Hot Lotto fraud scandal

The December 29, 2010, drawing of the multi-state lottery game Hot Lotto featured an advertised top prize of US$16.5 million.[17] On November 9, 2011, Philip Johnston, a resident of Quebec City, Canada,[3] 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 winning ticket. However, Johnson's prize claim was turned down when he was unable to answer questions that verified he was the owner of the ticket.[18] 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.[18]

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 claim was, once again, turned down.[18] 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.[3][4]

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.[3] 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 had also had past business relationships.[18]

In October 2014, investigators released surveillance footage from a Des Moines convenience store which they believed showed the purchaser of the ticket.[3] He was 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, he 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.[4][7] Rhodes, a previous co-worker of Tipton's,[18] was in Des Moines when Tipton purchased the ticket, and the two were in frequent contact by phone.[4][7][19] Rhodes was arrested on two counts of fraud in March 2015.

Tipton's trial began on April 13, 2015. Alongside the suspicious manner that Tipton had allegedly attempted to claim the ticket, prosecutors suggested that he had rigged the Hot Lotto draw on December 29, 2010, so that the "drawn" numbers would match the ticket.[7]

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.[18] Tipton's co-workers described him as having been "obsessed" with rootkits at the time.[4][20] It was also noted that on that day, security cameras were configured to record only for "roughly one second per minute",[18] a change the prosecutors believed was made to prevent anything suspicious from being recorded.[4][7][18][20]

In an April 13, 2015, statement, Iowa Lottery CEO Terry Rich 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.[9] Tipton's defense attorney, Nicholas Sarcone, 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 use of the convenience store surveillance footage, claiming that the person in the video could not have been Tipton because he did not have a beard at the time.[18] The trial was recessed to July 2015 to give the defense time to analyze the new evidence.[9][21]

In a brief issued on July 9, 2015, 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.[21] 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 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.[18] In his closing arguments, Assistant Attorney General Rob Sand singled out two pieces of evidence as proof beyond a reasonable doubt of Tipton's guilt:[8] firstly, co-workers and friends testified that the voice of the man on the surveillance recording matched Tipton's, and secondly, MUSL IT director Jason Maher testified that Tipton had access to a rootkit.[8]

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

• On November 23, 2005, Tipton's brother Tommy won a $568,990 jackpot prize share in a Colorado Lottery drawing. Eddie 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 ten percent of the winnings.[10]
• A December 29, 2007, prize of $783,257 in a Wisconsin Lottery 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.[10]
• 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. Oklahoma investigators were suspicious because Conn was not a frequent player, came from out of state, and specified the winning numbers manually instead of relying on a random pick. They initially declined to say what linked this case to Tipton.[6]

Eddie Tipton faced criminal charges, filed October 9, 2015, related to the 2005 and 2007 allegations.[10] Tommy Tipton was charged on March 30, 2016.[11]

Forensic investigation of the random number generator used to pick the lottery numbers in the 2007 Megabucks drawing showed that it had been programmed to produce knowable outcomes if the drawing occurred on three dates of the year – May 27, November 23, and December 29 – provided these dates were Wednesdays or Saturdays and the drawing was after 8 p.m.[12][22][13]

In January 2017, Rhodes pled guilty in Iowa to charges related to aiding Eddie Tipton in the 2010 Hot Lotto incident.[23] In March 2017, he pled guilty to the 2007 Megabucks incident. As part of the plea bargain, Rhodes agreed to testify against Eddie and Tommy Tipton. He was sentenced to six months of house arrest and ordered to pay $409,000 in restitution.[13]

In June 2017, Eddie Tipton confessed in court to having installed the rigged random number generator in 2005 or 2006. "I wrote software that included code that allowed me to technically predict winning numbers and I gave those numbers to other individuals who then won the lottery and shared those winnings with me," he said. He admitted to fixing lotteries in Colorado, Oklahoma, Wisconsin, and Kansas as well as Iowa. Tipton was sentenced to 25 years in prison, but his attorneys claimed he could be paroled in three or four years. Eddie and Tommy were also "ordered" to pay about $3 million in restitution.[1][2]

Tommy Tipton served 75 days in jail in Texas, after pleading guilty in June 2017 to conspiracy to commit theft by deception.[2][24]

Tipton was released on parole in July 2022.[25] On January 20, 2022, Tipton had been approved for parole, but prior to release parole had been revoked for getting into a fight.[25][26]

As of 2019, Eddie and Tommy had largely avoided paying the over $2.3 million in restitution they owed to Oklahoma, Colorado, Kansas, and Wisconsin. Their payments to the four states totaled about $1,225. During the interim, Eddie and Tommy Tipton had transferred ownership of several properties to their mother, Lawanda Tipton.[24]

Tipton sued the state of Iowa in January 2020, claiming he was pressured four years ago to plead guilty to crimes he did not commit. The lawsuit sought to overturn his sentence. Assistant Attorney General William Hill asked a judge on November 4, 2021, to dismiss this lawsuit.[27][28]

On February 4, 2016, the Iowa Lottery and the MUSL were sued by Larry Dawson, who won a $6 million Hot Lotto jackpot several months after the rigged draw. Dawson claimed that because the MUSL had officially recognized an illegitimate draw as having a winning ticket, the following drawing's jackpot should not have 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. Iowa Lottery CEO 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."[14][15] Dawson later received a $1.5 million settlement from MUSL.[29]

The jackpot from the rigged 2010 draw was ultimately not claimed and distributed among the sixteen states participating in the lottery.[15]

On January 28, 2018, GSN aired a documentary about the Hot Lotto fraud scandal called Cover Story: The Notorious Lottery Heist.[30]

In September 2018 an episode of American Greed documented the incident.[31]

In March 2021 episode #160 of the podcast Criminal covered the incident.[32]

• 1980 Pennsylvania Lottery scandal