wanted money, he found a vehicle to acquire wealth and what he did was known by him to be wrong."
In addressing the court, Kelley called the sentencing a "dark day for me and my family" and invoked his wife and teenage sons. "I cannot understate the wreckage and devastation to our lives...I wish I never ran for office, I wish I never owned a small business."
Kelley left office in January 2017 after serving a single term and not running for re-election. On Friday, he told the judge he has resigned his position with the Washington National Guard after a 28 year career in the Guard and Army Reserve and surrendered his licenses to sell insurance and practice real estate. He also said that as he walked into the courthouse for sentencing, the Washington State Bar Association served him with papers seeking to strip him of law license.
"No successful appeal will ever put my life back together," Kelley told the judge.
After the sentencing, Friedman said the case sends a message.
"It's important that people who steal money, even in small amounts, one consumer at a time, but in large amounts in aggregate be held accountable for that," Friedman said. "And it's particularly important when they're lawyers, when they're people in positions of trust, when they're public officials.
Calfo reiterated to reporters his belief that the case never should have been brought in the first place.
"They spent millions of dollars, they had literally a dozen federal agents, they went through every aspect of his life and they come up with a set of charges that, frankly, are really difficult to differentiate from what one would see in a civil lawsuit," Calfo said.
In sentencing Kelley, the judge rejected the government's request that he forfeit $1.4 million, the amount the prosecution said reflected the amount of stolen money Kelley possessed. However, a restitution hearing is scheduled for September 21.
After the sentencing, Kelley was allowed to leave the courthouse with his wife and supporters. It's not clear when he will begin serving his sentence. The defense said Friday that Kelley plans to appeal his convictions and may seek bail, in lieu of prison, pending that appeal.