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$1.5 million settlement ends legal action against Iowa lottery

Eddie Tipton apologizes for his role in an Iowa Lottery scam before being sentenced to 25 years in prison.

A lottery association has agreed to pay $1.5 million to settle an Iowa man’s claim that an insider’s scheme to hijack drawings resulted in him receiving a reduced jackpot, state emails show.

Larry Dawson of Webster City, who won a $9 million jackpot in 2011, alleged in 2016 lawsuit that his jackpot would have been larger had the drawing for the game’s previous jackpot not been rigged by a since-imprisoned executive of the Multi-State Lottery Association.

The Urbandale-based association administers or provides services for lotteries in dozens of states, including Iowa. In 2005, Eddie Tipton, its security chief, hijacked the association’s random generation system for lottery numbers by secretly adding a software code that allowed him to predict the winning numbers.

The code was replicated to games in as many as 17 states, according to transcripts of his confession, which the Des Moines Register obtained last year.

Convicted in 2017, Tipton is serving a sentence of up to 25 years at the Clarinda Correctional Facility.

The association — frequently referenced as MUSL — has refused to disclose the settlement in the Dawson case, contending that it is a private entity and is not subject to public records laws, even though it is owned and operated by its member states’ publicly established lotteries.

Larry Dawson and his wife claim the $9 million prize, worth $6 million in cash, from the Hot Lotto jackpot he won in 2010. Dawson is suing the lottery, alleging a jackpot rigging scheme shortchanged him. (Photo: Special to the Register)

MUSL Director Bret Toyne summarized the $1.5 million settlement in an Oct. 9 email to lottery directors, including Iowa Lottery CEO Matt Strawn. The Iowa Lottery released the email as part of records requested by the Register and The Associated Press.

Iowa Lottery officials said they do not have a copy of the settlement beyond Toyne’s summary. It remains unknown whether there are other stipulations linked with the agreement, which the Register is still seeking. It has filed a complaint against MUSL, noting that under Iowa law, any settlement made on the government’s behalf is subject to public disclosure.

The Iowa Lottery no longer uses MUSL software to conduct Iowa game drawings. MUSL software is, however, still used for Powerball, Mega Millions and Lotto America, national games still offered by the Iowa Lottery.

Tipton’s scam began to unravel after Iowa Lottery officials refused to anonymously pay a $16.5 million jackpot that his associates attempted to collect through a trust account. An investigation ultimately revealed that Tipton had purchased the ticket in 2010 at a Des Moines convenience store.

Some states allow jackpot winners to remain anonymous. Iowa rules, however, require winners to identify themselves, which helped to foil the national scheme, multiple lottery officials and investigators have said.

“The settlement between the Multi-State Lottery Association and Mr. Dawson closes a chapter in lottery history that tested that foundation of trust,” Strawn, the Iowa Lottery CEO, said in a November statement included in the released emails. “The actions of state of Iowa officials over the years to investigate, uncover and successfully prosecute this fraud against the public serve as a reminder that Iowa passed this test.”

Webster City resident Larry Dawson said his $9 million jackpot would have been bigger had it not been for a scam.

Brothers who scammed lotteries in 5 states have repaid virtually nothing, own $2 million in property

The Tipton brothers orchestrated the largest lottery scam in U.S. history. They own properties valued at $1.8 million, which no state has seized. Corpus Christi Caller Times

Eddie Tipton, back, and his brother Tommy Tipton appear June 29, 2017, at the Polk County Courthouse in Des Moines, Iowa. Eddie Tipton, the cyber-security expert and brainpower behind a lottery rigging scandal that netted $2 million in illegal winnings from five state lotteries, pleaded guilty that day to a felony charge of ongoing criminal conduct. (Photo: Rodney White/The Register)

DES MOINES, Iowa – Two brothers who directed the biggest lottery scam in U.S. history have repaid less than $1,400 in restitution despite owning property worth nearly $2 million, a Des Moines Register and Corpus Christi (Texas) Caller Times investigation has found.

Between them, Eddie and Tommy Tipton admitted rigging drawings in at least five states worth a combined $24 million.

But they barely have made a dent in the more than $2.4 million they were ordered to pay in restitution even though they own more than a half dozen properties in Texas that are worth nearly as much as they owe, according to records the Register has obtained.

At the pair’s current rate of repayment, Oklahoma – one of the five state lotteries the brothers scammed – estimates it will be fully reimbursed in 190 years.

“How do these guys slip through the loop every damn time? They’re like Teflon,” said Allen Weise of Flatonia, Texas, who provided information about the brothers and their properties to Iowa prosecutors before their 2017 convictions.

Eddie Tipton, mastermind of the “random number” scam and former security chief of the Urbandale, Iowa-headquartered Multi-State Lottery Association, remains in prison serving a 2017 sentence that could last up to 25 years. His job also barred him from playing the lottery because the association provides games for state lotteries across the USA.

“How do these guys slip through the loop every damn time? They’re like Teflon.”

Allen Weise, Flatonia, Texas

His brother, Tommy Tipton, a former justice of the peace from Flatonia, Texas, who admitted helping his brother hijack the world’s largest lottery network, served a 75-day jail sentence and has been off probation for 15 months.

Using “random” numbers generated from a computer program designed by his brother at the Multi-State Lottery Association, Tommy Tipton acknowledged that he helped to claim prizes in at least two states: Colorado and Oklahoma.

Eddie Tipton was ordered to pay almost $1.7 million in restitution while Tommy Tipton was ordered to pay more than $800,000.

From prison, Eddie Tipton has paid almost $800. His brother has repaid $587, court records show.

Yet, the brothers retain full or partial ownership in more than $1.8 million of property in Fayette County, Texas, where Flatonia is located about halfway between Houston and San Antonio.

Since Tommy Tipton’s Sept. 15, 2017, release from jail and probation he has:

• Sold at least two properties with a combined market value of more than $635,000.

• Continued to own his longtime home with a pool valued at almost $780,000.

• Remained the sole owner of at least five business or investment properties that have a combined market value of $572,950.

• Continued as a joint owner with his still-imprisoned brother in at least two properties and mineral rights on a third valued at $105,420.

So far, no state has pursued the legal actions outlined in the Tiptons’ plea deals that entitle the defrauded lotteries to lay claim to the brothers’ property or to property that the Tiptons placed in the names of associates and family members.

When the Register contacted Tommy Tipton, he declined to discuss his current work, income or properties. He said in that brief interview that his brother, Eddie, “ain’t never done anything wrong in his life” and vowed the two would once again work together.

“It’s hard. I’m a single dad raising three kids on a very limited income with lots of bills, and when Eddie gets home he probably will create something,” Tommy Tipton said. “He’s a smart, intelligent guy. Hopefully, the future will be better and we’ll get all that stuff paid back.”

In 2007, Eddie Tipton built a roughly 5,000-square-foot home in Norwalk, Iowa, a Des Moines suburb. That was two years after he embedded fraudulent computer code into random-number generating software that several state lottery games distributed and used.

The random-number fraud allowed him to accurately predict at least five winning drawings that totaled more than $24 million in Colorado, Iowa, Kansas, Oklahoma and Wisconsin.

Surveillance video shows Eddie Tipton buying a winning Hot Lotto ticket on Dec. 23, 2010, at the QuikTrip on East 14th Street. Tipton is serving up to 25 years in prison for his lottery rigging scheme.

The multi-year scheme ultimately unraveled in 2010 after a Des Moines convenience store video captured Eddie Tipton purchasing what would become a $16.5 million ticket. Iowa Lottery officials refused to cash that ticket after some of Tipton’s associates on multiple occasions tried to redeem the ticket anonymously.

After years spent fighting criminal charges, Eddie Tipton pleaded guilty to “ongoing criminal conduct” in 2017.

Iowa prosecutors were aware of his Norwalk home that contained a movie theater and gym, overlooked a pond and sat on nearly 23 acres. He sold in July 2015 for $590,000.

But at the time Eddie Tipton sold his home, prosecutors knew only about the Iowa Hot Lotto ticket that state officials had refused to cash. In late 2015, prosecutors learned that he had rigged lottery wins in other states.

As a result, Iowa Attorney General Tom Miller’s office in March 2016 attempted to gain access to Eddie Tipton’s Norwalk home; office equipment; multiple vehicles; and his checking, savings and futures trading accounts.

Defense lawyer Dean Stowers, left, reacts as he and his client, Eddie Tipton, listen Aug. 22, 2017, at the sentencing hearing for Tipton in Des Moines, Iowa. (Photo: Michael Zamora, The Des Moines Register)

Eddie Tipton argued in court filings that the lien was unconstitutional because it would interfere with his constitutional right to counsel and result in a deprivation of property without due process. Judge Brad McCall of Polk County District Court in Des Moines agreed and dismissed the state’s attempt to place liens against the property.

Some of the money that Eddie Tipton scammed in rigged drawings was acquired a decade before his arrest, records show.

Many banks and financial institutions are not required to maintain records that old, which made it difficult for prosecutors to directly link Eddie Tipton’s assets with the winnings, said Rob Sand, a former lawyer for the Iowa Attorney General’s Office who helped prosecute the Tipton cases.

“Unless we could very specifically and very clearly show that the money he was paying for them (properties) with was stolen money, we couldn’t do anything about it,” said Sand, who in November was elected as Iowa’s state auditor.

It’s “absurd” that states and their lotteries have not taken further action to claim restitution from the Tiptons, Judge Ed Janecka of Fayette County, Texas, told the Register.

In 2015, Janecka successfully urged Tommy Tipton to resign from his elected judicial position because of Tommy Tipton’s involvement in the lottery fraud, Janecka said.

“This is just wrong, and the states need to come back with a vengeance,” Janecka said.

The Register contacted the lotteries and attorneys general offices in each state where Tommy Tipton or Eddie Tipton owe restitution.

Conversation is ongoing about which state should take the lead on actions that could result in seizing property, said Jay Finks, a spokesman for the Oklahoma Lottery. Some of the games fraudulently won in the scandal were part of multi-state networks.

“It kind of creates a layer of complication we’re trying to navigate,” Finks said.

The land records the Register obtained should alert states to take further action, Sand said.

“Our law-enforcement team in Iowa did not work hard for three years to now see other states make a minimum effort to collect,” Sand said. “Hopefully, this is a wake-up call.”

Follow Jason Clayworth and Rachel Denny Clow on Twitter: @JasonClayworth and @CallerClow

Brothers Eddie and Tommy Tipton's scheme rigged $24 million of 'random' lotteries. They own $1.8 million of property yet have repaid almost nothing