Iowa Lottery works to turn security breach into ‘a positive’

DES MOINES - The head of Iowa's Lottery said Monday a bizarre Hot Lotto case that produced a criminal conviction for a former lottery employee has helped the agency update its security procedures to pinpoint potential risks in the future.

'This case is an important reminder that lotteries have to keep monitoring and making improvements to stay ahead of those who would try to beat the system,” said Iowa Lottery CEO Terry Rich shortly after a district court jury found Eddie Raymond Tipton, former director of security for the Multi-State Lottery, which runs Hot Lotto, guilty of two counts of fraud in connection with a winning $14.3 million Hot Lotto ticket that was claimed but then forfeited.

Tipton, 52, of Norwalk, faces up to five years in prison for each Class D felony conviction handed down when he is slated to be sentenced in September. However, his attorney indicated Monday's verdict likely will be appealed.

Prosecutors accused Tipton tampered with lottery equipment by installing a self-deleting computer program that would enable him to manipulate the outcome of the Dec. 29, 2010, Hot Lotto drawing. As an employee of a lottery vendor, Tipton was prohibited by law from playing Iowa Lottery games.

The disputed ticket was purchased six days before the drawing at a Des Moines convenience store. It came up a winner but went unclaimed until hours before it expired a year later. Then a New York lawyer attempted to claim the prize for Hexham Investments Trust.

Those involved in the trust refused to identify themselves, which Iowa law requires. So the Lottery refused to pay. Eventually, Hexham gave up its claim.

In November 2011, the Lottery was contacted by Phillip Johnston, a Canadian who claimed to be the winner. Although he had the 15-digit security number, there were discrepancies in his story, such as his description of the purchaser's clothing.

He later advised the Lottery he was not the ticket owner, but was representing an anonymous party.

Investigators went to Quebec City, Canada, where Johnston said two men in Houston asked for help in claiming the winning ticket. One of those men had a 30-year professional relationship with New York attorney Crawford Shaw, according to the DCI. He sent the ticket to Shaw, who, with Johnston's assistance, prepared the claim.

Less than two hours before the 2011 deadline for claiming the jackpot - worth about $7.5 million after taxes - Shaw came forward to file paperwork with the Iowa Lottery. Shaw said he was acting on behalf of Hexham Investments, a trust based in Belize.

However, Iowa Lottery officials refused to pay the prize because Shaw's documentation, without the identity of the purchaser, did not satisfy them that the ticket and claim were valid. Shaw withdrew his claim in January 2012, and the prize money was ultimately forfeited.

Facing a possible statute of limitations deadline, investigators released surveillance video showing a man purchasing the winning ticket. Authorities say a tip from someone who watched the video led to Tipton.

'There is no doubt this has been a fascinating case,” Rich said in a statement Monday.

'The facts in this case have enabled us to further enhance our layers of security to protect the integrity of lottery games, and that ultimately has been a positive,” he added. 'This case is an important reminder that lotteries have to keep monitoring and making improvements to stay ahead of those who would try to beat the system. As a society, we may never be able to stop people from trying to commit crime, but we need to have strong procedures in place to catch and prevent them when they do.”

Rich said he has confidence that the Iowa Lottery is offering games that are fair and backed up with strong layers of security designed to protect lottery players, lottery games and lottery prizes.

'There was no prize paid in this instance,” Rich added. 'The money from this jackpot, which totaled nearly $10.8 million in cash, was returned to the lotteries in the Hot Lotto game in proportion to the sales from each jurisdiction. The Iowa Lottery received about $1.4 million back and gave the money away in a special summer promotion called ‘Mystery Millionaire' back in 2012.”

He noted that 15 players ended up winning prizes in that promotion.