HITTING THE JACKPOT — A LOT
Lottery hasn’t found fraud, but experts say frequent winners should raise flags
The Virginia Lottery sells $2 billion in tickets a year, and some people seem to have all the luck.
Take the biggest winner in Hampton, for example.
He has cashed roughly 140 lottery tickets worth at least $600 each, adding up to more than $400,000 in winnings, according to state lottery claims data.
He also has happened to win most often — 23 times, according to state records — at a Newport News store he owns.
And yet his decade-long hot streak doesn’t even put him atop the list of Virginia’s luckiest people. That distinction belongs to a resident from Ruther Glen, who earned the No. 1 spot by claiming 207 tickets, worth more than $800,000 in total, according to state lottery claims data.
These two are part of a select group in the state.
Between 2008 and 2016, 92 people won with at least 50 tickets worth $600 or more apiece, according to data from the Virginia Lottery. Some of these players are collecting prizes so frequently that their winnings appear to defy the odds.
The Virginian-Pilot examined more than 280,000 lottery ticket claims and interviewed authorities on the subject — including a security specialist and a mathematics professor who studies lottery odds — in an effort to shed light on the winning streaks.
Provided by the Pilot with a list of the state’s top winners, Virginia Lottery spokesman John Hagerty said the agency has no records of investigations into any of the players. The state lottery does not monitor frequent winners unless it receives reports of wrongdoing, he said.
The agency has not found any players committing fraud against the lottery in the past five years because tickets “have multiple security features,” Hagerty said.
In an email, Hagerty said that the lottery uses “all means available” to monitor sellers for violations.
No laws or regulations in Virginia prevent retailers from playing — or winning — the lottery at a store they own or work at. At least one lottery, in Ontario, Canada, does ban this practice. The Virginia Lottery has roughly 5,200 licensed vendors that it relies on to sell tickets.
Bill Hertoghe is a former director of security at the California Lottery who worked for other state lotteries as a consultant until 2014. He said Virginia’s policy of not scrutinizing frequent winners could leave the lottery vulnerable. In California, he said, the people he caught cheating the lottery’s process for redeeming tickets were often owners or employees at the store where they won the most.
“What they’ll find most of the time is that (the top winners) are retailers,” Hertoghe said.
Virginia is one of 10 states that does not systematically monitor frequent winning, according to a survey done by PennLive, a central Pennsylvania newspaper.
The lottery’s view is that the odds of winning increase the more someone plays and spends.
“Of course, there are no guarantees in lottery games,” Hagerty said. “We see people who only buy one ticket and it wins big — and we see people who play a lot and don’t win much. But statistically speaking, frequent wins is usually an indicator of frequent play.”
But Hertoghe said that explanation, which he’s heard often from other states’ lottery officials, is “not always the case.”
Because of inquiries from the Pilot, the Virginia Lottery has already made a key change: It amended its claim form to ask whether winners hold a license to sell lotto tickets or have connections to a licensee either through employment or family relationship, said Kevin Hall, who was named director of the agency in January.
If the claimant is attached to a retailer, he or she could be flagged for further scrutiny, officials said. The data would allow officials to “see if this is a pervasive problem,” Hall said.
“I’m concerned about anything that could undermine the public confidence in a pretty strong brand that has been built over 30 years,” he said. “I don’t know if our oversight has been lacking, but what I do know is our oversight could be better.
“And, I can promise you it will be improved.”
Luckiest winners
Philip Stark, a statistician at the University of California-Berkeley, has been studying lottery odds across the nation for five years.
His math has been used by reporters to expose suspicious winning patterns in numerous states. Some lotteries, such as Florida’s, have made positive changes, he said, while others, such as Pennsylvania’s, have refused to do anything.
The Virginia Lottery doesn’t collect data on how often winners are buying tickets. Because of this, it is impossible to calculate the precise odds that the state’s top winners are beating.
But state data does include plenty of information each time a person wins with a ticket worth $600 or more, including: the winner’s name and hometown, the game’s name, the prize amount, the date the ticket was claimed and the store where it was bought.
Stark uses this information, combined with the price to play a game and the odds of winning that amount, as the basis for his math. He calculates how much money every single Virginia resident would have to bet on lottery tickets for there to be a mere one-in-10-million chance that any one of them would win as often as a top winner did.
His calculations used Virginia Lottery claims and odds data compiled by The Virginian-Pilot. PennLive reporter Daniel Simmons-Ritchie provided The Pilot with odds data from Virginia that he obtained when working on a national story about frequent lottery winners.
Stark said his math is as lenient as possible — from how the data is compiled to using one-in-10-million as the odds. Why? So that the calculations don’t come close to sweeping up any winners who could have just been unusually lucky.
“It’s the ‘ Wayne’s World’ test: It could happen, and monkeys could fly out of my butt,” Stark said of the odds. “It’s the same level of preposterous.”
In the case of the winner from Hampton, Stark’s math calculates that every Virginia resident — nearly 8.5 million people — would have to spend $3.9 million on tickets for there to be a one-in-10-million chance that a single person would match his winnings. That comes out to each and every person shelling out more than $1,000 every day for a decade.
Stark’s analysis found that the most improbable winnings belong to a lottery player in South Chesterfield. According to his calculations, every Virginia resident would have had to spend nearly $8 million for any one of them to have a one-in-10-million shot at matching this winner’s earnings.
In such a scenario, the lottery would reap more than $67 trillion from ticket sales. In reality, state records show that the lottery’s revenue totaled around $15 billion for that time period.
In May 2013, a grand jury indicted the lottery’s most frequent winner on a felony embezzlement charge that had no connection to his lotto winnings. He ended up pleading guilty to an amended misdemeanor charge of willful failure to collect taxes. He was sentenced to six months in jail.
Despite the man having claimed a winning ticket, on average, once a week for four years preceding this conviction, lottery officials confirmed they did not investigate his earnings.
Hagerty, the lottery spokesman, said it is not illegal to aggregate tickets or cash a winning one on behalf of someone else.
In response to Stark’s calculations, Hagerty, the lottery spokesman, did not dispute the math. “The list may suggest there is potential manipulation of the lottery’s winner redemption process,” he said, “but not the integrity of lottery games themselves.”
That response did not satisfy Stark.
“They’re saying, ‘Oh, our lottery is fair. People are selling each other tickets or stealing tickets from each other, or cheating consumers — but the lottery is fine.’ That’s insane,” Stark said. “... Most likely, some consumers are being cheated, and most likely, the lottery is being subverted for money laundering and to avoid taxes.”
Lottery scandals
In the past, lottery scandals have often been exposed through statistical analyses, which was the case in Canada.
A 2006 scandal in Ontario, first revealed by Canadian Broadcasting Company’s investigative show “The Fifth Estate,” sparked national outrage. Reporters used statistics to show that retailers were winning major prizes at a rate that was impossible, a claim later corroborated by a government ombudsman report.
“Without question, insiders have won big over the years ... (and) have no doubt also won thousands of smaller prizes,” wrote André Martin, the ombudsman of Ontario. “Certainly many of these wins are legitimate, but it is equally clear that millions of dollars have been paid out in what are dishonest claims.”
In recent years, there have been several ways that people around the country have cheated the lottery or its redemption process.
Federal prosecutors accused Eddie Tipton, an employee of the Multi-State Lottery Association, of taking home $2.2 million in several rigged drawings in Iowa, Colorado, Wisconsin, Kansas and Oklahoma. He installed software that generated specific winning numbers over a period of six years, according to the Des Moines Register. He confessed in 2017, and an Iowa judge handed down a prison sentence of up to 25 years. The scandal, which rocked the industry, earned national attention.
The other methods are on a much smaller scale and typically involve retailers and their employees, according to experts and news reports. Some have been arrested for “microscratching” tickets, which identifies winning plays before scratch-offs are sold, stacking the deck against players by only selling losing tickets. In other cases, retailers or employees have lied to people trying to claim a winning ticket. They either say the ticket is not a winner or pay out less than what the person is owed and then redeem it themselves for the full amount.
Lastly, the process of “discounting” — buying or selling a winning ticket for less than its value — is often used to avoid paying back taxes. Two New Yorkers were arrested in 2017 for secretly claiming winning tickets for people who owed child support, back taxes and other debt, according to the New York Daily News. Between 2012 and 2016, Eduardo Moran-Barrera claimed 686 tickets worth nearly $1.5 million, and Neil Ferguson earned $273,139 on 91 winning plays, according to the Daily News story. Both pleaded guilty to tax fraud charges and were sentenced to prison.
In many states, discounting is legal, but it is against the law in Virginia.
Each is an issue for consumers, experts said, because cheating either skews the odds or skirts taxes. Lotteries in Iowa, Florida, Ontario and British Columbia have been rocked by scandals in recent years, often due to retailers gaming the system.
‘A little weak’
After changing its claim form, the Virginia Lottery recently learned a little more about who was cashing in the most tickets. Of the prizes worth $600 or more, retailers and their associates claimed 59 out of nearly 3,200, or roughly 2 percent.
The agency also recently installed scanners at every store and lottery vending machine so players can check tickets themselves, including through a new smartphone app, Hall said. Experts have lauded this measure as a way to cut back on fraud.
“We investigate any reports of fraud or criminal activity relating to the lottery,” Hagerty said in the email. “Why? If people didn’t trust that the games are run honestly and fairly, they wouldn’t play.”
Hagerty confirmed that the lottery does not run undercover sting operations, which experts say is a strong method to root out vendors who cheat consumers.
The lottery declined to explain how it prevents fraud, citing security reasons. A lottery ticket is considered a bearer instrument, meaning whoever holds it is legally presumed to be the owner, he said.
Since 2016 in Virginia, 17 retailers’ licenses were either revoked, suspended or terminated, Hagerty said. The state has no data on the reasons, but Hagerty cited insufficient funds as the most common. The lottery does not impose monetary penalties on vendors for contract violations.
Before directing security for the California Lottery — one of the largest in the country — Bill Hertoghe worked in law enforcement for 32 years.
Provided with some details about Virginia’s enforcement — such as the number of investigations, the size of its security division and amount of court-ordered restitution — Hertoghe was incredulous.
Since July 1, 2013, the Virginia Lottery has received $89,935 in court-ordered restitution from retailers and suspects charged with crimes such as embezzlement, burglary, larceny and obtaining money by false pretenses, Hagerty said.
Told of the amount, Hertoghe asked for the number to be repeated.
“You’re telling me it’s a $2 billion operation, and that’s what they’re getting? That sounds a little weak,” he said. “That sounds extremely low. For that kind of operation? I’m actually shocked you’re telling me this.”
He was similarly concerned by the lottery’s investigations (about 610 yearly) and sworn peace officers who are investigators. (The lottery has seven full-time employees and one part-timer.)
“I’m laughing — with that kind of a budget, I would have double or triple that amount” of investigators, Hertoghe said, explaining that the lottery should be doing about 10 times as many investigations a year.
Hagerty said in an email that it’s difficult to make comparisons to other lotteries because each operates differently.
“We’ve taken a look at other lotteries similar in size/sales to Virginia, and we’ve found that most are comparable in the number of investigators,” he said in an email. “The lotteries that have significantly more investigators than Virginia are either much larger lotteries, or they operate forms of gambling not seen in Virginia, such as casinos.”
The security staff also works closely with local law enforcement around the state, he said. State statute sets the maximum the lottery can spend on operating costs at 10 percent, and the organization typically hovers at about half of that.
Hagerty said the vast majority of the state’s roughly 5,200 vendors “are good partners.”
But Hertoghe stressed that he thinks the Virginia Lottery is only scratching the surface of what’s happening, and that it needs to be “drilling a little deeper on the security side.”
“For a $2 billion operation, you’ve got to be doing more than that,” he said. “I’d like to take on Virginia, my God.”