Newly filed court documents provide previously undisclosed details about the Oregon Department of Justice’s intense investigation into a botched multimillion-dollar tax credit deal and illustrate the lengths to which state officials have gone to seek answers in the case.

Those records name the subjects of the state’s look into a potentially fraudulent sawmill renovation that relied on more than $12 million in state and federal funds: Ecotrust, a politically connected conglomerate of nonprofit and for-profit companies that boost eco-friendly businesses; JP Morgan Chase bank; and the owners of the defunct Rough & Ready sawmill.

Oregon Attorney General Ellen Rosenblum has assigned two veteran prosecutors to the case: Tim Nord and Brian de Haan, her spokeswoman said. The pair led the investigation of solar panel firm SolarCity and its accountant, Novogradac, which together repaid the state $13 million after the firms submitted false applications to obtain tax credits.

So far, Nord and de Haan, along with investigators and paralegals, have together logged more than 850 hours on the Ecotrust case, according to the Justice Department.

In the new court filing, prosecutors are asking a judge to enforce a subpoena-like document called an “investigative demand” against Ecotrust, which has instructed its accounting firm, also Novogradac, to withhold certain records from investigators.

Ecotrust claims the records are subject to attorney-client privilege. Prosecutors say that is nonsense because the documents represent work by and communication with accountants, not lawyers.

Rough & Ready’s owners hired Novogradac in 2013 and 2014 to draw up financial forecasts for the tax credit arrangements. The mill hired Novogradac again in 2017 to review the tax credit transaction against Internal Revenue Service regulations. Ecotrust hired the accounting firm in 2018 as a consultant.

The investigative demand served to Novogradac demands the company identify its arrangements with Ecotrust, Rough & Ready and Chase; work it performed for those entities and correspondence with them; and the company’s communications about press reports on the tax credits deal. The Oregonian/OregonLive broke the story in February 2018 that Ecotrust had brokered a suspicious tax credit transaction and, in a September 2018 follow-up story, described the potential for investigations.

Michael Kron, special counsel to Attorney General Ellen Rosenblum, said in a statement that the department’s goal in the investigation is “to ascertain whether any party made false claims in order to obtain state tax credits, and, if so, to pursue remedies under Oregon law.”

“We do not often have to resort to court to enforce our investigative demands, but we will do so when necessary,” Kron said. “The information we’re seeking here could shed significant light on the underlying transactions.”

Rosenblum personally ordered the investigation last spring, according to emails obtained by public records request. Her directive came two days after the February 2018 report by The Oregonian/OregonLive raised suspicions about a $3.1 million state tax credit transaction overseen by Ecotrust.

Money from selling the credits – along with a loan from Chase and a $7.8 million federal tax credit outlay – was meant to generate cash to reopen the Rough & Ready mill and create 70 desperately needed jobs in Oregon’s rural Illinois Valley.

Ecotrust benefitted by netting a $520,000 management fee to coordinate the deal. Chase purchased the tax credits at a deep discount and used them to lower the bank’s Oregon and federal tax obligations. The mill’s owners, Jennifer and Link Phillippi, stood to profit from its operations and eventually kept the proceeds from selling the new equipment the taxpayer money helped pay for.

Rough & Ready reopened briefly but closed in less than two years because of a log shortage. The Oregonian/OregonLive’s analysis found the shortage was a foreseeable stumbling block that regulators did not consider before awarding tax credits to the project.

Also troubling was a mammoth one-day Chase loan. The $4.9 million loan was used by the Phillippis to essentially acquire the sawmill from themselves – a violation of regulations that require transactions to be arms-length, state regulators later concluded. The loan inflated the project budget to about twice its true size and led the state to issue tax credits Rough & Ready did not qualify for.

After the project collapsed, officials at the state economic development agency launched an investigation and found the project budget was boosted “unlawfully” and Ecotrust and Chase “improperly benefited” as a result. It moved to claw back the excess credits.

A Chase spokeswoman declined to comment. Nicolo Pinoli, a Novogradac partner who worked with Ecotrust on the sawmill project and whose records investigators wish to examine, did not return a message Thursday.

Novogradac issued a statement noting that it was its client Ecotrust, not its own leaders, that claimed attorney-client protections for its records. The statement said Novogradac respects its client’s right to make those claims while it waits for a court decision.

An Ecotrust spokeswoman said in a statement Wednesday that the outfit “remains confident” the transaction was structured “consistent with the law and the norms” of tax credit investments. “We are cooperating with the state on its investigation,” the statement said, and Ecotrust takes seriously “our privilege to communicate with our lawyers.”

The investigation is a civil matter that may lead to financial penalties, rather than a criminal investigation in which targets face possible indictment.

Rosenblum, the attorney general, ordered investigators to determine if a criminal case should also be opened, public records show. A criminal prosecutor, Elijah Michalowski, logged 48 hours on the case, but a criminal investigation was not opened and the reason is unclear.

Investigators did not write a memo explaining their declination to prosecute, said Andy Foltz, a senior assistant attorney general. Asked to provide documentation showing the Justice Department’s policy for conducting reviews and investigations, Foltz said there was none, but said there may be unwritten policies.

The department also denied a public records request for documents produced during the criminal review, citing attorney-client privilege. Rosenblum did not respond to a request from The Oregonian/OregonLive that she waive the privilege in the interest of transparency.

Rosenblum’s spokeswoman, Kristina Edmunson, left open the possibility that a criminal investigation could begin after the civil investigation ends. “It is common for our civil team to pass information on to our criminal side after an investigation is completed, if appropriate,” Edmunson said.

Federal officials have also scrutinized Ecotrust but found nothing, records show. The U.S. Treasury’s Office of Inspector General began an investigation in July 2018 after a former Ecotrust employee alleged its executives misled tax credit regulators “to personally enrich themselves,” according to a department memorandum obtained by Freedom of Information Act request.

A lawyer for a Treasury agency overseeing tax credit administration, called the CDFI Fund, told the Inspector General’s office that its employees examined Ecotrust’s use of federal tax credits “and have not found any issues of noncompliance,” the memorandum states. The case was closed without further investigation.

The ex-Ecotrust employee also filed a whistleblower retaliation complaint with Oregon’s Bureau of Labor and Industries. An investigation is ongoing, said a bureau spokesman.

After discovering the rule-breaking in acquiring the tax credits in 2018, state officials moved to claw back $1.35 million of Ecotrust’s credits. Ecotrust avoided that move, however, when regulators allowed it to keep the tax credits by investing $3.6 million in a Tualatin office supplies company. Ecotrust projected the deal would create five jobs paying $15 per hour.

-- Gordon R. Friedman

GFriedman@Oregonian.com