A related project to modernize functions for social services also was scrapped. The state paid Oracle $240 million for both projects.
"Today's lawsuit clearly explains how egregiously Oracle has disserved Oregonians and our state agencies," Attorney General Ellen Rosenblum, a Democrat, said in a statement. "Over the course of our investigation, it became abundantly clear that Oracle repeatedly lied and defrauded the state."
In addition to the company, the state's lawsuit individually names six executives, including Oracle Corp. President and Chief Financial Officer Safra Catz, and Mythics Inc., which acted as a middleman between Oracle and the state in early stages of the project.
The state is seeking damages as high as $240 million and penalties as high as $480 million for each allegation of wrongdoing. The state could collect damages only once but a judge could impose multiple penalties against multiple parties, said Kristina Edmunson, a spokeswoman for the attorney general.
In a statement, Oracle called the lawsuit "a desperate attempt to deflect blame from Cover Oregon and the governor for their failures to manage a complex IT project."
"The complaint is a fictional account of the Oregon health care project," the company's statement said. "Oracle is confident that the truth and Oracle will prevail in this action."
Oracle filed its own lawsuit Aug. 8 in federal court alleging breach of contract and seeking payment of more than $23 million in disputed bills. The Redwood City, California, company blames Oregon for the website's failure, saying the state had incompetent and indecisive staff.
Oracle also faults Oregon's decision not to hire a systems integrator, which acts as a sort of general contractor to integrate various technology components. The state's lawsuit says it was Oracle employees who persuaded the state to forego hiring a systems integrator. Oracle provided project managers and maintained control over the technical development, the state says.
The suit alleges that Oracle employees lied about the capabilities of their software components as early as 2009, when the state first put out word that it was seeking a vendor to modernize the Department of Human Services computer systems. Sales staff said Oracle software could perform 95 percent of state's requirements with minimal coding, but it in fact required substantial customization.
The lawsuit alleges that an employee falsified a demonstration of the website's capabilities for the Cover Oregon board more than three months before the website was supposed to launch. Oracle officials continually lied about progress on the site as recently as February, the lawsuit alleges.
Oracle presented false bills to the state, seeking payment for work that employees were doing for other states, the lawsuit alleges.
The lawsuit relies in part on statements from at least one former Oracle employee who is not named.
"Today, after months of investigation, the attorney general's findings go well beyond disappointing and incomplete work," Kitzhaber said in a statement. "The complaint filed contains serious new allegations of fraud, deceit, and corruption by Oracle."
Despite the exchange's technology woes, about 454,500 Oregonians have enrolled in coverage through Cover Oregon using the hybrid process. An estimated 97,000 of those enrolled in private health plans, while about 357,500 enrolled in the Oregon Health Plan, the state's version of Medicaid.
The state decided to stop building the Oracle website earlier this year and transitioned to the federally run enrollment website.
The FBI and the federal Government Accountability Office are also investigating Oregon's exchange problems.