Marion County Sheriff via AP

Krystle Marie Reyes, 25, is accused of tax evasion, theft, computer crime and methamphetamine possession.

PORTLAND, Ore. -- An Oregon woman was charged Wednesday with duping the state into giving her a $2.1 million tax refund that allowed her to go on a short-lived spending spree — an alleged scam that has prompted embarrassed state revenue officials to review how they process tax returns.

Krystle Reyes, 25, of Salem, filed an electronic return in January via Turbo Tax, reporting erroneous earnings of $3 million, authorities said. Her request for a $2.1 million refund was initially red-flagged by an automated system, but a subsequent manual review by Oregon revenue department workers OK'd the refund. Turbo Tax then loaded the full amount onto a debit card for Reyes.

Authorities say she spent $150,000 of the funds before reporting the card lost or stolen, at which point the ruse was discovered. The state has recovered roughly $1.9 million of the funds.

Reyes was arrested June 6, and now faces eight felony charges. In addition to tax evasion and theft charges, she is accused of computer crime and methamphetamine possession. She is scheduled to be arraigned on July 5.

Attempts by The Associated Press to reach Reyes, who is no longer in custody, have been unsuccessful and it was not clear if she has an attorney. Officials also have not released the allegedly falsified tax return because of confidentiality laws pertaining to tax matters.

Andrew Campbell, a senior assistant attorney general who filed the charges, has not responded to AP's requests for interviews.

A list of what Reyes purchased during the spending spree has not been provided, but police said video surveillance showed her swiping the debit card at various stores in the Salem area. Despite being a millionaire for a few months, Reyes paid $2,000 cash to buy a 1999 Dodge Caravan, the vehicle she had been seen driving in the month before her arrest.

'Human error'
The Revenue Department, which processes $7 billion in tax returns, is understaffed because of budget cuts and has an old computer system. But agency spokesman Derrick Gasperini said neither of those issues was to blame for what he described as a "human error."

The agency plans to release more details about its apparent blunder in the coming days, and how it plans to prevent a recurrence. There has been no evidence linking Reyes to anyone inside the agency, but officials want to make sure its internal controls limit the possibility of collusion.

"Catching this one, we all are concerned — here at the agency as well as the public — about 'is this part of a larger scheme, and who's involved in that larger scheme and does it involve anyone inside our walls?" Gasperini said.

State Sen. Ginny Burdick, D-Portland, the chairwoman of the Senate Revenue and Finance Committee, has said she plans to hold a hearing on the matter this summer.

"I'm not on a witch hunt, but I'm just very, very concerned that something this flagrant could have gotten through the process," she said. "We need to understand why it happened and what is going to be done differently."

State Rep. Vicki Berger, R-Salem, co-chair of the House Revenue Committee, told the Oregonian when Reyes was arrested that the revenue department "had some explaining to do."

"Is this is an anomaly? If so, let's make sure it never happens again," she said. "Or do we have a systematic problem in the way the Department of Revenue treats this and other transactions?"

Following the arrest, the agency reexamined the returns of 108 people who received a refund of at least $50,000 during the current processing season, and no new instances of fraud were uncovered.

According to the Oregonian, the state reported $559 million in delinquent taxes in 2010, primarily from unpaid personal and corporate income taxes.

The Associated Press contributed to this report.

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Greg Mortenson poses with Sitara "Star" schoolchildren in Wakhan, northeastern Afghanistan in this undated handout file photograph released to Reuters March 11, 2009.

A federal court is expected to hear accusations Wednesday that author and humanitarian Greg Mortenson fabricated parts of his best-selling books "Three Cups of Tea" and "Stones Into Schools." 

A hearing is scheduled in Great Falls, Montana on claims that Mortenson lied about how he came to build schools in Central Asia after losing his way in a failed mountaineering expedition and being nursed back to health in a Pakistani village. 

 The lawsuit — filed by two California residents, a Montana man and an Illinois woman who bought the books — list more than two dozen alleged fabrications and accusations of wrongdoing by Mortenson, publisher Penguin Group, co-author David Oliver Relin and the Central Asia Institute. 

The plaintiffs say Mortenson and the others purposely presented the lies as the truth to trick readers into buying the books and donating to the charity. They accuse Mortenson and the others of racketeering, fraud, deceit, breach of contract and unjust enrichment. 

A First Amendment expert calls the lawsuit absurd, regardless of whether the books contain fabrications. 

'Three Cups of Tea' author Greg Mortenson must pay $1 million to charity

Mortenson did not defame or harm anybody in his books, and barring narrow exceptions like national secrets, he can write what he wants and does not have to justify it, said Wayne Giampietro, a Chicago attorney and general counsel of the First Amendment Lawyers Association. 

"It's his story. It purports to be his experiences. He can say it any way he wants to say. He has the right to publish anything he wants about himself," Giampietro said. "The idea that you can be sued because perhaps they don't like what you wrote, for whatever reason, is absurd." 

Lawyers for Mortenson and Penguin Group plan to argue that very point before U.S. District Judge Sam Haddon. They are asking Haddon to dismiss the lawsuit, which seeks triple the amount of total books sales, plus punitive damages. The lawsuit is asking a judge to order that everybody who bought the books be refunded. Whatever money is left over would go to a humanitarian organization selected by the plaintiffs' attorneys and approved by the court 

That promises to be several million dollars. "Three Cups of Tea" alone sold about 4 million copies. 

The hearing comes less than two weeks after Mortenson and the Montana attorney general announced a $1 million agreement to settle claims that Mortenson mismanaged the Central Asia Institute and misspent its funds. The agreement removes Mortenson from any financial oversight and overhauls the charity's structure, but it did not address the contents of the books. 

That's where the civil lawsuit comes in. The four plaintiffs allege that Mortenson, Relin, Penguin, the Central Asia Institute and Mortenson's consulting group, MC Consulting, were involved in a conspiracy to promote and sell the books based on lies. 
"The enterprise's fraudulent scheme was to make Mortenson into a false hero, to sell books representing to contain true events, when they were false, to defraud millions of unsuspecting purchasers out of the purchase price of the books and to raise millions of dollars in charitable donations for CAI," their lawsuit alleges. 

The claims cite a laundry list of alleged fabrications. They include Mortenson's recollections about holding Mother Teresa's hand while her body was lying in state in 2000, when Mother Teresa actually died three years earlier. 

Those and several other alleged fabrications in the lawsuit were first brought to light last year by author Jon Krakauer and a "60 Minutes" story that questioned the truth behind Mortenson's writings and whether he was benefiting from his charity. Those reports prompted the Montana attorney general's investigation and also the civil lawsuit whose original plaintiffs dropped out months ago. 

One of the lawyers in the case is Larry Drury, who also represented plaintiffs in a class-action lawsuit against James Frey, who admitted on the "Oprah Winfrey Show" that he lied in his memoir "A Million Little Pieces." 

That lawsuit ended in a settlement that offered refunds to buyers of the book. 

Drury and fellow plaintiffs' attorney Alexander Blewett say the Mortenson and Frey cases "are stunningly close." 

Mortenson and Penguin don't argue that the events in the books are true, though the publisher says that nobody can rely on the truth or accuracy of autobiographies because they are based on the authors' own recollections. 

Both Mortenson and Penguin argue that the plaintiffs can't prove that they were actually injured by anything that was written in the books and that this lawsuit amounts to a threat to free speech. 

Penguin attorney F. Matthew Ralph says that if a publisher were required to guarantee the truth and accuracy of everything an author says, the costs of publishing books would be prohibitive. 

"No standards exist for drawing the line where 'fiction' becomes 'nonfiction' or vice versa; and the courts are not a proper place for developing such standards or policing that line," Ralph wrote.

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