In the spring of 2008, when future Washington State Auditor Troy Kelley was in the process of closing down his real estate services business, he instructed his operations manager to falsify client spreadsheets and “get rid” of records. That was the testimony Thursday from Jason JeRue, a highly anticipated witness in Kelley’s money laundering and tax evasion trial.
“He just said dump them,” JeRue said of the paper records he possessed from the Post Closing Department. “I dumped them.”
JeRue also testified that Kelley told him to “zero out” client spreadsheets to make it look like the company wasn’t sitting on large sums of homeowner fees. That wasn’t the first time Kelley had told him to doctor spreadsheets, according to JeRue.
JeRue’s testimony came at the end of the third week of Kelley’s federal trial on charges that he pocketed more than $3 million in fees that should have been refunded to homeowners and then failed to properly pay taxes on the money. Approximately $1.4 million of those fees are at issue in the trial.
JeRue testified that as a matter of practice Kelley’s Post Closing Department didn’t regularly issue refunds to escrow company customers. But JeRue said that on a couple of occasions Kelley phoned him—one time sounding “distressed”—and instructed JeRue to find some refunds that were owed and use the Post Closing checks he had on hand to issue them. JeRue recalled that on each of those occasions he issued a dozen or so refunds.
“Did [Kelley] ever provide you enough checks to [refund] all of [the] customers?” Assistant U.S. Attorney Andrew Friedman asked.
“No,” JeRue answered.
In 2007, JeRue said an official at Old Republic Title started asking questions about refunds.
“She was kind of haranguing us … with a battery of questions and inquiries,” JeRue testified. In order to “put out a fire with a new customer,” JeRue said that Kelley instructed him to alter a spreadsheet for the Old Republic account to make it look like the homeowner fees had been spent to pay third-party trustees.
Prosecutors projected the spreadsheet in question onto video monitors in the courtroom for the jury to see and then had JeRue explain, sometimes in painstaking detail, the rows and columns and how he allegedly manipulated the data. At times, the testimony felt more like a class on how to use Excel than proceedings in a white collar criminal trial.
As JeRue testified, Kelley sat forward in his seat listening intently and taking notes on a yellow legal pad. Occasionally, he would scribble something on a neon pink sticky note and hand it to his attorneys.
Up-front fees
During the heyday of the pre-recession real estate bubble, the Post Closing Department contracted with escrow companies like Old Republic and Fidelity National Title to track reconveyances. A reconveyance is when a bank clears its interest in a property after a loan is paid off and the deed of trust to the property is returned to the owner. If the reconveyance isn’t properly recorded it can create a cloud on title situation.
In Washington state, Kelley’s clients would typically collect $100 to $150 from homeowners at closing and forward that money to the Post Closing Department. Prosecutors maintain Kelley was entitled to keep a $15 to $20 flat reconveyance tracking fee, but was obligated to refund the remaining money if it wasn’t needed to pay third-party trustee and county recording fees. Prosecutors say most of the time the fees weren’t needed.
Kelley’s defense team counters that there was no contractual or legal obligation to refund the money and that Post Closing performed an array of services for clients while incurring significant legal liability.
High-profile witness
JeRue’s testimony drew a larger than usual crowd to the cramped courtroom spectator gallery in the federal courthouse in Tacoma. Among those in attendance for a portion of the testimony was Frank Montoya Jr., the special agent in charge of the FBI’s Seattle office.
Seated in the front row of the gallery was former State Auditor Brian Sonntag, who has attended the trial off and on since it began.
JeRue has been the subject of intrigue for the past year since his name surfaced in connection with a federal subpoena issued to the State Auditor’s office in March 2015. After Kelley was elected auditor he hired JeRue to work for the Auditor’s office part-time from California.
JeRue’s appearance on the witness stand was the first time he’d been seen or heard from publicly since the 2015 subpoena. JeRue, 47, is stocky with glasses and a Balbo beard. On the stand Thursday, his second and final day of testimony, he wore a pink open-collared dress shirt and seemed to get more comfortable after initially appearing visibly nervous.
‘It’s gonna get hairy’
JeRue testified that after a series of class action lawsuits were filed against the title and escrow industry in Washington in the spring of 2008 over reconveyance fees, Kelley called him sounding “a little panicked.” Kelley and his company weren’t named in those lawsuits, but some of the defendants were his clients.
“He said, ‘it’s gonna get hairy,’ and that he didn’t want to get wrapped up in it, basically, and he’s going to tell me to sort of prepare to roll things up and shut things down,” JeRue testified. Shortly after the lawsuits were filed Kelley did shut down his Washington operations, but continued to operate in Oregon.
At one point during his testimony, JeRue confirmed a visit he and Kelley paid during this same time period to the Everett home of a former Post Closing Department employee named Dee Lamb. JeRue said that Kelley asked him to meet at Lamb’s home to collect files and delete company materials off of her computer.
“Troy and I huffed a bunch of boxes into his SUV and I was asked to go and delete Post Closing Department folders and files from her computer,” JeRue said. Some of the boxes also ended up with JeRue. Later he said he asked Kelley what to do with the boxes.
“He just said dump them,” said JeRue. “I dumped them.” JeRue said Kelley also told him “to get rid of” his electronic files.
In previous court filings, Kelley has said the visit to Lamb’s home was entirely appropriate and that it would have been irresponsible to leave work files with a former employee.
Kelley later said many of his work files were lost in a June 2008 fire at Stewart Title in Everett where the Post Closing Department had kept an office. Kelley’s inability to provide paper or electronic records related to his business became an issue in a 2010 lawsuit filed against him by Old Republic Title. Kelley ultimately settled that lawsuit for more than $1 million, but with no admission of wrongdoing.
JeRue’s credibility questioned
On cross-examination, Kelley’s defense sought to cast doubt on the authenticity of the spreadsheet that JeRue said he had falsified at Kelley’s direction in 2007. Defense attorney Patty Eakes noted that prosecutors obtained the spreadsheet from the attorney for Old Republic who had sued Kelley, but that no emails existed to prove where the spreadsheet originated from.
Eakes also sought to undermine JeRue’s credibility as a witness, noting that he was testifying under immunity from prosecution.
Eakes displayed for the jury a declaration that JeRue had signed under penalty of perjury in 2010 in connection with the Old Republic Title lawsuit. The declaration described his duties at Post Closing Department.
“This declaration doesn’t say anything about you purportedly doing false spreadsheets at Kelley’s behest,” defense attorney Patty Eakes said. “Nothing about improper accounting ... [or] Mr. Kelley engaging in unethical or improper behavior?”
“No,” JeRue agreed.
JeRue testified that Kelley’s attorney at the time drafted the declaration and that he signed it under pressure from her while on vacation.
“You signed under oath, is that right, signed under penalty of perjury?” Eakes pressed.
“Under the circumstances, I trusted Troy and the attorney that I wasn’t signing my soul over to Satan, and after skimming it I felt I could sign it,” JeRue responded.
“You believed it was accurate at the time you signed it?” Eakes followed up.
“Yes,” JeRue agreed.
Eakes also sought to show inconsistencies between what JeRue had told federal investigators, his testimony before the grand jury and his testimony before jurors at the trial.
“I’m just trying to make sure the jury is clear about what you’re claiming today,” Eakes said.
Eakes referred JeRue to notes from an interview he had in 2014 with federal agents. “Nowhere in this memo [did you say] that Mr. Kelley had asked you to alter or doctor any spreadsheets?” Eakes noted.
“Correct,” JeRue replied.
“Or that he had called you in a panic to issue refund checks?” she followed up.
“Correct,” he answered.
So what changed? Eakes suggested that it was the toll the federal investigation took on JeRue’s family and his fear that he could face criminal charges himself.
“Yeah, I was afraid of that,” JeRue acknowledged.
The feds had questioned JeRue about whether he paid taxes on severance money Kelley paid him in 2011 and 2012. But they also asked him about the 2008 fire at Stewart Title in Everett that Kelley had said destroyed Post Closing’s remaining records. The fire had been ruled accidental, but Eakes elicited from JeRue that he felt the agents were implying that he might have set the fire.
“That was a concern of mine,” JeRue said.
A startling moment came toward the end of Eakes’ cross-examination of JeRue when she brought up an extramarital affair he had with his wife’s OB-GYN.
“I really wish we didn’t have to go into my personal affairs and my family that I’m trying to keep together and my little son,” JeRue protested. Eakes suggested that JeRue had not been completely honest with federal investigators about the affair and questioned whether he had violated state and federal law when he picked up a fraudulent prescription from a pharmacy.
“First of all, no, I didn’t lie to them and number two … it’s very private and involves my family and my son,” an obviously upset JeRue said.
Prosecutors had tried unsuccessfully to get the judge, Ronald Leighton, to block that line of questioning.
A patron, not a saint
The relationship between JeRue and Kelley dates back to the late 1990s when both were working for First American Title in Los Angeles.
As JeRue testified, a portrait emerged of Kelley as a tightfisted patron to the English major college dropout with a knack for computers.
At First American, Kelley was a lawyer for the company and JeRue was in information technology. When Kelley was named to head a division of the company, JeRue said Kelley brought him on board to work in that new division.
Later, both Kelley and JeRue sued First American for wrongful termination and their lawsuits were joined. Coincidentally, both men ended up in Washington state and, in 2005, Kelley hired JeRue to work for the Post Closing Department.
JeRue said it wasn’t his dream job, but he needed the work. He recalled that when he asked what the job paid, Kelley said something to the effect of, “’It’s going to start off a little low, don’t worry, see if you like it and we’ll take it from there.’” The starting pay, JeRue said, was $12 an hour.
A couple of years later, JeRue was making $45,000 a year. He and his wife were ready to have a baby and he wanted some reassurance that the job was stable. JeRue recalled that he and Kelley went to lunch.
“He told me absolutely things are great, go have that baby, he was really happy for me,” JeRue said.
JeRue also testified that Kelley assured him that if something did happen, he would pay JeRue a year’s salary as severance.
Out of a job
After Kelley shuttered his business in Washington in 2008, he kept JeRue on the payroll working for a sister company, Attorney Trustee Services, in Oregon. But by 2009 JeRue was out of a job and he and his wife were expecting their first child. JeRue said when he asked Kelley about his severance, he got a different answer.
“He said, ‘things are way too crazy right now,’ and that I would have to go on unemployment and that he would try to make things right with the severance pay later at a different time,” JeRue testified.
When JeRue’s unemployment ran out in 2011, he approached Kelley again about severance. This time, JeRue said, he met Kelley and his wife and kids at a café in Issaquah where Kelley gave him an envelope containing a check for $9,980.
“He said that it … could be considered a gift that I wouldn’t have to pay taxes on it,” JeRue testified explaining why the amount was just under $10,000.
By the following year JeRue and his wife had moved with their baby back to California. Their marriage was in trouble and money was so tight they were living with his mother and stepfather.
“I called Troy and things were pretty bad for me at that point personally,” JeRue said. “He eventually agreed to send me another check.” JeRue requested that check be made out to his mother so he could access the money without consulting his wife.
Hired by the auditor
JeRue said the next time he spoke with Kelley was after Kelley had been elected state auditor in November 2012.
“He asked me if once he gets settled in there if I would be interested in working in some kind of technical writing, IT capacity,” JeRue said.
In early 2013, JeRue joined the auditor’s office working part time from home in California.
“I walked into a very rocky reception there,” JeRue testified. But soon things smoothed out. He was reassigned to work directly for Kelley’s former campaign manager who had been hired as director of external relations for the office.
One of JeRue’s first jobs was to scout the websites of other state auditors around the country with an eye toward improving the Washington State Auditor’s website. He was paid $22 an hour and as time passed his part-time hours increased from two to four a day. However, that job abruptly ended in March 2015 after news of the federal investigation into Kelley’s business practices broke.
The Washington Attorney General’s office has an ongoing inquiry into whether Kelley’s hiring of JeRue violated any state laws or policies. Eakes, in her cross-examination, sought to establish that JeRue’s job with the State Auditor’s office was legitimate.
“No padding of hours or fake work?” Eakes asked.
“No, no,” JeRue said.
Under questioning by prosecutors, JeRue had said he didn’t want to testify against Kelley, but was compelled to by subpoena.
When his testimony was over and the judge dismissed him, JeRue let out an audible sigh of relief. He quickly left the courtroom under the escort of his attorney.
Copyright 2016 Northwest News Network
