Hot Lotto fraud scandal

In October 2015, Eddie Raymond Tipton—former information security director of the Multi-State Lottery Association (MUSL), was convicted of rigging a $14.3 million drawing of MUSL's lottery game Hot Lotto. Eddie Tipton and his brother Tommy Tipton have subsequently been charged in other instances of lottery rigging.

A $14.3 million prize for the Hot Lotto draw on December 29, 2010 had been left unclaimed for nearly a year, when attempts were made to claim the prize on behalf of an anonymous, off-shore trust company in Belize. The claim was rejected by the Iowa Lottery because it was made anonymously.^[1][2][3][4] A subsequent investigation into the trust and the discovery of surveillance footage from a convenience store that allegedly depicted the ticket being purchased, led to the arrest of Eddie Tipton on two counts of fraud for attempting to illegally participate in a lottery game as an employee of the MUSL, and then trying to claim a prize through fraudulent means.^[5]

When his trial began on April 13, 2015, evidence was introduced by the prosecutors to support allegations that Tipton had rigged the draw in question, by using his privileged access to an MUSL facility to install a rootkit on the computer containing Hot Lotto's random number generator, and then attempting to claim a winning ticket with the rigged numbers anonymously.^[6][7] On July 20, 2015, Tipton was found guilty on both counts;^[6] he was sentenced to 10 years imprisonment, pending an appeal.^[3]

Eddie Tipton and his brother Tommy Boyd Tipton were subsequently accused of rigging other lottery drawings, dating back as far as 2005.^[8][9] Based on forensic examination of the random number generator that had been used in an alleged 2007 Wisconsin lottery incident, prosecutors allege that Eddie Tipton programmed the MUSL random number generator to produce special results if the lottery numbers were drawn on certain days of the year.^[9][10] The Iowa Lottery and MUSL were also sued by a winner of a Hot Lotto drawing that occurred following the rigged draw, seeking to have his winnings retroactively increased because the jackpot had been illegitimately reset by Tipton's rigged win.

Investigation

The December 29, 2010 drawing of the multi-state lottery game Hot Lotto featured an advertised top prize of US$16.5 million.^[11] On November 9, 2011, Philip Johnston, a resident of Quebec City, Canada,^[1] phoned the Iowa Lottery to claim a ticket that had won the jackpot; stating he was too sick to claim the prize in person, he provided a 15-digit code that verified the ticket, but his prize claim was turned down when he was unable to answer questions that verified he was the owner of the winning ticket.^[12] On December 6, Johnston phoned again, stating the ticket was actually owned by an anonymous individual, who was being represented by a Belize-based shell company, Hexham Investments Trust. However, Iowa Lottery rules forbid anonymous prize claims, so the claim was turned down.^[12]

On December 29, 2011, less than two hours before the expiration of a one-year deadline for prize claims, representatives of a Des Moines law firm presented the winning ticket at the Iowa Lottery headquarters, signed on behalf of Hexham Investments and New York City-based attorney Crawford Shaw. However, Hexham was misspelled on the ticket as "Hexam", and the prize claim was, again, turned down.^[12] On January 12, 2012, Shaw met with Iowa Lottery officials in person to try claiming the prize, but was turned down yet again after he refused to identify the owners of the trust. Shaw withdrew his claims over the prize afterward, and the prize money was returned to Hot Lotto's member lotteries in February 2011.^[1][2]

In an interview with Iowa's Division of Criminal Investigation, Johnston (who was listed as Hexham's president) explained that Robert Rhodes and Robert Sonfield of Sugar Land, Texas, with whom Johnston had professional relations, had asked him to assist in anonymously claiming the prize.^[1] The Daily Beast reported that Rhodes and Sonfield were, according to an anonymous source, in active litigation over a pump and dump scam, and that Rhodes, Sonfield, and Johnston have also had past business relationships.^[12]

In October 2014 investigators released surveillance footage from a QuikTrip convenience store in Des Moines, which they believed showed the purchaser of the ticket,^[1] later identified as Eddie Raymond Tipton, the director of information security at the Multi-State Lottery Association (MUSL), which organizes the Hot Lotto game. As an MUSL employee, it was illegal for Tipton to participate in any lottery game. On January 15, 2015, Tipton was arrested and charged with two counts of fraud for attempting to illegally participate in the lottery, and attempting to use fraudulent means to claim prizes.^[2][5]

In March 2015, Rhodes was also arrested on two counts of fraud; Rhodes and Tipton had worked together at the Houston-based company Systems Evolution for seven years,^[12] and Rhodes was in Des Moines when Tipton purchased the ticket. Phone records showed they had been in frequent contact.^[2][5][13]

Trial

Tipton's trial began on April 13, 2015. Alongside the suspicious manner that Tipton had allegedly attempted to claim the ticket, prosecutors suggested that Tipton had rigged the Hot Lotto draw on the night in question so that the "drawn' numbers would match the ticket.^[5]

Hot Lotto draws are conducted using a random number generator running on a computer in MUSL's Des Moines facility. The computer is in a "locked glass-walled room accessible only by two people at a time and then only on camera", and is not connected to the internet or any other networks. Tipton was let into the room on November 20, 2010 to manually adjust the time on the draw computer to reflect daylight saving time; it was alleged that while Tipton was in the room, he used a USB flash drive to install self-destructing malware on the random number generator computer, presumably to rig a draw.^[12] Tipton's co-workers described him as having been "obsessed" with rootkits at the time.^[2][14] It was also noted that on that day, security cameras were configured to record only for "roughly one second per minute",^[12] a change the prosecutors believed was made to prevent anything suspicious from being recorded.^{[2][5][12][12][14]}

In an April 13, 2015 statement, Terry Rich, the Iowa Lottery CEO, explained that MUSL had implemented stronger security measures to protect the integrity of its draws, including new equipment and software to conduct the drawing, updated security protocols for the draw room, new security cameras, and further separation of duties.^[7] Tipton's defense attorney unsuccessfully attempted to block presentation of the hacking theory in court, arguing that Tipton was with multiple people in the draw room, as per protocol, and to block use of the QuikTrip surveillance footage, claiming that the person in the video could not be Tipton because he did not have a beard at the time.^[12] The trial was recessed to July 2015 to give the defense time to analyze the new evidence.^[7][15]

In a brief issued on July 9, 2015, Tipton's attorney Nicholas Sarcone wrote that following an examination, there was no evidence that Tipton had tampered with the draw computer, and that according to lottery officials, the cameras in the draw room had a long-term history of technical problems that could have resulted in the incomplete surveillance recording of Tipton's actions.^[15] In an interview with The Daily Beast, Tipton denied he was the person who purchased the ticket, and argued that he had been singled out because he was an employee of the MUSL. He also noted that, aside from Rhodes, he had not been in active contact with or knew Sonfield, or any other individual alleged to have been involved in the fraud.^[12] In his closing arguments, Attorney General Rob Sand singled out two pieces of evidence as proof without a reasonable doubt that Tipton had engaged in fraud;^[6] firstly, co-workers and friends of Tipton testified that the voice of the man on the surveillance recording matched that of Tipton. Secondly, MUSL IT director Jason Maher testified that Tipton, according to him, had access to a rootkit, but did not provide any further details.^[6]

Conviction

On July 20, 2015, Tipton was found guilty on two counts of fraud. On September 9, Tipton was sentenced to ten years imprisonment, but will be free on bond pending an appeal.^[3][6] Tipton's attorney argued that his conviction was based on "speculative" evidence.^[6]

Subsequent allegations

Lottery investigators uncovered three other instances where they allege Eddie Raymond Tipton rigged lottery outcomes.

• On November 23, 2005, Tipton's brother Tommy won a $568,990 jackpot prize share in a Colorado Lottery drawing. Edward Tipton was among those who constructed Colorado's random number generator. A friend of Tommy Tipton claims that Tommy asked him to claim the ticket in return for 10 percent of the winnings.^[8]
• A December 29, 2007 prize of $783,257 in a Wisconsin Lottery "Wisconsin's Very Own Megabucks" drawing was paid to a limited liability corporation controlled by Robert Rhodes, who had also been charged in the 2010 Hot Lotto case. Records show that the corporation subsequently transferred money to Tipton.^[8]
• A November 23, 2011 Hot Lotto jackpot of $1.2 million was paid to Kyle Conn, an owner of a construction company in Texas. Conn bought the ticket from the Oklahoma Lottery.^[4]

Eddie Tipton is facing criminal charges, filed October 9, 2015, related to the 2005 and 2007 allegations.^[8] Tommy Tipton was charged on March 30, 2016.^[9]

Forensic investigation of the random number generator used to pick the lottery numbers in the 2007 Megabucks incident showed that it had been programmed to produce predictable outcomes if the drawing occurred on three dates of the year, if these dates coincided with certain days of the week.^[10][16]

Suit by later jackpot winner

On February 4, 2016, the Iowa Lottery and the MUSL were sued by Larry Dawson, who had won a $6 million Hot Lotto jackpot several months after the rigged draw. Dawson claimed that because MUSL had officially recognized an illegitimate draw as having a winning ticket, the following drawing's jackpot should not had been reset to $1 million and would have theoretically reached $16 million by the time of his winning draw. As such, Dawson claimed that, given the parties' failure in properly auditing their games, he was entitled to $10 million that was not officially awarded in the rigged draw. Following its announcement, Terry Rich criticized Dawson's lawsuit for its attempt to "rewrite history", stating that "No one can know what would have occurred in this case had any event in it been changed. We believe that Mr. Dawson rightfully was paid the jackpot to which he was entitled."^[17]

See also

• 1980 Pennsylvania Lottery scandal

References