Updated at 7:57 p.m.
A former official with the Oregon Department of Energy has pleaded guilty to accepting $291,017 in kickbacks in connection with the sale of state energy tax credits, prosecutors said.
Joe Colello, who previously managed tax credit sales for the department, had told The Oregonian/OregonLive that he was under investigation for expediting the sale of tax credits for a private energy consultant and expected to be charged. He pleaded guilty Tuesday afternoon in Marion County Circuit Court to racketeering, receiving bribes, aggravated theft, tax evasion and official misconduct charges.
"I'm dirty," Colello told The Oregonian/OregonLive in an emotional interview Sunday afternoon. "I made mistakes."
According to court documents, Colello accepted cashier's checks on 52 separate occasions from a Seattle-based energy consultant, Martin Shain, who is already under indictment on forgery accusations.
Shain was both a consultant on energy projects and a tax credit broker. Colello, meanwhile, had knowledge that was very valuable to brokers: The list of approved recipients looking to sell their tax credits as well as the buyers in the market for them. That relationship gave Shain an inside track to market his services, complete the sales and earn lucrative commissions.
In June 2012, for example, Shain told the city of Canby that he had placed nearly $30 million in tax credits in the previous two months alone, according to documents obtained by The Oregonian/OregonLive. His marketing materials indicated he would charge 2 percent of the project's cost if he could place a tax credit within 90 days.
Colello's checks from Shain showed up like clockwork, sometimes three times a month, from August 2012 to March of 2015. The payments ranged from $1,000 to $14,130, court documents show.
"We had a verbal agreement. At some point, the money just started showing up," Colello told The Oregonian/OregonLive. He said the checks were delivered in Fedex packages.
Shain was indicted last year on accusations of forging documents to improperly obtain nearly $12 million in energy tax credits to support the construction of solar arrays at Oregon State University and the Oregon Institute of Technology.
State and federal law enforcement agencies launched criminal investigations of the solar project after The Oregonian/OregonLive published a Feb. 27, 2015, report raising questions about the authenticity of the documents and Shain's involvement in gaining the tax credits.
State lawmakers also embarked on a comprehensive review of the Energy Department in December 2015 – in part because of information provided by whistleblowers.
One of those whistleblowers happened to be Colello.
The documents filed Tuesday said Colello was being jointly charged with Shain. Kristina Edmunson, a Justice Department spokeswoman, said she could not provide any additional information.
The court filing did not fully explain the racketeering charge, which typically targets ongoing criminal "enterprises." The filing lists Colello and Shain as members of the enterprise. It also mentions, in passing, Bob Simonton, a key witness in the Shain forgery case.
Simonton, who formerly worked for the Oregon University System and helped coordinate the solar project involving Shain, has not been charged with any wrongdoing.
"I'm working with the Department of Justice and the FBI on it, so I can't comment," Simonton said Tuesday night.
Shain's lawyer, Jim McDermott, said late Tuesday that, "Mr. Shain denies being part of any racketeering enterprise. Mr. Shain also denies bribing any government officials."
Colello's lawyer, Paul Ferder, did not return multiple calls from a reporter.
Colello claimed he was not involved with the solar deal that gave rise to the forgery case against Shain, though several of the theft charges against him name SolarCity, the developer of the university arrays.
In Sunday's interview, Colello was circumspect about the nature of his relationship with Shain, saying it evolved slowly. But he said he helped get deals, facilitated the sale of related energy tax credits, and received checks in exchange.
Colello worked for the Energy Department for about a decade starting in 2006. The next year, he took over management of the agency's pass-through program, where he matched developers and owners of energy projects looking to sell their state tax credits, with deep-pocketed buyers, such as corporations or wealthy individuals. Such sales were allowed at a state-mandated discount rate, providing the seller with cash and the buyer the opportunity to lower their own tax bills.
A corporation, for example, could buy a $1 million credit for 67 cents on the dollar, or $670,000, then use the credit to offset $1 million in state income taxes over five years.
Business energy tax credits became a billion-dollar bonanza after then-Gov. Ted Kulongoski and the Oregon Legislature supersized the state's long-running program. They transformed the credits into golden ducats worth as much as $10 million per project to developers, businesses, government agencies and nonprofits developing renewable energy and conservation projects.
It also caused administrative chaos at the Energy Department. Officials there lacked the technical, financial and administrative expertise to manage the complex and mushrooming program, as agency audits show and agency management has acknowledged. And some applicants took advantage, manipulating the program to maximize their benefit.
Some of those problems cropped up in the pass-through program. Most tax credit recipients elected to sell their credits to third parties at a discounted price mandated by the state. Colello was the gatekeeper in that process. He said in his peak year, he processed some $200 million in tax credit sales.
"Everybody thought I had a drawer full of cash," Colello said, meaning he was perceived as having money to distribute through the tax credit program. "This was a phenomenal means of moving money."
Colello said he got to know Shain in 2009, when the Seattle-based consultant was hired by the Oregon University System to help develop its big solar initiative. The project was touted as an environmental and economic development victory for the state.
Shain was also working with municipalities around the state on projects to reduce energy use, Colello said.
He said Shain wanted to hear his opinions and ideas on the most efficient way to process tax credit sales. Shain eventually included Colello's name on some of his marketing materials, Colello said. Gradually, he said, Shain started talking about working together on renewable energy projects.
The state indicates that Shain's kickbacks to Colello began in August 2012 and kept going till March 2015.
The theft charges filed Tuesday affected municipalities, including Canby and Wilsonville, transit agencies in Salem and Lane County, colleges and private companies.
Shain was indicted last August by a Marion County grand jury on two counts of first-degree forgery. He is accused of creating a phony invoice from a fictional subcontractor and other documentation that was pivotal in securing nearly $12 million in tax credits for the university solar projects.
McDermott, Shain's lawyer, has acknowledged that the documents are forgeries, but says his client did not create them or deliver them to the Department of Energy. In a bizarre twist, Shain's brother, Phil Shain, claimed responsibility for the forgeries this spring.
Martin Shain eventually earned $2.4 million on the $27 million project. He was originally scheduled to go to trial on the forgery charges in April, but state investigators appealed for a delay to continue their investigation.
Colello's admission is surprising because he was a whistleblower for state lawmakers just two years ago. At the time, he complained that agency administrators had begun allowing tax credit recipients to sell the credits through brokers at much steeper discounts than state rules allowed.
"At a certain point, brokers were controlling all the credits," he said. "We were doing it for free, and were 100 percent successful for a long time."
But he claims he felt pressured to give certain projects and brokers preferential treatment and was told not to question the brokered sales. He said the department eventually stopped verifying the tax credit sales prices altogether and, he contends, some of those prices were bogus.
In fact, it was Colello who was giving preferential treatment to Shain's deals.
The Secretary of State's office conducted a limited review of the brokered sales in September 2015 after receiving a hotline complaint about favoritism. It also hired a investigative audit firm to review the entire tax credit program, including the negotiated sales. Neither review substantiated any instances of favoritism to particular brokers. But the reviews didn't validate the tax credit sales prices that were reported to the agency and didn't identify Shain's brokering firm, RC Shain & Associates.
In early 2015, the Energy Department did adopt temporary rules retroactive to July 10, 2012, to allow the negotiated sales at lower prices. The department insisted at the time it was only cleaning up its rules to reflect longstanding practices that its lawyers had already approved. The agency, however, has refused to release an advice memo from the Department of Justice that purportedly approved the process, citing attorney-client privilege.
Many of Colello's assertions were part of the interview he gave last July to private auditors hired to complete a forensic audit of the tax credit program. They eventually issued a highly critical report of the program and Energy Department management.
The Oregonian/OregonLive contacted Colello last week after receiving a tip that he was under investigation and could soon be indicted. He agreed to meet for an interview Sunday afternoon, during which he was alternately agitated by what he considered to be a deeply corrupted program at the Energy Department, and remorseful for his own actions.
In exchange for his guilty plea, Colello agreed to serve five years in prison and three years of supervised probation, and make restitution of $1.3 million to affected tax credit recipients.
"Now I'm not going to be able to watch my kids grow up," he said.
Hillary Borrud, Anna Marum, Elliot Njus, Jeff Manning, Lynne Palombo and Gordon Friedman of The Oregonian/OregonLive contributed to this report.
--Ted Sickinger
503-221-8505; @tedsickinger