terry rich iowa lottery

Book gives inside story of lottery rigging scheme discovered in Iowa

Perry Beeman and Terry Rich.

A new book details the twists and turns in the case of the Iowa Hot Lotto ticket that led to the discovery of lottery fraud in several states.

The story started when Eddie Tipton, the former security director for the Multi-State Lottery Association, sent someone to claim a $16 million Hot Lotto prize hours before the ticket expired in 2011.

Former Des Moines Register reporter Perry Beeman co-wrote the book with retired Iowa Lottery executive director Terry Rich. “What this really does is take the reader inside to the actual conversations — like say between the lawyers and the Iowa Lottery staff on the phone — and some of those details you wouldn’t otherwise have,” Beeman explains. It turned out that Eddie Tipton had put a piece of code into the system that selected the Hot Lotto numbers so he could play the winning numbers before the drawings in any of the states that participated in the game.

Beeman says they don’t get deep into the computer programming aspect of the story — but do tell how the whole plan unraveled. “It’s a story about how the Iowa Lottery staff and other Iowa officials cracked a case that some of the other states didn’t,” he says. “I mean they let Eddie and his accomplices go ahead an cash in those tickets. Iowa did not pay the ticket. So, it’s a story of greed, of true detective work, and frankly, it’s also humorous in places.”

Rich says one of the humerus side notes is how Eddie’s brother Tommy — who took people on hunts for bigfoot — would help cash the tickets.
“He would recruit his people to cash his tickets on his bigfoot hunts. He fell out of a tree while he was bigfoot hunting and he was in the hospital, and the FBI was investigating how he got all this money in his bank accounts,” Rich says. “They thought it was money laundering — he said ‘no, no I won the Colorado lottery.” Rich says that revelation broke the case wide open because it created a link between the two brothers and lottery jackpots.

The investigation went on to find others who had won jackpots in Wisconsin, Kansas and Oklahoma from tickets rigged by Eddie Tipton. The had gotten away with the scheme, and Beeman says they may never have been caught if they hadn’t been unable to pass up trying to cash in the Iowa ticket.

“Part of the book we examine greed and how research has shown that people tend to start small and then build — and if they are successful — they keep going with their greed and amp it up. And that’s what happened with Eddie Tipton,” Beeman says. Some of the clues that led to Tipton turned out to be good luck for the Iowa Lottery. For example, Rich says they had watched and listened to surveillance video and audio of the ticket being purchased, and the voice of the person who called in to collect for Tipton didn’t sound the same.

“Only four convenience stores out of the 2,400 that the Iowa Lottery used to sell tickets had audio. It wasn’t the video that caught him, because he was disguised with this hoodie — it was the audio,” according to Rich. ” So, I think that there are a lot of…real fun deals that I think people will enjoy reading. If he hadn’t bought it at that location, if he had sent someone in in a hoodie, we probably would have paid.”

Tipton agreed to tell prosecutors his secrets to manipulating the tickets in a plea deal after he was arrested. Beeman says it’s one of the most unusual stories he had ever covered. “It has a lot of twists and turns and the idea that this regular guy, this hoodie-wearing regular guy — IT guy making six figures, doesn’t really need money — decides to embark on this kind of scam is really pretty compelling and odd really. It’s a good story,” Beeman says.

The book is called “The 80 Billion Dollar Gamble,” because that’s the amount of money spent on the lottery tickets each year. It is published by Business Publications Corporation and is available on Amazon, Kindle, Audible Audiobooks, Barnes and Noble and other selected bookstores.

Book gives inside story of lottery rigging scheme discovered in Iowa Perry Beeman and Terry Rich. A new book details the twists and turns in the case of the Iowa Hot Lotto ticket that led to

TechBrew: Q&A with Iowa Lottery CEO Terry Rich

On the second Friday of each month, the Technology Association of Iowa hosts an informal networking event at West End Salvage in downtown Des Moines for entrepreneurs, technologists, funders, business professionals and government leaders.

And during each event, Technology Association of Iowa President Brian Waller sits down with a local tech executive for a Q&A. After each interview, Waller presents them with a vinyl record of their choice.

To kick off 2018, Waller sat down with Iowa Lottery CEO Terry Rich then presented him with the 1977 album “All n’ All” by Earth, Wind & Fire.

Rich joked that 72 is the lucky number.

Their Q&A is below and has been edited for conciseness:

You are not a technology guy but you do have a history, let’s talk about it…

TR: Oh hell yes. I came out of college and started with Heritage Communications, it was the most entrepreneurial company. Cable television before cable was cool, we went out and sold for $6 and everybody said this would never work, to pay $6 for extra channels.

We helped start all these different channels and it was really fun. Ultimately the Bass brothers took a run at our stock, much like what happens today in the tech world.

And we continued then something that started with Earth, Wind & Fire. I was laying down one night listening to “Fantasy” on this album and my hometown of Cooper, Iowa was having a Centennial and they asked me to help with publicity. I kept thinking Cooper never had anybody famous so let’s adopt somebody famous.

Ultimately we sent out a press release and got to go interview Johnny Carson and got to interview him as the 51st citizen who got to be a citizen for a day of Cooper, Iowa.

But from a technology standpoint, they talked about uplinking from Cooper, Iowa, for the first time ever. So they got with WHO and started talking about it. And when I came back home, we were selling HBO and I was going from town to town to sell these free previews.

And I thought, I’m traveling all over, why couldn’t I do this via satellite? So we got the VP of engineering at HBO and they said sure, when would you like the satellite. So for the first time in Iowa history, we brought a satellite uplink on a truck and transmitted 23,500 miles up and down. And that weekend we did $15 million for Heritage Communication selling HBO across the country.

All because of an idea that came from listening to Earth, Wind & Fire and being inspired.

Now talk about your role at High Tech Venture Capital

TR: Once you become an entrepreneur I didn’t want to go work for anyone else. I tried two or three ventures and failed at that. One venture that went along with that was I knew the World Wrestling Federation was the best show on cable television so I tried to do it for soccer and call is “Soccer Slam.”

It was indoor soccer, two balls, with professional soccer players who beat the crap out of each other. Trying to create all the drama like WWE. It got on Fox Sports World and Gala Vision but we got so busy with these HBO previews we couldn’t do it.

All of a sudden one day we are talking about patents, and I go into the store and see Soccer Slam as a video game. It inspired a video game, they didn’t realize we had it patented and ultimately Sony bought the rights.

But that got us into something called the Emerging Growth Group, we all wanted to help Iowa companies. We probably started 15-20 companies, some are still in existence today.

Our goal was just to get Iowa companies started but with the tech bust in 2001, the company dissolved but hopefully, it inspired others and that’s exactly what happened today when we talk about people getting Federal grants because this town is now rocking in the tech world.

Around 2003, you ran the zoo?

TR: I got a call from Governor Ray and they said they are going to close the zoo. We took it over as a nonprofit foundation, cash flowed it in a year and got about $13 million in an endowment. So the zoo will be around forever, but talk about being able to see the kids smile every day, it was a really fun deal.

My job was the marketing, operations and the business side of it. We started “Zoo Brew” because what do millennials want? Booze. And it’s going really well.

Up to $16.5 million was stolen or embezzled from the Iowa Lottery, talk about what the hell happened?

TR: This could happen to anyone and if you take anything away, technology is if X then Y, but this was a basic principle of accounting which is checks and balances.

Iowa wanted to have a big jackpot of $1 million and we got with other states and consolidated and ultimately did Powerball so we could pool our money because we needed to compete with New York and Chicago who have the million dollar jackpot.

So in 2003, we decided to do some regional games and hired a programmer by the name of Eddie Tipton.

He came in and said it would be a lot more efficient to do the draws with a random number generator. So Eddie put together a random number generator and in 2003 he added some malicious code.

In 2005, his brother claimed a Jackpot in Colorado, in 2007 his friend picked up a Jackpot in Wisconsin and in 2011 he got a little greedy and bought one in Iowa and we busted it.

And in Iowa, the honesty of elected officials kept telling me they didn’t care what we took in or what we made for money, but just make sure the games are fair and honest.

We do $80 billion in lottery sales in America today a year.

So the question is, how did he do it?

Eddie put a malicious code in the random number generator that a few variables:

  • If the draw is done on one of three days
  • And it was on a Wednesday or Saturday
  • And it was after 8 p.m.
  • And then add the computer, because we switched between two for randomness,

Then it would generate specific seeds to be able to somewhat guess the number. It was still random but he could narrow it down from 200 to 30 or 40 variables. He programmed and coded the machine, compiled the machine and he maintained the machine. And he knew what the draw officers were doing so he could actually guess how many draws he had.

So he would give that to his brother, who was a Bigfoot hunter in Texas. His brother had an associate who went to Colorado to buy the ticket for ten percent of the proceeds. And his friend went to Wisconsin and bought it himself. Then Eddie bought one himself here in Iowa and he’s not allowed to buy a ticket here.

So they call me while I’m on a cruise ship on vacation and say they don’t want to pay the $16 million jackpot.

So from that point, who do you call in, what sort of agencies are there? Talk about that forensics process…

TR: First off, because of the checks and balances we have, we knew exactly when somebody checks a ticket and we probably have you on camera.

We have a full security department that are all ex DCI and police officers. They knew something stunk when they called, so once we have fraud we have to go to the DCI and Attorney General’s office. That was in 2012 when we began and knew there was a problem.

So at that time, there were only four stores in Iowa that along with the video, had audio. And that audio is what tripped him up. We saw him in doing something to the computer a month before the draw was done, the assumption was he put a rootkit into the machine with a thumb drive because he had access to maintain. That’s when we went in and the jury within two hours said guilty.

It was all circumstantial evidence, we did not have a smoking gun. But again, fraud and catching it doesn’t happen without the checks and balances.

As we look to the future, what’s the role of Chief Executive Officer in security for your organization?

TR: You’ve got to have checks and balances, the security person with the programming people. You need that check and balance and then encouragement to check in on it.

What is the future look like for the Lottery and what changes have been made because of this?

TR: Eddie Tipton did not work for the Iowa Lottery number one. But we pushed hard to get the multi-state lottery to put the checks and balances so the person who programs doesn’t compile and the person who compiles doesn’t oversee the maintenance. We put a lot more checks and balances in place.

And I feel very comfortable in saying play the Lottery. It’s the highest of integrity, we’re there to watch and the government oversees.

What is Eddie Tipton doing now?

TR: He’s in Clarinda, Iowa, he got up to 25 years. That was a pretty heavy sentence but again we were gambling with an $80 billion business.

Now some fun questions…Star Wars or Star Trek

TR: Star Trek

Favorite curse word?

TR: My uncle was kind of religious and he would say ‘God damnit’ and you never thought he was taking the lords name in vain.

Favorite caffeinated beverage?

TR: Diet Coke.

Crash at a friends house or stay at a hotel when out of town?

TR: Today, stay at a hotel but ten years ago I probably would stay at a friends house.

Favorite word?

TR: You bet, oh wait that’s two words.

Least favorite word?

TR: Anything I can’t pronounce.

Comedy or dance club?

TR: Comedy club.

Sound or noise you love?

TR: Silence.

Sound or noise you do you hate?

TR: Screeching tires.

What profession would you want to attempt?

TR: TV game show host.

What profession would you absolutely not want to try?

TR: Accounting.

If heaven exists, what would you like to hear God say at the pearly gates?

TR: You had a lot of fun in your life.

Here is the complete 2018 schedule for TechBrew events in Des Moines. The networking events are held on the second Friday of each month at West End Salvage in downtown Des Moines.

Previous coverage of TechBrew events in 2017

Linc Kroeger on Pillar Technology – Dec. 8

John Bertran of Kreg Tool – Nov. 10

Ben Milne of Dwolla – Oct. 13

Rich Schappert of Casey’s General Store – Aug. 11

TechBrew: Q&A with Iowa Lottery CEO Terry Rich On the second Friday of each month, the Technology Association of Iowa hosts an informal networking event at West End Salvage in downtown Des Moines