TACOMA, Wash. (AP) - Washington State Auditor Troy Kelley, the elected official charged with rooting out government fraud and waste, pleaded not guilty Thursday after a federal grand jury indictment charged him with filing false tax returns, attempted obstruction of a civil lawsuit and possession of more than $1 million in stolen property related to his former business.
The 41-page indictment, unsealed earlier in the day, alleged various misdeeds by Kelley in connection with mortgage title services companies he previously ran. Federal prosecutors said he kept more than $1 million that should have been refunded to customers and that he unlawfully avoided paying taxes by claiming personal or campaign expenses were business-related.
"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," acting U.S. Attorney Annette L. Hayes said.
Kelley was flanked by his attorneys as he appeared Thursday afternoon for his arraignment at U.S. District Court in Tacoma. A magistrate judge set trial for June 8.
The most serious charge carries up to 20 years in prison. A felony conviction would automatically force him from office, and some lawmakers spoke about the possibility of impeaching him in light of the charges alone.
In a statement, Kelley said he was disappointed by the indictment and that he would take a temporary leave of absence beginning May 1, but that he was "determined to fight back."
"For the past few years, I have been the subject of an intense investigation by the federal government about my private business practices going back more than 10 years," he said. "In the end, they've been able to obtain an indictment, but they are a long way from proving any wrongdoing. Put more directly, I am very confident that I will be able to prove my innocence."
Washington Gov. Jay Inslee called on Kelley to resign, as did Attorney General Bob Ferguson and state Sen. Mark Miloscia, a Federal Way Republican who ran against Kelley for auditor.