Tacoma News Tribune columnist Peter Callaghan moderates the debate between auditor candidates James Watkins, center, and Rep. Troy Kelley, D-Tacoma.

CLE ELUM, Sept. 13.—A down-ticket race for state auditor has suddenly become one of the hottest contests on this year’s ballot, thanks to an astonishing tale publicized by Republican James Watkins. A hard-hitting debate Wednesday sponsored by the Association of Washington Business demonstrated another thing: Democrat Troy Kelley can’t refute it. All he can do is tell his side.

No telling whether it will make any difference to the world beyond the Olympia city limits; all depends on whether Watkins can raise enough money to buy ads on commercial television stations. But at least for dedicated viewers of TVW, the state’s non-commercial public-affairs channel, this one is the must-watch debate of the season. It was an hour of charges and counter-charges, accusations of misconduct, lies, distortion, character assassination and mudslinging — all of it so thick and fast that one spectator said afterward that he could use a good shower. Politics at its best.

The big takeaway from AWB’s Suncadia Policy Summit is this. Kelley, a six-year Democratic member of the state House, can’t deny a point raised by Watkins last week. Kelley and his now-defunct mortgage-closing company, United National, were embroiled in allegations of big-money financial misconduct in lawsuits filed by his insurer and a large title company that used his services. The suits alleged Kelley misappropriated funds when he wired $3.8 million from customer escrow accounts to a bank in Las Vegas and routed it through shell corporations, shielding the money from creditors. Some of the money wound up in Belize, a tax haven that does not recognize judgments issued in U.S. courts. But that’s not to say it was improper. Kelley maintained his company was entitled to the money; the case was settled out of court for undisclosed terms. Kelley was clearly fuming Wednesday as Watkins went over the tale, but it was his call — Kelley chose to settle rather than fight for exoneration.

“Troy is trying to characterize this as, hey, this is minor, in business everybody gets sued,” Watkins told the audience. “Well, I’ve been in business for 30 years, and I have never been sued personally. I’ve never had my wife named as codefendant. …I have never been accused by a former client of misappropriating millions of dollars. I have never hired an asset protection specialist to send money to Las Vegas and offshore to Belize. I have never been accused by my insurance company of illegal acts. These are not accusations I am making against Mr. Kelley. These are documented lawsuits with documented testimony in Mr. Kelley’s own words. This is serious stuff.”

‘Televised Ambush’

The AWB debate was significant because it was the first head-to-head matchup since Watkins dropped the bomb last week. It’s an argument that might click even in a blue-tinted state, if Watkins could get anyone to pay attention. Kelley was a player in the mortgage business, an industry that has been vilified by Democratic interest groups for its role in the 2008 meltdown of financial markets. But it would take TV advertising to put it over, and a race for state auditor is not the kind that normally attracts TV-scale contributions. The two are campaigning for the seat that will be vacated by longtime auditor Brian Sonntag. Kelley, one of three Democrats in the race, squeaked through the primary with the help of a big TV ad buy – but only because he spent $240,000 of his family’s own money on the campaign. Kelley has about $8,000 left, Watkins, $50,000.

Watkins publicized the civil litigation last week during a joint interview on TVW — a “televised ambush,” Kelley called it. Watkins used the interview to announce the launch of a new website, FactCheckTroyKelley.com. More than 700 pages of legal documents are hosted there, outlining three lawsuits over the last 11 years, starting with a rather nasty wrongful termination lawsuit Kelley filed against a former employer in Los Angeles. One document shows that as the final lawsuit was settled last year, Kelley asked that the records be sealed lest they be used against him in a future political race. But the judge refused.

Last week Kelley held a news conference at which he characterized the suits as ordinary business disputes. But all eyes were on him again Wednesday to see how he might face his accuser. What happened was that a furious Kelley lobbed a few attacks of his own, but none of the same gravity.

‘No Judgments at All’

Kelley called the allegations absurd, “all complete utter falsehoods.” All suits have been dismissed, he said, “and there are no judgments at all.” Then Kelley tried turning the tables: He said Watkins had been planning to run an attack campaign from Day One, noting that Watkins and his campaign supporters had purchased Internet domain names that might have been used against other auditor candidates had they emerged from the primary, including FactCheckMarkMiloscia.com and FactCheckCraigPridemore.com.

“Evidently James did not like hearing that I had no bar complaints in my 22 years in the practice of law so he had one of his good friends go file a complaint just the other day,” Kelley said. During the public debate Kelley stated that the complainant is an attorney who is listed as a “Facebook friend” of Watkins, and he went on to detail some rather unsavory information about the man’s background and conduct. “Where the allegations are coming from is just amazing,” Kelley said.

Kelley also said he thinks Watkins is lying about his performance-audit experience — 150 of them as a consultant to government and business. Sonntag has overseen just 53 performance audits during his lengthy tenure in office, Kelley said, and that with a big staff. Kelley said Watkins should disclose audit details and the names of his clients. He told Watkins, “I’ve had no evidence from this discussion that I can be comfortable with the feeling that you have even done one.”

On and On

Actually, that was just the beginning. But to cut it short there, Watkins said he knows nothing about the actions of his Facebook chum. He said his consulting work is more properly characterized as “performance engagements” rather than “performance audits,” meaning shorter-term projects than the ones in which Sonntag’s office is employed, and that he leads audit teams — he doesn’t do it all himself. He said he’s not about to provide details, many of which are covered by non-disclosure agreements.

“I feel a little bit sorry for Troy,” Watkins said afterward. “He has been put in a difficult position having records that he wanted hidden exposed. So he is thrashing out in the way that a politician does. We expected to be attacked and we expected to have the mud thrown at us because he takes things out of context. But that’s all he’s got.”

Kelley complained, “He didn’t answer any of the questions we put up there about performance audits or anything else. I think he [Watkins] has got no other issues.”

During the brief lulls in their combat, the two candidates also discussed their vision for the office.

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