Iowa Lottery chief: ‘Layers of security’ prevented Hot Lotto fraud

DES MOINES - Left unanswered was the $10 million question.

Did Eddie Ray Tipton just get lucky, or did the former security employee for a vendor to the Iowa Lottery somehow game the system to get the winning Hot Lotto ticket?

'That is a key question,” Iowa Lottery President and CEO Terry Rich told the Iowa House Government Oversight Committee on Thursday.

Rich was called to update the committee on the case that began in December 2010 when Tipton, an information technology expert for an Urbandale-based vendor that handles some day-to-day functions for multistate lotteries, including the Iowa Lottery, allegedly bought the winning Hot Lotto ticket at a Des Moines convenience store.

'I think the prosecutors and the (Division of Criminal Investigation) are going to fill in the gaps” when the Norwalk man goes to trial for fraud in July, Rich said.

'I think the allegations are clear,” Vice President for Security Steve Bogle said, 'that there are possibilities that could have happened.”

Rich repeatedly told the committee the prize was not paid, and Tipton and an alleged accomplice, Robert Rhodes II of Texas, were arrested because of 'layers of security” and because no one person has all the 'keys” needed to get to the money.

'There always will be someone trying to cheat the system,” Rich said. 'But the key fact to remember, is that even if he did, the bottom line is he didn't get it cashed because there were other keys that had to be turned before he could actually get the cash.”

There are even more layers of security today, Rich added.

Rep. Clel Baudler, R-Greenfield, the Oversight Committee member who asked to hear from the Lottery about the Hot Lotto mystery, was satisfied Rich told the committee as much as he could at this time.

Baudler said he's concerned Tipton and Rhodes may plead guilty without explaining how they got the winning ticket.

If that's the case, Baudler would want the Lottery to come back to 'tell me how he bought a ticket that was a winner.”

'It's really, really suspicious,” the retired law enforcement officer said, 'and a lot of people I talk to want to know the answer to that question.”

The case goes back to Dec. 23, 2010, when the ticket was purchased. It came up a winner six days later, 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, which was incorporated in Belize, a country known as a tax haven.

Those involved in the trust refused to identify themselves, which Iowa law requires. So the Lottery refused to pay the prize, even after the trust's attorney offered to give the money to the state to give to a charity.

Eventually, Hexham gave up its claim and the prize money was returned to the state and distributed in a special game in 2012.

The Lottery and DCI launched an investigation that led to Houston, Texas, Canada and New York.

Tipton, 51, faces two counts of fraud, both Class D felonies punishable by up to five years in prison, for allegedly buying the winning Hot Lotto ticket with a face value of $16.5 million. Iowa Lottery employees and vendors are barred from playing the authority's games.

He was arrested Jan. 15 after being identified by a co-worker and friends as the man shown in convenience store video buying the ticket, which was worth a $16.5 million annuity or $10.8 million cash.

Rhodes was arrested March 21 on similar charges. According to the DCI, Tipton previously worked for Rhodes' Houston-based company.

l Comments: (319) 398-8375; james.lynch@thegazette.com