JACKPOT-FIXING INVESTIGATION EXPANDS TO MORE STATE LOTTERIES

By Ryan J. Foley and David Pitt

Associated Press
December 18, 2015

DES MOINES, Iowa -- The allegations read like a movie plot: a lottery industry insider installs undetectable software giving him advance knowledge of winning numbers, then enlists accomplices to play those numbers and collect the jackpots. And they secretly enrich themselves for years — until a misstep exposes them.

Eddie Tipton, former security director of the Multi-State Lottery Association, has been convicted of fraud for fixing one jackpot in Des Moines, but prosecutors say his high-tech scheme extended far beyond Iowa. He's accused of tampering with lottery drawings in four states over six years, and investigators are expanding their inquiry nationwide.

Investigators have asked states to review jackpots produced by the number-generators Tipton had access to, and whose winning numbers were specifically requested by the ticket buyer. They hope to talk with anyone aware of such payouts being collected by someone other than the person who ends up with the money, said Rob Sand, a state prosecutor in Des Moines who is leading the probe.

The inquiry is sending a chill through state governments that depend on public confidence in contests that generate $20 billion annually in lottery revenue.

"It would be pretty naive to believe they are the only four" jackpots involved, said now-retired Iowa deputy attorney general Thomas H. Miller, who oversaw the investigation for 2 ½ years. "If you find one cockroach, you have to assume there are 100 more you haven't found."

Thirty-seven states and U.S. territories use random-number generators from the Iowa-based association, which administers games and distributes prizes for the lottery consortium. So far, Colorado, Wisconsin, and Oklahoma have confirmed paying jackpots valued at a total of $8 million allegedly linked to Tipton and associates.

Tipton, 52, was sentenced to 10 years but is free pending appeal after being convicted at trial of trying to claim a $16.5 million jackpot in Iowa. He's also charged with criminal conduct and money laundering involving the other three state lotteries. His brother, Tommy Tipton, and his best friend, Robert Rhodes, are under investigation as possible accomplices.

Rhodes' attorney did not respond to messages. Tommy Tipton, who resigned his elected judicial position in Texas last month, did not return calls. Eddie Tipton's attorney, Dean Stowers, says his client is innocent.

"There's just absolutely no evidence whatsoever that he did anything to alter the proper operations of the computers that were used to pick those numbers, absolutely no evidence. It's just all speculation," Stowers said.

Prosecutors say Tipton installed software known as a root kit that enabled him to manipulate numbers without a trace. What tripped him up, investigators say, was his decision to buy the winning ticket himself at a service station near the headquarters of the association, whose workers are prohibited from trying their luck.

Iowa got suspicious in 2012 after a New York lawyer representing a newly created trust tried to claim the $16.5 million Hot Lotto jackpot on behalf of a Belize-registered corporation, turning in the ticket hours before a one-year deadline. The trust eventually withdrew the claim rather than identify the ticket purchaser.

Investigators initially suspected the buyer was merely trying to hide the winnings from a former spouse or creditor. Still, who would walk away from $16.5 million?

The case took an even more dramatic twist after authorities sought the public's help, releasing surveillance video showing a stocky, hooded man buying the winning ticket and hot dogs at a service station in December 2010. Lottery colleagues were stunned, stepping forward to say the man looked and sounded like Tipton.

Eddie Tipton had worked at the association since 2003, after a career in information technology, including at a Rhodes-owned firm in Houston called Systems Evolution. He was promoted in 2013 to security director, a job that included protecting the integrity of the computer programs that generate winning numbers.

Investigators allege that Tipton passed the winning ticket to Rhodes, a businessman in Sugar Land, Texas, who was his classmate at the University of Houston. Rhodes then passed it to a Canadian offshore banking expert who gave it to the New York lawyer who tried to collect, they said. Rhodes is now fighting extradition to Iowa, where he was charged early this year.

Testifying at Eddie's trial in July, brother Tommy insisted the video shows some other, larger man. Besides, he added: "Eddie's not a hot dog guy."

Colorado authorities are now investigating a $4.5 million jackpot split by three winners in 2005. Authorities say Tommy Tipton, who resigned last month as a justice of the peace in Flatonia, Texas, received $537,000 in a cash payout after giving a friend 10 percent for claiming the prize on his behalf. Colorado lottery officials have not identified the three winners, citing the ongoing investigation.

In Oklahoma, investigators are reviewing a $1.2 million Hot Lotto jackpot claimed by a Texas construction company owner in 2011. Iowa investigators say Eddie Tipton is linked to that drawing but haven't spelled out how.

"This is kind of an eye-opener," said Oklahoma Lottery director Rollo Redburn. "It reaffirms the fact that we've got to be constantly vigilant against people trying to defraud the system."

In October, Iowa authorities alleged that Tipton and Rhodes worked together to claim a prize in Wisconsin as well. The same day, Wisconsin Lottery Director Mike Edmonds asked the state's Department of Justice to investigate the $2 million Megabucks jackpot that Rhodes had a law firm claim on his behalf in 2008. Rhodes sued to have the money go to his limited liability corporation instead of him directly, although he did sign the ticket.

On Friday, Edmonds resigned after 12 years in the job.