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Hearing underway for indicted Washington auditor Troy Kelley

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Washington State Auditor Troy Kelley (Q13 FOX photo)

TACOMA, Wash. (AP) _ A federal prosecutor says $908,000 seized from indicted Washington state Auditor Troy Kelley constituted stolen funds that were directly traceable to money laundering and should not be returned.

The assertion Tuesday by Assistant U.S. Attorney Richard Cohen came during his opening statement at a two-day hearing to consider whether the money was properly seized by federal authorities investigating Kelley.Defense attorney Angelo Calfo countered in his opening statement that the disputed money was part of a contract dispute, and prosecutors don’t have a viable theory to support their case.

Federal prosecutors in September obtained a civil warrant for the money, which was being held in trust by the law firm that previously represented Kelley.

The government says the money had been commingled with money that Kelley stole from clients of his former real estate services business.