10/23/2014

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KATU Investigators

State alleges racketeering in lawsuit against Oracle for Cover Oregon failure

State alleges racketeering in lawsuit against Oracle for Cover Oregon failure

PORTLAND, Ore. - The state has accused Oracle of racketeering - among other things - in a lawsuit it filed Friday over the Cover Oregon fiasco.

Oregon Attorney General Ellen Rosenblum announced the state is suing Oracle and some of its executives for the failure of Cover Oregon’s $250 million website.

"Over the last three years, Oracle has presented the state and Cover Oregon with some $240,280,008 in false claims," the complaint reads. "Oracle's conduct amounts to a pattern of racketeering activity that has cost the state and Cover Oregon hundreds of millions of dollars."

The lawsuit, filed in Marion County Circuit Court, alleges fraud, false claims and breach of contract, and evokes the Oregon Racketeer Influenced and Corrupt Organizations (RICO) act.

It appears to ask for billions in relief, claiming "the cost of Oracle's lies and appalling work is extraordinary."

The On Your Side Investigators asked Rosenblum's office for an exact total Friday afternoon, but a spokesperson said they would have to work on calcuating it.

“Oracle … fraudulently induced the state and the Oregon Health Insurance Exchange Corporation  to enter into contracts for the purchase of hundreds of millions of dollars of Oracle products and services that failed to perform as promised,” the complaint reads.

“Oracle then repeatedly breached those contracts by failing to deliver on its obligations, overcharging for poorly trained Oracle personnel to provide incompetent work, hiding from the State the true extent of Oracle's shoddy performance, continuing to promise what it could not deliver, and willfully refusing to honor its warranty to fix its errors without charge.”

The suit comes just over two months before Gov. John Kitzhaber's re-election bid. In January, Kitzhaber told KATU News that he wasn't aware of any problems with the website until the end of October - nearly a month after the site failed to launch.

"The complaint filed contains serious new allegations of fraud, deceit, and corruption by Oracle," Kitzhaber said in a statement Friday. "The details of the complaint, including the admissions of former Oracle employees, are appalling to me."

The state claims Oracle lied about its ability to deliver an "out of the box" solution, which was supposed to make it easy to build the state exchange from scratch. It said that instead, one formal Oracle employee said the solution "literally garbage" that was seemingly configured by "a kindergartner."

"Not only were Oracle's claims lies, Oracle's work was abysmal," the complaint reads. "One developer experienced in Oracle products called Oracle's programming 'atrocious."

It also claims Oracle was "dead set" against hiring an independent Systems Integrator, whose job would have been to manage the project for the state.

"According to a former Oracle employee, Oracle advanced a 'planned ... behind-the-scenes effort' to convince the state “that a Systems Integrator would just cause ... delay," the complaint reads. "The former employee explained that 'the message was we’ve got to make sure that (the State) doesn’t bring (a Systems Integrator) in because it’s ... just going to cause us trouble.'"

Also named in the lawsuit are Mythics - a company that consults, distributes and resells for Oracle - and executives Steve Bartolo, Thomas Budnar, Kevin Curry, Safra Catz, Brian Kim and Ravi Puri.

The complaint also alleges that Brian Kim, an Oracle technical engineer, gave a demonstration in June 2013 to the Cover Oregon board of directors that falsely represented how far along the project was.

"Kim’s demonstration was designed to create and did create the impression that core elements of the HIX were functional and nearly complete," the complaint reads. "But the core elements of the HIX, as Oracle knew, were not functional and were not nearly complete.

"Kim’s demonstration was false. ... Kim knew or recklessly disregarded that the core functionalities he was demonstrating were not complete and were not in a state of completion that would allow them to launch in October."

It's not the first accusation of bogus presentations in Cover Oregon history. Earlier this year, former state Rep. Patrick Sheehan told the On Your Side Investigators that he'd gone to the FBI with allegations that project managers initiated the design of dummy web pages to convince the federal government the project was further along than it actually was.

It's also not the first legal action for the state exchange. Earlier this month, Oracle sued the state for a disputed $23 million in legal bills, plus interest.

And in April, former Oregon Health Authority CIO Carolyn Lawson filed a "tort claim notice" giving notice that she was considering suing the state and several state employees for statements they made about her and for wrongful discharge.

Lawson claimed the state was looking for a scapegoat, and that she was told it would be her if she didn't play ball.

“Somebody has to be held to blame for this,” she claims she was told by OHA spokesperson Patty Wentz. “It’s going to be (former Cover Oregon director Rocky King), or it’s going to be Oracle, or it’s going to be you. We want it to be Oracle, but it can be you if you want.”

A grand jury was convened in June to consider whether there was any criminal wrongdoing in the building of the site, and the federal Government Accountability Office launched its own investigation in March.

Oracle released a statement to the On Your Side Investigators on Friday.

“The lawsuit filed today against Oracle by the Attorney General of Oregon is a desperate attempt to deflect blame from Cover Oregon and the Governor for their failures to manage a complex IT project,” it reads. “The complaint is a fictional account of the Oregon Healthcare Project.  Oracle is confident that the truth - and Oracle - will prevail in this action and the one filed by Oracle against Cover Oregon two weeks ago in federal court.”

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