PORTLAND, Ore. — Oregon state officials are looking into claims that the director of the Oregon Lottery sexually harassed a female manager, then retaliated against her when she spurned his advances.

According to allegations outlined in a letter by the woman's attorney, Lottery Director Larry Niswender made unwanted advances toward the manager, then put her on administrative leave after she and another manager at the Lottery became romantically involved.

Both employees were reinstated to their jobs after more than two months while the case was being investigated by the attorney general's office. Both were given disciplinary letters, however, and a list of "work expectations." An investigation paid for by the lottery suggested Niswender's actions would not be considered sexual harassment or retaliation.

In letters to Michael Jordan, director of the Oregon Department of Administrative Services, dated Sept. 16, Salem lawyer William Stark served notice that the woman, Sarah Meyer, and her colleague, Martin Wooldridge, may file charges against the state. The letter asks for an investigation "into the conduct of the Lottery and the attorney general's office in this matter."

Amy Velez, a spokeswoman for Jordan, confirmed that the department would investigate the allegations. "That's all the information I can release at this time," Velez said.

Lottery officials so far have declined to comment, citing potential litigation. However, in response to a records request from The Oregonian, they released a heavily redacted investigative report. It concludes that Meyer and Wooldridge let their relationship get in the way of their jobs, including long conversations with each other on state-issued cell phones, a trip together to a conference at the coast and a habit of taking mutual sick leaves.

Stark called those conclusions a "fishing expedition" to try to pin something on his clients. The phone conversations were mostly work-related and a supervisor approved the conference, he said. "People have a right to have their romantic relationships."

The charges are a long way from being settled, but they point to trouble in the highest ranks of an agency that oversees most state-sponsored gambling in Oregon and contributes about $1 billion to the states two-year general fund budget.

Documents provided to The Oregonian by Stark detail a long and expensive legal battle within the Lottery that began last spring.

In April, the Lottery and the attorney general's office signed a contract with Portland lawyer Jill Goldsmith to investigate Meyer and Wooldridge after receiving complaints about their relationship. Both are longtime Lottery employees and managers in the information technology department.

Under the terms of the contract, Goldsmith was paid $180 an hour to look into the complaints by interviewing co-workers and reporting her findings. The total contract was for $25,000, although it's not clear how much the state has paid or owes Goldsmith for her work.

A few days after the contract was signed, Meyer and Wooldridge were put on administrative — or paid — leave pending results of the investigation. Meyer then filed a formal complaint alleging years of unwanted attention by Niswender when he was deputy director of the agency.

Among the allegations: Niswender used state e-mail and cell phone accounts to communicate with her on non-work-related topics. He called her personal phone and kept doing so after being asked to stop. He made "unwanted comments related to my appearance, which made me feel uncomfortable." He made several requests to meet for drinks.

She and Wooldridge hired Stark to represent them. In the letter to Jordan, Stark alleges that Meyer "was being retaliated against because she had resisted sexual advances of Mr. Niswender."

In addition to investigating Meyer and Wooldridge, Goldsmith was asked to look into Meyer's complaint against Niswender. The full results of the investigation have not been made public, but Meyer received a memo from Lottery Human Resources Manager Sharon Tietsort summarizing them.

"Some aspects of the factual allegations were supported by the evidence," Tietsort wrote in the July 22 memo, "while other allegations, including details associated with some events that occurred, were not."

The memo goes on to state that the conduct by Niswender "does not rise to the level of sexual harassment or retaliation."

Stark said he hopes an investigation by the Department of Administrative services will help clear the matter up. Despite being returned to their jobs, his clients "are still under the gun," he said