Lawyer: State Auditor Claim That Records Don't Exist ‘Laughably Absurd’

Before Troy Kelley became the state official most responsible for sniffing out government fraud and waste, he was a state representative.

And like most legislators in Olympia, he had other work.

Now, the Democrat from Tacoma is being investigated by federal prosecutors for his past business practices in the real-estate sector.

Kelley has not been charged with any crime, and he has issued a statement saying he's done nothing wrong.

We don’t know what exactly the Justice and Treasury Departments are investigating.

But determining whether Kelley’s business broke any laws could be difficult, since his records concerning millions in disputed fees are missing.

KUOW's John Ryan reports.

TRANSCRIPT

The Stewart Title Building in downtown Everett was destroyed by a fire in June 2008. Kelley has said the fire also consumed his business records.

Kelley's business was based in Tacoma.

But an employee of Kelley's had been working in the building next door to Stewart Title in downtown Everett.

Kelley's firm did a lot of work for Stewart Title.

Kelley said his business stored records and a laptop inside the building that burned down.

[KOMO NEWS ARCHIVE]: "Molly, there's not much left of the Stewart Title Office Building here in Everett. In fact, fire investigators told me a short time ago, this building is too unstable to go inside, and that has a lot of folks wondering what happened to all those important documents."

A couple years later, what happened to important documents that might have been lost in that fire was still a big question.

You could call it the $3.8 million question.

That's the amount in loan fees that homeowners and three title companies said Troy Kelley had kept instead of refunding as required.

So a group of homeowners subpoenaed Kelley's business records. Kelley's lawyer said, sorry, they were all destroyed in that fire.

A title company called Old Republic tried to get the records from Kelley, too.

Here's Old Republic's attorney, Scott Smith, questioning Troy Kelley under oath in a deposition in 2010.

Smith wants to find out what happened to Kelley's records, including a key spreadsheet showing all the disputed loan fees.

Smith: "Weren't you claiming almost immediately after the fire that you lost all of your records from your business?"

Kelley: "Most of my records were lost in the fire, correct."

Smith: "But the spreadsheet, which is a pretty critical piece of evidence, was something that may have been in paper form and may have been posted on the Web, but isn't it true that it was also on your computer and the computers used by several of your employees?"

Kelley: "I did do uploading from my computer, occasionally. I did not save a file all the time; sometimes I did. So it may or may not have been on there. I don't think it was anywhere else. Certainly wasn't on numerous computers all over the state of Washington like you're stating."

The company whose entire building was destroyed in that fire said it didn't lose any records.

Stewart Title put out a press release the next day assuring homeowners that their real-estate records were safe.

Here's what Carl Jorgenson with Stewart Title told KOMO-TV:

Jorgenson: "Those legal documents? No, they have not been lost. We lost no data. We back up everything virtually on the minute as it's put in our system."

The building next door, where Kelley's employee had been working, suffered smoke damage but little more.

And that employee testified that Kelley had shut down his Everett office a few weeks before the fire.

During his eight-hour-long deposition, Kelley explained why the records he was required to produce under a subpoena were gone from each different place they used to be.

The laptop in the Everett office, he said was glitchy, and he'd given it to Goodwill, no receipt.

Kelley said he had shut down his whole business after losing one of his biggest customers.

So he no longer had his website, Yahoo emails, or any online records showing what happened to the millions in contested fees.

Smith: "That's what made the claim so unbelievable."

Here's Scott Smith.

Smith: "It wasn't just papers being destroyed, burned up in a fire up in Everett. But the obvious follow up question is, what about electronic copies? What about things in the cloud? It was laughably absurd."

Troy Kelley declined to speak to KUOW for this story last week.

He did ask his executive assistant to make sure I'd seen the fire marshal's report.

Local and federal fire investigators could not pinpoint the cause of the fire.

But they said they found no evidence of arson.

Before the federal judge could get to the bottom of what happened to all those missing records, Kelley and Old Republic Title reached an out-of-court settlement.

Kelley paid an undisclosed amount to settle the claim that he had taken more than a million dollars in fees that weren't his.

The dispute became an issue during Kelley's campaign for state auditor in 2012.

Old Republic offered to make the terms of the settlement public then, but Kelley declined.