Cold Open
The following presentation is not suitable for young children, listener discretion is advised…
Clive, Iowa is a suburb of the state’s capital and biggest city, Des Moines. Verdant and picturesque, Clive is home to about 18,000 people. It’s also the home of the headquarters of the Iowa Lottery.
In 2011, the Iowa Lottery headquarters was a squat, red brick office building across the street from the governor’s mansion at Terrace Hill.
One morning in early November, Mary Neubauer was settling into her office at the Iowa Lottery when two of her staffers appeared in the doorway, Cassie and Michael.
Hey Mary, Cassie said. Someone’s just claimed the winning Hot Lotto ticket.
Neubauer was the Iowa Lottery’s Vice President of External Relations. Essentially, she was its spokeswoman. Her duties included promoting the lottery, arranging press conferences to announce the winners, and educating the public about the dangers of gambling. A former reporter for the Associated Press, she took to the job naturally.
Hot Lotto was one of the Iowa Lottery’s most popular games. You pick five numbers between 1 and 39, and a sixth number, known as the Hot Ball, between 1 and 19.
Guess the first five right and you’ll likely win tens of thousands of dollars. But guess all five plus the Hot Ball and you could be a millionaire.
Someone in Waterloo, Iowa had recently won a draw, nailing the first five numbers but missing the Hot Ball. Mary assumed this is what what Cassie was referring to.
Which Hot Lotto? The one from Waterloo?
No, the OTHER Hot Lotto.
This could only mean one thing.
About a year earlier, the Iowa Lottery held a Hot Lotto drawing with a grand prize worth $16.5 million. Someone had guessed all six numbers correctly, yet hadn’t come forward to claim it. Iowa Lottery policy stipulated that winners have one year to claim their prize. The deadline was just weeks away.
Neubauer was thrilled. Like most lottery employees, she loved giving away prizes, especially the life-changing variety.
But a prize as big as this required the highest security standards. Neubauer got up from her desk and led Cassie and Michael into the security director’s office, where the phone call could be recorded. The security director’s name was Steve Bogle. He was a former cop and did things by the book.
Neubauer explained the situation Bogle dialed the number for the mystery winner.
They got the voicemail.
That night, the winner called back.
Hello! I think I’m the Hot Lotto jackpot winner.
Congratulations! I’m Mary Neubauer, VP of external relations, and I’m here with Steve Bogle, our security director. Who am I speaking with?
My name is Philip Johnston.
Where are you located?
I’m calling you from my home in Quebec, Canada. But I do my work in Turks and Caicos. I’m an attorney, you see. Not all my clients are drug dealers.
Johnston chuckled, but Neubauer didn’t. Drug dealer comment aside, you didn’t have to be from Iowa to win the Iowa lottery, but you did have to buy your ticket in Iowa. Johnston seemed to anticipate this.
Not to worry. I bought the ticket in Des Moines.
I see. What brought you to Des Moines when you bought that ticket?
It was business, actually. Listen, do I have to come back to Iowa to collect my prize in person? Can’t I just mail you the ticket?
Iowa Lottery policy says that you do have to collect it in person, but I’ll confirm that. In the meantime, why don’t you give me the ID number for your ticket?
A simple test. Plenty of people call the lottery claiming a prize that isn’t theirs. But Johnston rattled off the correct number. He had the ticket, or at least access to it.
But something didn’t sit right with Neubauer. Her reporter’s instincts told her that Johnston wasn’t telling her the truth.
That night, Mary checked the surveillance footage from the convenience store where the winning ticket was purchased 11 months earlier.
She saw the man who bought the ticket. He was heavyset, stubbled, and wearing a ballcap pulled low over his eyes, and a hoodie with the hood pulled up. Most importantly, the surveillance footage included audio. She listened to the man purchase his tickets along with two hot dogs. He didn’t sound anything like Johnston. If anything, he sounded southern, not Canadian.
So the next day, Neubauer and Bogle called Johnston back. Neubauer asked what seemed like an innocent question:
Do you happen to remember what you wore the day you bought the ticket?
It was what I usually wear. Sport coat, collared shirt, gray flannel pants.
Just like that, Neubauer caught Johnston in a lie—and lying about winning the lottery constitutes fraud.
That doesn’t match the individual in our surveillance video, she said, trying to sound casual.
Ah. Well, I have to confess. I didn’t buy the ticket myself. That was a fib. But I represent a person who did win, and they wished to remain anonymous.
Now Neubauer knew something was definitely wrong. Not only was Johnston lying, but what his supposed client wanted was against Iowa Lottery policy–to claim a prize, you had to identify yourself.
She told Johnston she still needed to confirm with her boss, then hung up. Next, she called her boss, Iowa Lottery CEO Terry Rich.
He was a former television promoter and the head of the Des Moines zoo. Right now, he was on a cruise vacation.
Terry, we’ve got a problem.
She explained the situation. Even though Johnston did have the ticket, it didn’t add up.
We don’t think we should pay.
No, don’t pay it. We need to get to the bottom of this.
With that, Terry Rich and Mary Neubauer would begin an investigation. They didn’t know it, but they were facing the biggest lottery scam in US history…
On this episode: insider threats, random number generators, dirty lawyers, Belizean corporations, hot dogs, Bigfoot, the biggest lottery scam of all time.
On this episode: insider threats, random number generators, dirty lawyers, Belizean corporations, hot dogs, Bigfoot, the biggest lottery scam of all time. I’m Keith Korneluk and you’re listening to Modem Mischief.
You're listening to Modem Mischief. In this series we explore the darkest reaches of the internet. We'll take you into the minds of the world's most notorious hackers and the lives affected by them. We'll also show you places you won't find on Google and what goes on down there. This is the story of Eddie Tipton and the Hot Lotto Fraud Scam.
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Act One
You better hope your boy Bush wins. Otherwise, John Kerry is gonna take your guns.
Despite himself, Eddie Tipton chucked. He and the accountant named Gene didn’t see eye to eye on politics, but he liked the guy.
Hey Eddie, did you put your secret numbers in there? You know you can set the numbers on any given day since you wrote the software.
Eddie paused. What Gene was suggesting was quite illegal, not to mention impossible.
No, it wouldn’t work that way because the games are always reviewed.
But Gene’s remark got Eddie thinking…could he actually manipulate the lottery?
This conversation took place in 2004. Eddie was a computer scientist for the Multi-State Lottery Association, or MUSL.
MUSL is a non-profit organization that oversees lotteries in 35 US states plus Washington DC, Puerto Rico, and the Virgin Islands. It’s headquarters is also located in Iowa, and Iowa is one of the states that participates. It was formed in 1987 to allow states to pool their resources to offer bigger cash prizes. MUSL oversaw popular lottery games Hot Lotto.
Eddie knew Hot Lotto’s inner-workings. He helped set up the computers used to execute the drawings—called “draw computers.” This included writing the software.
To draw numbers for a game like Hot Lotto, the draw computers first used Geiger counters to detect trace levels of the radioactive isotope Americium-241 in the air. The random fluctuations in radioactivity gave the lottery a “seed number.” The computer then plugs this number into an algorithm called a “Mersenne Twister,” which chooses the six winning numbers.
Eddie knew it was impossible to hack a draw computer to somehow obtain these exact six numbers ahead of time. But maybe there was another way.
Eddie was a programmer, but no hacker. A few weeks after his conversation with Gene, he met a friend named Jason Maher at a Des Moines sushi restaurant.
Eddie helped Maher get a job at MUSL. Maher was one of the most computer savvy people Eddie knew.
Eddie asked Maher what he knew about “rootkits,” or malicious software that can be downloaded onto a computer to perform certain operations, then delete itself.
Unaware of why Eddie was asking, Maher pointed him in the right direction. Eddie researched rootkits and coding and eventually by 2005 he’d come up with his code.
A normal Hot Lotto drawing gave a 1 in 10.9 million chance of winning. Eddie’s code narrowed that pool of possible numbers to about 200—meaning, if you bought 200 tickets in every possible combination, you’d be guaranteed to win
Eddie was careful not to make his code big enough to be noticeable. It only worked only on draws after 8pm, and only on three specific dates: May 27th, November 23rd, and December 29th. Not coincidentally, all three dates fell near holidays, when Eddie would be out of town.
He called his code QVRNG.dll, or “Quantum Vision Random Number Generator”
Eddie knew that rigging the lottery was illegal. He would later claim he did it just to see if he could.
Whatever his motivations, Eddie uploaded his code into the system and shipped it off to MUSL’s software contractor, Las Vegas-based Gaming Laboratories International.
Nobody noticed Eddie’s edit. It was installed on computers and shipped out to draw rooms in all 38 US States and territories.
Now it was out there, waiting to be used.
In 2005, US lotteries generated 80 billion in revenue annually. 20 billion of that went to back to communities. This is done to make state-funded gambling more palatable to the church-ey folk.
Thus, lotteries are typically conducted with the tightest security—after all, why play if you knew the games were rigged?
Most modern games are conducted on computers located inside “draw rooms,” plexiglass enclosures monitored 24/7 by video cameras. Visitors aren’t even allowed into the building without an escort.
It’s a system that relies entirely on trust—and Eddie violated that
But who was Eddie Tipton?
Eddie Raymond Tipton was born on a Texas farm in 1964. While his siblings worked the fields, he stayed inside and tinkered with computers. Eddie’s brother described him as a very large man who was lonesome and lonely. But he had many friends and was well-liked. On the other hand, a prosecutor would describe Eddie as someone who always thought he was the smartest guy in the room.
After earning his bachelor’s degree from the University of Houston, he got a job at Houston-based Systems Evolution, Inc., as the COO. He also became best friends with company CEO, Robert Rhodes. In 2003, he got the job at MUSL. And by 2005 he’d downloaded his malicious code.
Like we said, Eddie’s code would only work on three days of the year. One of them, November 23rd, is close to American Thanksgiving.
As a lottery employee, Eddie couldn’t buy a ticket and claim it himself. But maybe someone else could do it for him. He had the perfect candidate: his own brother, Tommy Boyd Tipton.
Tommy lived in Flatonia, Texas, with his wife and five kids—but his marriage was far from a happy one.
Heavyset like his brother, Tommy had two jobs. He was a horse shoer and a justice of the peace. But Tommy was also an avid Bigfoot hunter—and that’s why Eddie needed him.
Yes, you heard right.
Tommy grew up hearing tales of Bigfoots menacing farms and livestock and dedicated his life to documenting and capturing them. His Bigfoot hunting habit took him across the US—and that’s why Eddie needed him.
Eddie knew Tommy was planning a Bigfoot hunting trip to Colorado around Thanksgiving 2005. And Colorado belonged to the Multi-State Lottery Association.
At some point in 2005, Eddie called his brother.
Hey Tommy! You should play the lottery while you’re in Colorado. I can recommend some numbers.
Eddie, you work for the lottery.
It’s fine. These things run on patterns, you know that. I just have a good idea of what’s coming.
I dunno. Isn’t this illegal?
Only if I buy the ticket myself. This jackpot is worth almost 5 million. You could put the kids through college. Do you want the numbers or not?
…yeah.
Eddie rattled off the numbers, 200 different combinations of the six Hot Lotto numbers. Tommy wrote them down on a yellow legal pad. But he was still uncertain. He needed the money, but he didn’t want to commit a crime.
So, he approached a lawyer he knew through his horse shoeing business, Thad Wisenant.
He asked Whisenant whether the whole situation was legal, and showed the Texas attorney his list of numbers. Whisenant assured him it was legal.
Unbeknownst to Tommy, Whisenant made a copy of Tommy’s numbers. He would use these to buy his own tickets in the Colorado Lottery, and win a portion of the jackpot.
With Whisennt’s assurance, Tommy was satisfied. He brought his legal pad full of numbers on his trip to Colorado to hunt for Bigfoot.
By night, Tommy and his comrades staked out the Colorado forests for the Big Guy. By day, Tommy bought tickets with Eddie’s numbers. He traveled to every convenience store and gas station he could find, only buying a few tickets at a time to avoid annoying the cashiers, who had to enter his numbers by hand.
The night of the drawing, Tommy looked up the winning numbers, then sorted through his dozens of tickets.
There it was: a match.
He couldn’t believe it. After taxes, Tommy’s winning ticket was worth $568k—which would have been even bigger if Thad Whisenant also hadn’t bought a winning ticket.
Still, this was a huge windfall. And that made Tommy nervous. He was still worried about his connection to Eddie. He also was on the outs with his wife and didn’t want to her to get any of his money. So, he gave the ticket to his friend and fellow Bigfoot enthusiast Alex Hicks, in exchange for 10 percent.
Tommy spent some of the money on a steakhouse. He gave Eddie two “loans” worth $175k, which Eddie used to buy a 4,800 sq. ft. house in suburban Iowa, complete with a movie theater and gymnasium.
But Tommy was still sitting on a bunch of cash, and this was a problem.
Nervous about possessing so much cash in consecutive bills, Tommy approached an acquaintance named Tom Bargas, who owned 44 fireworks stands across Texas—and was accustomed to dealing with cash in bulk.
Tommy asked Bargas if he would be wiling to exchange 100k of Tommy’s crisp consecutive bills with the same amount of Bargas’s, paid by fireworks purchases. Bargas agreed, but he was suspicious that Tommy was trying to launder money, so he contacted the FBI.
The FBI was also suspicious. The case fell to Special Agent Richard Rennison. He allowed Tommy and Bargas to complete the cash swap but made Bargas wear a wire.
But by the time Rennison was ready to interview Tommy, he was surprised to learn that Tommy was in a Houston hospital. On another Bigfoot hunt, Tommy had fallen out of a 31 ft. tall tree and shattered both legs.
At the hospital, Tommy explained that he’d won a lottery on a trip to Colorado and given the ticket to Alex Hicks because he didn’t want his estranged wife to get any of it. He made no mention of Eddie or his numbers. With nothing else to go on, Rennison shelved the case.
That could have been the end of it. But Eddie’s code was like a money tree, waiting to be picked.
Eddie couldn’t buy tickets, and Tommy came too close to trouble. So who else could Eddie rely on?
About a year later, Robert Rhodes, Eddie’s friend and former boss, visited him in Iowa. Eddie explained that he had a series of lottery numbers almost guaranteed to win a jackpot—this time in Wisconsin.
Rhodes was skeptical. But he was also going through a messy divorce, and currently living with his mother. He needed a win. So, he wrote Eddie’s numbers on a stack of 3x5 notecards, drove to Wisconsin, and bought his tickets.
Sure enough, Rhodes won, taking home $783k.
But Rhodes had his doubts, too. By coming forward to claim the prize, Rhodes would be revealing his connection to Eddie.
He asked the Wisconsin Lottery if he could claim the prize anonymously—just like attorney Philip Johnston would try years later. Wisconsin refused, but Rhodes successfully sued and collected his winnings. Eddie got a cool 40k for his trouble.
But Eddie wouldn’t be able to capitalize on his code for three more years. Like we said, Eddie’s code only worked on three specific days of the year, and only if those days were Wednesdays or Fridays. No dates met these criteria in 2008, 2009, or most of 2010—until the last possible day of the year, December 29th, 2010. A Wednesday. When the Hot Lotto jackpot was worth $16.5 million.
Eddie wasn’t even sure his code still worked. He assumed the computers had already been replaced. But this was just too good to pass up.
So, on December 29th, Eddie rented a car for a drive to Texas, where he would vacation with his family. But instead of driving south, he drove north to a QuikTrip convenience store on the other side of Des Moines.
Wearing a baseball cap and hoodie, he entered the store and approached the lottery machine, where he bought $25 worth of tickets for tonight’s drawing, plus two hot dogs. Then he headed south.
Only, he didn’t drive all the way to Texas. He made two more stops in Kansas, where he purchased tickets for that night’s 2by2 drawing.
At the end of the long drive, Eddie settled into bed at his brother’s house and checked the lottery drawings.
He was stunned.
He’d won twice in Kansas, two jackpots worth $22k each.
But he’d also won the grand prize in Iowa. $16.5 million.
Now the question was: how the hell was he going to collect it?
Act Two
In January 2011, Iowa Lottery CEO Terry Rich and VP of External Relations Mary Neubauer stood outside headquarters and addressed reporters.
It’s been nearly a month since we announced we had a $16.5 million Hot Lotto winner, Rich began. The Iowa Lottery has been looking and asking everyone to please check their tickets,
Behind them was a giant novelty Iowa Lotto check written out to: “Is It You?”
As CEO, I want to announce that the person who purchased or owns this ticket probably doesn’t know that they have it.
Slides displayed the address for the QuikTrip convenience store where the ticket was purchased, as well as the winning numbers.
Someone has the ticket. The Iowa Lottery wants to give away the money. We want someone to come in so we can show you the money!
By this point, Rich, Neubauer and the Iowa Lottery had every reason to think everything was above board. People often did forget to check their lottery tickets, unaware they had winner.
They had no idea what they were in for.
The winner, Eddie Tipton, was fully aware he had the winning lottery ticket—plus the two other winning tickets from Kansas. And that was the problem: how to cash them?
Let’s deal with the Kansas tickets first. On the way home to Texas, Eddie bought a pair of 2by2 tickets and won jackpots worth $22k each. He quickly needed to come up with two more people who could claim them.
One was a Dungeons and Dragons friend named Christopher McCoulskey, whose sister Eddie once dated. McCoulskey was happy to split the prize with Eddie.
The other was an Iowa medical worker named Amy Warrick. She and Eddie once went on a lackluster date, but they remained friends. At a recent lunch at Fuddrucker’s, Amy told Eddie she’d gotten engaged. Eddie gave her the second winning Kansas lottery ticket as an engagement gift, promising her it was legal to collect.
That left the Iowa Hot Lotto ticket worth 16 and a half mil.
Collecting six-figure prizes was one thing. But Eddie knew a multi-million-dollar prize would attract even more scrutiny—and he couldn’t allow the Iowa Lottery to learn that a Multi-State Lottery Association computer scientist was involved.
He needed a savvy businessperson with legal contacts. And the only person who came to mind was his best friend, businessman Robert Rhodes.
Things were a bit strained between Eddie and Rhodes. After Eddie helped Rhodes win more than $700k in the Wisconsin lottery, Eddie gave Rhodes one more batch of numbers to play in the Wisconsin lotto. Rhodes once again traveled to Wisconsin to buy tickets, but nerves got the better of him. He only played a handful of possible numbers, winning nothing.
So when Eddie showed up at his door in 2011, Rhodes apologized.
Forget about that, Eddie replied. Did you hear the Iowa Lottery just held a drawing for $16.5 million?
And?
Eddie pulled a paperback book out of his pocket, opened it, and took out an Iowa lottery ticket.
$16.5 million bucks right here
Rhodes yanked Eddie inside and shut the door.
Lottery employees can’t buy lottery tickets!
I bought it at a random convenience store. Nobody will know it’s me. All you have to do is say you bought it.
Rhodes was angry, but tempted. $16.5 mil would solve many problems—including a hefty fine the SEC recently levied against his company, Systems Evolution, Inc.
So, Rhodes took the ticket. As far as Eddie was concerned, that was that. Rhodes could cash it or not, and if he did, he could compensate Eddie, or not. Again, Eddie never expected to win anyway. He bought the tickets on a lark. He just wanted to return to his peaceful, secret-filled life.
But Pandora’s box was already open.
After Christmas break, Eddie returned to work at MUSL and tried to act like nothing was wrong. But one day early 2011, he learned that the Iowa Lottery had surveillance video of the Hot Lotto purchase, including audio.
It was only a matter of time before they figured out it was him in the ballcap and hoodie.
He needed to lie low. But the temptation to make money was just too great.
If you’re keeping score at home, Eddie had already successfully rigged three lotteries in Colorado, Wisconsin, and Kansas, and he’d potentially rigged a fourth in Iowa—and could potentially get caught for any of them.
But Eddie also knew that he could once again capitalize on his code this coming November.
Like we said, Eddie’s lottery rigging code only worked on three days a year, only if those days are Wednesdays or Fridays, and only if there’s a drawing after 8pm.
November 23rd, 2011, happened to be a Wednesday, with an evening drawing.
But Eddie was running out of people he could trust. So, he once again turned to his brother Tommy.
The brothers Tipton agreed they shouldn’t try to collect a winning ticket in a state where they’d already done so. They needed a fresh one, so they picked Oklahoma. Tommy knew someone there, a friend who wanted to borrow his Bigfoot equipment.
Only, Tommy didn’t think this friend would go along with their scheme, so he needed another friend to buy the tickets. He had someone in mind, yet another Bigfoot hunter named Billy Conn.
Billy worked on offshore oil platforms for 28 years before an injury forced him to go on disability. He also had a bullet lodged in his head after being the victim of a drive by shooting in his youth.
On one Bigfoot hunt, Billy found a “42 inch dreadlock” in the forest. He took it to several universities for DNA analysis before one finally agreed to examine it, and determined it belonged to an “unknown primate”—and yes, “primates” includes “human beings.”
Tommy quickly got wind of the “discovery,” called Billy, and the two became friends.
Tommy called Billy and made his proposition. He had winning lottery numbers in Oklahoma, but didn’t want to claim them himself because his estranged wife could claim it. So, Tommy and Billy would drive to Oklahoma under the pretense of loaning Tommy’s Bigfoot hunting gear, then buy lottery tickets with numbers Tommy provided—and Tommy never mentioned he got them from Eddie.
Billy was interested, but feared that winning a large cash prize would disqualify him for disability benefits. But Billy had a nephew, Kyle, whom he could rely on.
So, Tommy and Billy drove to Oklahoma, bought their tickets, and won a jackpot worth about 800k after taxes. Tommy took 650k, Eddie took 75k, and Billy and Kyle Conn took 35k each.
The Conns weren’t great at managing money. They lost a bundle in Facebook stock, then another in silver and gold. Besides a couple hunting cabins, eventually it was gone.
But what about the bigger score, the $16.5 million Hot Lotto ticket from Iowa?
When we last left that ticket in early 2011, Eddie gave it to his best friend and former boss Robert Rhodes.
Rhodes’s first move was to bring it to his attorney, Robert Sonfield and ask for advice. Sonfield…wasn’t thrilled
Are you kidding me? We already barely avoided trouble with the Wisconsin lottery! Now you’re pulling this shit again? And with a ticket your best friend and lottery employee bought himself?!
Can’t we just claim it anonymously
Iowa state law doesn’t allow for that!
So? We’ll just sue like we did in Wisconsin.
You can’t guarantee the outcome of a trial. And if we did that, we’d have to identify ourselves.
Bob, this ticket is worth $16.5 million.
The attorney sighed and leaned back in his chair.
If I agreed, obviously you can’t claim the ticket, and neither can I. We’ll need to involve more people, and they’ll need their cuts, too.
There’s enough to go around.
With that, Sonfield plucked a name from his contacts: a New York City attorney he’d worked with for 30 years named Crawford Shaw.
Shaw was intrigued about the possibility of earning a hefty payoff for the simple act of collecting a lottery ticket. But like Sonfield, he was concerned about the potential blowback. Sonfield and Shaw needed to insulate themselves.
So, the attorneys agreed on the age-old lawyerly techniques of a) involving more lawyers, and b) moving things overseas, which would potentially impede investigations.
They came up with a plan. Shaw would hire a local Iowa law firm named Davis Brown to collect the ticket. It would do so on behalf of an offshore trust they would set up in Belize called Hexham Investments.
They still needed someone to set up this trust. Sonfield knew another lawyer who was based in the Caribbean and accustomed to laundering ill-begotten money: Philip Johnston, the drug dealer lawyer we met at the beginning of this episode.
Johnston was agreeable—but they had to move fast. The ticket expired one year after the drawing.
Johnston and Shaw filed the paperwork to create Hexham Investments, and by early November 2011—about six weeks before the deadline—Johnston contacted Iowa Lottery VP Mary Neubauer and CEO Terry Rich.
Like we saw, Johnston called the Iowa Lottery and started with a bluff: he claimed he bought the winning ticket himself on a business trip to Des Moines.
By now, Neubauer and Shaw had been waiting almost a year to give away this jackpot, giving press conferences every couple months to beg the winner to come forward. They’d pored over the surveillance camera footage from the QuikTrip store in Des Moines. He looked nothing like the man in the video. They smelled bullshit.
When Neubauer confronted Johnston with the truth, he changed his story. He admitted he’d fibbed—that really, he represented a client who wished to remain anonymous.
Obviously this was against Iowa state law. Neubauer and Rich already caught Johnston in one lie, which constituted fraud. They’d be damned if they’d hand out a prize under suspicious circumstances.
The Iowa Lottery executives had a choice. They could refuse to pay the jackpot and sweep the incident under the rug—or they could try to catch and punish the fraudsters.
They passed the case on to Iowa Deputy Attorney General Thomas H. Miller, who was the most experienced prosecutor in the state but also retiring.
Meanwhile, Johnston continued trying to negotiate with the Iowa Lottery to claim the ticket anonymously
But Johnston and company ran out of time. They had to turn in the ticket before the December 29th deadline.
That job fell to two lawyers for the Des Moines law firm Davis Brown, which Johnston and Shaw hired for this purpose.
With just under two hours before the deadline, the lawyers appeared at the Iowa Lottery headquarters with the winning ticket. CEO Terry Rich held a press conference to mark the event.
Normally the Iowa Lottery would pay the prize at this point, but this is an unusual circumstance, Rich told reporters—not mentioning that the “winner” hoped to remain anonymous.
We are still learning the details as part of our security protocols and procedures, he continued, not mentioning that a criminal investigation was already underway. Of course, security and integrity are what the Iowa Lottery is all about
As 2011 turned to 2012, the Iowa Lottery still refused to pay Johnston or anyone else the $16.5 million prize. Negotiations dragged on. Crawford Shaw became involved. At one point, Johnston and Shaw offered to donate the entire prize to charity so long as their client could remain anonymous. Iowa refused.
And so, in early 2012, Shaw made the unilateral decision to withdraw the winning Hot Lotto ticket, no doubt pissing off his co-conspirators.
But it was too late. The Iowa Lottery and the Deputy Attorney General were determined to get to the bottom of this. It was only a matter of time before everyone’s crimes came to light.
Act Three
Happy birthday.
Iowa Assistant Attorney General and Prosecutor Rob Sand was sitting at his desk when his boss, Deputy Attorney General Thomas H. Miller, dropped a thick file on it with a thud.
It wasn’t his birthday. It was early 2014, and Deputy Miller was retiring in August. So, he was unloading all his unfinished cases onto his staff.
Sand was barely out of law school, and so religious and morally upstanding he was nicknamed “Baby Jesus.” He specialized in white collar crime and fraud—people taking advantage of other people’s trust and love. He saw these as crimes against gratitude.
Sand leafed through the file—it was for the open Iowa Lottery fraud case. Deputy Miller had done a lot of investigative work on it over the last two-plus years. To make a long story short, Miller received New York attorney Crawford Shaw in Iowa, but Shaw refused to give up the name of who hired him. So, he threatened fraud charges. That did the trick.
Miller then contacted Canadian authorities for help with Philip Johnston. After many months went by, Miller finally got the two lawyers to divulge who hired them: Houston attorney Robert Sonfield, and his client, Robert Rhodes.
And that was as far as Miller got. They couldn’t prove or disprove that Rhodes was the man in the surveillance video buying the Hot Lotto ticket. He knew Rhodes had won the lottery once before in Wisconsin, but couldn’t prove this was suspicious.
With retirement looming, Miller left the case there.
Sand’s first move was to release the surveillance video to the public, which he did in October 2014.
By now, the Iowa Lottery was admitting that the case was a criminal investigation. And now, the entire country could see the heavyset man in the hoodie and ballcap buying the Hot Lotto tickets and two hot dogs
Many people recognized him for who he was: Multi-State Lottery Association computer scientist Eddie Tipton.
See, Eddie’s job required him to travel, so MUSL employees around the country knew his face and recognized his voice—like a MUSL employee from the Maine Lottery, and two more from the Iowa Lottery, including a draw room manager.
Another person who recognized him was Jason Maher, Eddie’s friend who taught him about rootkits. Maher didn’t want to believe his friend rigged the lottery. But when he compared the man’s voice with a recording of Eddie’s made on his home security system on a recent visit, it was a match.
Tips poured into the Iowa Lottery, all identifying Eddie as the man in the video. For good measure, Iowa Lottery CEO Terry Rich, who was a board member at MUSL and acquainted with Eddie, approached him at MUSL headquarters and casually asked if he knew of a Houston man named Robert Rhodes.
Astoundingly, Eddie said Rhodes was his best friend. An excited Rich relayed this to the Iowa Lottery’s VP of Security Steve Bogle. Bogle, an ex-cop, told his boss to stay the hell out of the investigation.
The Iowa Lottery passed the tips on to Rob Sand, who interviewed Eddie a few weeks later. Eddie claimed he had an alibi, that he was in Texas when the winning Hot Lotto ticket was purchased. However, when Sand subpoenaed his phone and bank records, he was proven to be in Des Moines.
This made Eddie Sand’s top suspect.
Yet the case wasn’t quite the slam dunk it seemed. All Sand’s evidence was circumstantial. They had no forensic evidence that Eddie created a malicious code to manipulate the Hot Lotto numbers—by the time a criminal investigation began, the Iowa draw computer had been replaced with a new one with updated code.
But Sand was facing a three-year statute of limitation on the crime. He’d run out of time, so in January 2015, he had Eddie arrested. Eddie went peacefully. Two months later, they arrested Rhodes as well.
For his part, Eddie was also vehemently denying he’d done anything wrong. He knew the state lacked forensic evidence, and he’d hoped he could ride it out. He was also relieved that investigators only seemed to know about his Iowa lottery scams, not the other ones.
In July 2015, facing trial, Eddie sold his 4,800 sq. ft. house to pay for his legal expenses. At his trial, his lawyer leaned into the “false accusation” defense.
His lawyer even called on Eddie’s brother Tommy as a character witness—unaware of Tommy’s role in the lottery scams. Tommy denied the man in the convenience store surveillance video buying lotto tickets and hot dogs was his brother, as Eddie wasn’t a “hot dog guy.”
Despite the lack of hard evidence, the jury needed just six hours to decide Eddie was guilty on two counts of fraud.
But Eddie and his lawyer still had another card to play—an appeal.
The following July, in 2016, the Iowa Court of Appeals ruled in Eddie’s favor, overturning the two fraud charges on the grounds that the state had taken too long to file them. The case was sent back to district court for a retrial.
But this time, Sand got a lucky break, in the form of a phone call from Texas FBI agent Richard Rennison.
The strange Iowa lottery case and its hot dogs caught Rennison’s attention. He remembered investigating Eddie’s brother Tommy years earlier for money laundering suspicious lottery prize money, just after he broke his legs hunting Bigfoot.
Sand realized there had to be more cases out there.
Sand’s office obtained a list of every past MUSL lottery winner going back to Rennison’s case in 2005, then cross-referenced their phone numbers with those found in Eddie’s call history.
He found Tommy Tipton’s 2005 Colorado win, which he collected via Alex Hicks.
He found Robert Rhodes’ 2007 Wisconsin win.
And he found Amy Warrick’s and Chris McCoulskey’s Kansas wins from 2010.
And finally he found Bobby and Kyle Conn’s Oklahoma win in 2011.
Ironically, Kansas was one of the few states that allowed lottery prizes to be claimed anonymously—Warrick and McCoulskey just identified themselves voluntarily. If they’d known the law, they probably never would have been caught. And if Eddie and his accomplices limited their scams to states like Kansas, they wouldn’t, either.
Sand reached out to the lottery associations in these states, hoping for any assistance—particularly anything resembling forensic evidence that would implicate Eddie
Colorado, Kansas, and Oklahoma had nothing. They’d replaced their draw computers just like Iowa had. So had Wisconsin.
But an employee of the Wisconsin Lottery found an old computer in a storage room that hadn’t been wiped. Within hours, Sand’s forensic investigators were able to trace the malicious rootkit back to Eddie.
This was the smoking gun Sand needed. Now, Eddie couldn’t deny what he’d done
On top of that, Robert Rhodes took a plea deal to testify against Eddie. He knew that it would be futile to go to trial again—even worse, his brother Tommy was facing legal jeopardy, too.
So, early June 2017, Eddie agreed to plead guilty to one charge in Iowa for ongoing criminal conduct and two more in Wisconsin for theft by fraud and computer crime
Tommy couldn’t escape a charge, either. He agreed to plead guilty to charges of conspiracy to commit theft in Wisconsin and Iowa.
Mercifully, Eddie’s other friends escaped punishment. But now, he and his brother were at the court’s mercy.
Act Four
In June 2017, Eddie appeared in court, both to enter his guilty plea, and to explain himself. He told his story to the judge, the Honorable Brad McCall. For the first time, Eddie admitted what he’d done.
He claimed he did it out of curiosity. He tried to paint himself as a Robin Hood like figure. He was just exploiting a loophole to help his friends and family—brother Tommy with college tuition for his daughters, Amy Warrick with an engagement gift to ease her money troubles, Robert Rhodes to save his company from bankruptcy.
But in the end, Eddie expressed remorse.
I certainly regret what happened. It’s difficult even saying that with all the people I know behind me that I hurt, and I regret it. I’m sorry.
The Judge gave his response.
Mr. Tipton, it is clear you are intelligent. But it is indeed unfortunate that you did not use that intelligence to prosper by legal means. I encourage you to use your time in prison to think about what you’ve done.
Judge McCall sentenced Eddie to the maximum of 25 years. Eddie was 54 years old.
However, while Robert Sand appreciated the victory, he knew Eddie would most likely get out much sooner. White collar criminals usually did. He predicted seven years. Eddie got out in five.
Robert Rhodes received six months home confinement and had to pay 409k in restitution to the Wisconsin Lottery.
Thanks to Eddie’s plea, Tommy Tipton received just 75 days in jail.
But the brothers Tipton were also ordered to pay $2.2 million in restitution to the Colorado, Wisconsin, Kansas, and Oklahoma lotteries.
In the end, that’s about all Eddie Tipton and his co-conspirators were proven to have taken, somewhere between 2 and 3 million dollars, split between many other conspirators. And they had to give all of it back.
So in the end, the biggest lottery scam in the United States profited no one.
But that was cold comfort for the Iowa Lottery, if not the Multi-State Lottery Association itself.
The Iowa lottery conducted an expensive audit of their procedures. Obviously they removed all software Eddie Tipton was involved with creating.
But there was only so much the Iowa Lottery could do.
You can make a computer network as secure as the Iowa Lottery does. But someone still has to program it.
As Mary Neubauer says:
As long as human beings are involved, in anything, that practice or procedure will never be perfect. You just need to have the best safeguards and the best systems in place so that if something does start to go wrong, you can recognize that quickly, catch it, and then put even better safeguards in place as you go ahead.
So the next time you consider buying a lottery ticket, remember: the game might not be rigged, but it will never be safe as long as human beings are involved.
I’m Keith Korneluk, and you’re listening to Modem Mischief.
CREDITS
Thanks for listening to Modem Mischief. Don’t forget to hit the subscribe or follow button in your favorite podcast app so you don’t miss an episode. This show is an independent production and is wholly supported by you, our listeners and the best way to support the show is to share it. And another way to support us is on Patreon. Just go to patreon.com/modemmischief or click the link in the show notes. You can also support us through a paid subscription on Apple Podcasts. For as little as $5 a month you’ll receive an ad-free version of the show plus bonus episodes exclusive to subscribers. Modem Mischief is brought to you by Mad Dragon Productions and is created, produced and hosted by me: Keith Korneluk. This episode is written and researched by Jim Rowley. Edited, mixed and mastered by Greg Bernhard aka The Greg Gatsby. The theme song “You Are Digital” is composed by Computerbandit. Sources for this episode are available on our website at modemmischief.com. And don’t forget to follow us on social media at @modemmischief. Thanks for listening!