Attorney General to investigate indicted Washington auditor, separate from federal probe

Washington's attorney general said Tuesday he is opening a criminal investigation into state Auditor Troy Kelley, separate from the federal tax evasion and other charges he already faces.

The investigation by Attorney General Bob Ferguson is expected to focus on the relationship between Kelley and a former part-time worker at the auditor's office, Jason JeRue, who has longstanding ties to Kelley.

Kelley, who is on unpaid leave, was indicted in April on charges that he ducked taxes and kept more than $1 million in money that he should have refunded to clients of his former real-estate-services business. JeRue worked for Kelley at that business, and after Kelley was elected auditor in 2012, he hired JeRue to work part-time from home in California.

JeRue took a leave of absence after news of the federal investigation broke. He has since been dismissed from the agency.

Kelley, a Democrat, began a leave of absence in May, weeks after his indictment on 10 counts alleging he stole from one-time business clients, avoided taxes and lied during a deposition in a civil case.

At a news conference, Ferguson said Gov. Jay Inslee asked his office to conduct the state investigation into Kelley's office, specifically about JeRue's hiring and employment.

Lawmakers from both parties and Inslee have said the leave of absence is not good enough. They want Kelley to resign.

Ferguson declined to answer any questions about what might possibly have constituted criminal activity related to JeRue's employment, or even about laws his office would be considering as the investigation goes forward.

"I'm not going to speculate," he said. "We've been asked to do an investigation. We're going to do that investigation."

Kelley has pleaded not guilty to the federal charges, saying at a news conference following his arraignment in April: "''I did not break the law."

Kelley's company, Post Closing Department, worked with escrow and mortgage title companies to track certain real estate transactions. According to the federal indictment, it was supposed to collect up to $150 in advance as a fee for each transaction; keep $15 to $20 for its services; pay any government fees required; and then refund whatever portion remained. Instead, Kelley kept the money, the indictment said — an amount that totaled at least $3 million from 2006 to 2008.

One of the escrow companies Kelley worked with, Old Republic Title, sued him in 2009. He eventually paid more than $1 million to settle the case.