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Red Flags and Rationalization (Gwen Moritz Editor’s Note)

4 min read

The news that a lottery security official in Iowa had been charged with rigging the games registered with me back in 2015 only because the Arkansas Scholarship Lottery had gone through something similar in 2013. Must be irresistible, I thought.

It wasn’t until last month, when the Des Moines Register published a full accounting of Eddie Tipton’s $24 million fraud that I realized how different it was from the little $500,000 scam for which Remmele Mazyck served three years in federal prison.

Mazyck certainly abused his position at the Arkansas Lottery. He used his access to the computerized ticket tracking system to steal more than 22,000 tickets by making it look like they had been given away as free promotions. Then he traveled to lottery retailers around the state to cash in winning tickets that were worth less than $500. (The larger prizes must be collected in person at a claims center.)

Mazyck kept it up for more than three years, getting caught only because he tried to cash a ticket that he had failed to activate. A ticket retailer in Jonesboro reported the unactivated ticket, and surveillance video revealed the identity of the man who tried to cash it. Finally his game was over.

Eddie Tipton defrauded the system on an otherworldly level.

Tipton went to work as a software designer for the Multi-State Lottery Association in the Des Moines suburb of Urbandale in 2003. (He was hired even though he had been convicted of two felonies two decades earlier, when he was a teenager.)

Two years later, after a casual conversation with a co-worker, Tipton — then a 41-year-old bachelor described as “lonesome” by the brother who participated in the scam — started fooling around with the idea of inserting code that would favor certain numbers on three specific dates each year: May 27, Nov. 23 and Dec. 29.

“His code would let him narrow the drawing’s winning odds from 5 million to 1 to 200 to 1,” the Register reported.

“And, over time, he would hijack at least five winning drawings totaling more than $24 million in prizes in Colorado, Wisconsin, Iowa, Kansas and Oklahoma — the biggest lottery scam in U.S. history.”

It’s a wild story, complete with a grandmother in Arkansas who planted a lifelong fascination with Bigfoot in Tipton’s brother’s brain. This part jumped out at me:

“As the head of the Multi-State Lottery Association’s IT security, Eddie Tipton was making almost $100,000 a year. But he felt underappreciated and overworked at the time he wrote the code to hack into the national lottery system.”

Tipton exhibited at least four of the “behavioral red flags” identified by the Association of Certified Fraud Examiners in its 10th biennial “Report to the Nations” on occupational fraud, which was released last week:

  • Complaints about inadequate pay,
  • Excessive pressure from within the organization,
  • Social isolation and
  • Past legal problems.

The two most common red flags — living beyond one’s means and financial difficulties — are not attributed to Tipton in the Register’s report. He cleared only a fraction of the fraudulent jackpots because the biggest win, $16.5 million, was also the one where he got caught.

Like Mazyck, Tipton’s downfall came from video surveillance. He bought the winning ticket himself, then gave it to a friend to claim. But the friend did what Tipton had specifically told him not to do: He waited until two hours before the one-year claim window closed, and he tried to cash the ticket through a mystery trust. That guaranteed maximum scrutiny of the claim, including a review of the video of the ticket being sold to a different man a year earlier.

Even then, it took three years to figure out who the buyer really was. Tipton remains convinced that no one would ever have caught his magic code.

When he confessed to authorities, Tipton’s rationalizations were as impressive as his coding skills:

  • “It was never my intent to start a full-out ticket scam.”
  • After his first successful scam, he suggested that his bosses appoint a second person to oversee the software that generated the “random” numbers. “I asked for that originally, I did. Because I knew that I had already done this. I’m like, ‘I don’t want to do this anymore.’”
  • And the masterwork of self-delusion: “I’m saying at the time I did not think it was fraud. I thought that me writing that code and putting an extra algorithm in there and sending it off to [the vendor that reviewed the games] and them giving it a stamp of approval would resolve me of any problems.”

Eddie Tipton, now 54, was sentenced to 25 years in the Iowa prison system.


Email Gwen Moritz, editor of Arkansas Business, at GMoritz@ABPG.com and follow her on Twitter at @gwenmoritz.
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