On this episode of Misfortune: A Financial Crimes Podcast, Adam and Danger discuss the crazy case of Eddie Tipton, the former information security director of the Multi-State Lottery Association, and the person behind the largest lottery fraud in U.S. history.
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When Eddie Tipton interviewed for a job at the Multi-State Lottery Association in 2003, he was honest about his 2 prior convictions. In 1982, at the age of 19, he pled guilty to stealing more than $1,700 in a warehouse burglary. He managed to avoid prison and was given probation and ordered to pay restitution. In 1987, he was charged with theft in a separate incident and given a suspended sentence of 180 days in jail plus probation.
The Multi-State Lottery Association is a non-profit, government-benefit association located in Urbandale, Iowa. It is owned and operated by 36-member lotteries and was created to facilitate the operation of multi-jurisdictional lottery games such as Powerball and, until 2017, Hot Lotto. Its services include game design, management of game finances, public relations and more.
Although Iowa state law prohibits felons from working for its state lottery, that law does not apply to MUSL employees. Eddie was a University of Houston graduate, a talented software engineer and had been recommended for the position by his longtime friend Ed Stefan, who also worked for MUSL.
Eddie was hired to design the software the lotteries would use to randomly generate the winning numbers, earning nearly $100,000/year.
In 2005, one of Eddie’s colleagues, Gene Schaller, jokingly asked if Eddie put his own secret numbers in the code. When Eddie asked what Gene meant, Gene said “Well, you know, you can set numbers on any given day, since you wrote the software.” (By the way, according to the Des Moines Register, Gene still works at the Multi-State Lottery Association.)
Shortly after this conversation, Eddie wrote a piece of self-deleting software designed to hijack the random number generator algorithm if a lottery draw met all of these specific conditions:
1. The draw had to take place on May 27, November 23 or December 29
2. The draw had to take place on a Wednesday or Saturday
3. The draw had to take place after 10pm local time
On those rare occasions that all three conditions were met, the software would produce the winning numbers using an algorithm that Eddie would be able to solve.
He was one of the few people allowed access to the random number generating computers used in the drawings. After tampering with the security cameras, he installed the code and waited for a lottery to match the conditions he set.
He didn’t have to wait long – the drawing for a $4.8 million lottery jackpot in Colorado would take place on November 23, 2005, a Wednesday. Eddie’s code would lower his odds of winning from 5 million to 1 to 200 to 1.
Tommy Tipton, Eddie’s younger brother, was a former sheriff’s deputy living in Texas. In 2002, he was elected as a Fayette County magistrate, presiding over traffic crimes and misdemeanors.
He also happened to hunt for Bigfoot in his spare time and was a member of the Gulf Coast Bigfoot Research Organization. According to the Houston Press, Tommy claimed to have seen a set of bigfoot parents and two children in the forests of northwest Louisiana, writing in a report “I know what I saw, and there is no doubt in my mind that these animals exist”
Luckily for Eddie, Tommy’s search would take him to Colorado in time for the drawing. Eddie gave Tommy hundreds of sets of numbers to play. Tommy initially had his doubts whether it would be legal to play these numbers and consulted his friend Luis Vallejo, a Texas defense attorney.
According to Tommy, Vallejo could not find any reason it would be illegal to play the numbers given to him by a lottery association employee. Tommy purchased the lottery tickets and asked a friend, Alexander Hicks, to cash the winning ticket in exchange for 10% of the winnings.
When the winning numbers were drawn, three winners came forward. One was a Colorado resident with an “easy pick” ticket, meaning the numbers were machine selected. That purchase was later ruled legitimate.
The other two winners were Alexander Hicks, on behalf of Tommy Tipton, and a Texas attorney named Thad Whisenant, who created a limited liability-corporation called Cuestion de Suerte (Question of Luck) to collect the money.
On December 31, 2005, Tommy approached Tom Bargas, owner of Mr. B Fireworks in Schulenburg, Texas, asking if Bargas could swap a pile of freshly printed bills for bills the fireworks business would bring in over the New Year. Bargas declined and reported the incident to police, who referred the matter to the FBI.
Bargas worked with the FBI to record a conversation with Tommy, during which Tommy admitted to winning the lottery but said his marriage was in trouble and he was trying to hide the money in case of divorce. Although Bargas knew Tommy’s brother worked in the lottery industry, he didn’t think to mention that to the FBI.
The FBI later interviewed Tommy directly and accepted his explanation that he had won the Colorado lottery but didn’t want to tell his wife as gambling was against their Christian faith.
In 2007, Eddie approached his former colleague and close friend Robert Rhodes about partnering on an upcoming Wisconsin Megabucks drawing. He gave Rhodes hundreds of sets of numbers and told him to play them all. They won a $783,257 payout from the December 29, 2007 drawing and Rhodes created a limited liability company “Delta S. Holdings, LLC” to collect the money.
On December 23, 2010, Eddie made a decision that would be his undoing – he walked into a QuikTrip convenience store in Des Moines, Iowa to purchase a winning Hot Lotto ticket himself.
The drawing took place on December 29, 2010, and Eddie asked Robert Rhodes to claim to $16.5 million jackpot, but not to wait until the last minute, as that would raise suspicion.
Rhodes ignored those instructions, and for months, Iowa Lottery officials publicized the win in an effort to get the winner to come forward. In a news release, Iowa lottery CEO Terry Rich said, “Someone legitimately won this money and we want them to take it home.”
On November 10, 2011, a Canadian resident named Phillip Johnston claimed he had the winning ticket. However, his details of the purchase did not match the video recording – for example, Johnston said he was wearing a suit when he purchased the ticket, but the purchaser was wearing a hoodie – and the lottery refused to pay.
On December 6, Johnston admitted to the lottery he was not the original purchaser but represented the anonymous owner. He inquired whether the ticket could be claimed through a Belizean blind trust, Hexham Investments Trust.
On December 29, 2011, less than 2 hours before the 4pm deadline, a local attorney representing the trust showed up at the Iowa Lottery headquarters with the winning ticket. Iowa lottery officials refused to pay the jackpot, as state law did not allow winners to remain anonymous. After about a month of negotiation, the jackpot claim was withdrawn. Officials then asked the Iowa Division of Criminal Investigation to look into the matter.
After multiple dead ends, investigators decided to release the surveillance video and audio of the person who purchased the winning ticket on October 9 2014, nearly 3 years later. A lottery employee recognized the voice as belonging to Eddie Tipton. Eddie initially told investigators that he was in Houston when the ticket was purchased, unaware that they had cell phone records placing him in Des Moines that day.
On January 15, 2015, Eddie was charged with 2 felony fraud counts, one for fraudulently passing or redeeming a lottery ticket and the other for influencing the winning of the prize through fraud, deception, or tampering with lottery equipment.
On July 20, 2015, a jury found him guilty of both counts. His defense filed an immediate appeal and Eddie remained free on bond.
In August 2015, while Eddie’s appeal was pending, Iowa investigators were notified that his brother Tommy had won the Colorado lottery in 2005. They expanded their initial investigation, and prosecutors were ultimately able to connect five fraudulent wins to Eddie Tipton, including lotteries in Kansas and Oklahoma, totaling more than $24 million in prizes (although of course he was unable to collect the biggest prize, the Iowa drawing).
Robert Rhodes agreed to testify against the Tipton brothers as part of a plea deal. In early 2017, he pled guilty to charges in Iowa related to the 2010 Hot Lotto drawing, as well as charges in Wisconsin related to the 2007 Megabucks drawing. He was sentenced to six months of home confinement and ordered to pay $409,000 in restitution.
On June 12, 2017, in Dane County, Wisconsin, Eddie pled guilty to 2 felony counts of theft by fraud and computer crime. As part of the agreement, he would also plead guilty to one count of ongoing criminal conduct in Iowa.
Interestingly, 11 days after his Wisconsin court appearance, the Iowa Supreme Court overturned his original conviction from the July 2015 trial, citing unjustified delays in the investigation. However, this would have no practical effect, as prosecutors had already agreed to vacate that conviction under a new plea agreement that required Eddie to plead guilty to the new charges.
On June 29, 2017, in Polk County, Iowa, Eddie Tipton pled guilty to ongoing criminal conduct. He was sentenced to up to 25 years in prison, although according to the prosecutor, he will likely only serve 3 to 5 years. He was 54 years old at the time of sentencing.
Tommy Tipton pled guilty to 2 counts of conspiracy to commit theft and was sentenced to 75 days in jail. The two brothers also agreed to pay a total of $2,222,863.60 in restitution.
As mentioned earlier, that the first fraudulent drawing in Colorado had 3 winners. One person’s ticket was machine-generated and legitimate. The other was Tommy Tipton. And the 3rd winner was Texas attorney Thad Whisenant, who it turns out knew Luis Vallejo, the attorney Tommy had initially approached for advice.
On August 24, 2016, the Iowa Attorney General’s’ Office released a statement asking the public to come forward with any information about Whisenant and Vallejo’s connection to the Tipton brothers. Tommy Tipton has said that he believes the attorneys stole the numbers for him. Neither Whisenat nor Vallejo have been charged in connection with the fraud, and it is still not clear how they obtained the winning number.
On October 28, 2017, the final Hot Lotto drawing was held, with officials blaming declining ticket sales as the reason for ending the game.
- Wikipedia: Hot Lotto Fraud Scandal
- Wikipedia: Multi-State Lottery Association