Oh My Fraud

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Greg Kyte: Tell me again. If you stole a whole bunch of money and had to explain it, like how you suddenly got rich, what would you say? I mean, I know you wouldn't steal a bunch of money, but hypothetically speaking, what story would you concoct?

Caleb Newquist: Uh, inheritance or lottery? But inheritance is a safer choice, I think, because depending on the state lottery, winners are public information. And I don't need people like, you know, knocking on my door, you know, just, like stopping me on the street or whatever.

Greg Kyte: Exactly. Because people can [00:00:30] fact check lottery winnings. It's a lot harder to fact check inheritance because that stuff is not public information. So saying that all the money you stole came from the lottery isn't the best way to cover your tracks in general, and it's a horrible way to try to cover your tracks if you stole all that money from the lottery.

Earmark CPE: If you'd like to earn CPE credit for listening to this episode, visit earmark Cpcomm. Download the app, take a short [00:01:00] quiz, and get your CPE certificate. Continuing education has never been so easy. And now on to the episode.

Greg Kyte: Hello and welcome to Oh My Fraud, a true crime podcast where our criminals don't burn their victims bodies so much as they erase their victim's hard drives. I'm Greg Kite, and.

Caleb Newquist: I'm Caleb Newquist.

Greg Kyte: Uh, Caleb, before we get into it, as we're want to do, I would love to read a listener review real quick. [00:01:30] Is that okay?

Caleb Newquist: It is. Okay.

Greg Kyte: Yeah. Awesome.

Caleb Newquist: Yeah.

Greg Kyte: This one comes from listener might law. It says, quote, as a CPA of 20 plus years and an ex-mormon descended from polygamists, this is my favorite podcast. Great stories, well researched and thoroughly entertaining. Five stars.

Caleb Newquist: If you're wondering why anyone would include the detail about being descended from polygamists in their review, check out episode 40 The Case [00:02:00] of the Polygamist with More Fraud Charges Than Wives. It's fun for the whole family, unless it's a polygamous family.

Greg Kyte: If you like. Oh my fraud, please take a minute to write us a review. Who knows, we might even read yours on the show. Likely we will read yours eventually on the show.

Caleb Newquist: Yes. Also, if your firm is looking for in-house ethics or fraud training, that doesn't suck. We do that. And don't worry, we can work clean. We're professionals. If you want more info on pricing and availability, [00:02:30] send us an email at oh My fraud@imaqtpie.com.

Greg Kyte: Okay, Caleb. So changing subjects, uh, right now I just, I just shortly before recording, I checked the Mega millions jackpot and it is $493 million. But but that's that's if you get the like the annuity. So the 493 million that gets paid out in 29 annual [00:03:00] payments. I did the math because I have Excel and that turns out to be $17 million per year, okay, for 29 years. And after taxes, I'm, I'm estimating that that is roughly giving you about $10 million per year after taxes, the cash option. It's fun. If you look on the website, they give you the cash option. The cash option for this one is 231 million. You know they say estimated cash option. Um, so after taxes, the cash option would leave [00:03:30] you about 135,000,000 in 1 lump sum. So, Caleb, do you take the 29 year annual payment or the one time lump sum cash option?

Caleb Newquist: Now, remind me why the big difference between the cash option and is is it discounted the discounted, uh, what is the time value of money.

Greg Kyte: That's it. Yeah. It's those calculations that when you first had to do it in like advanced accounting.

Caleb Newquist: Intermediate accounting.

Greg Kyte: One. Yeah. Yeah. You you like everybody was like, this makes no sense. And I need to find [00:04:00] a new like major. Right.

Caleb Newquist: It kind of it kind of broke. It kind of broke my brain I remember. Yeah. When the whole idea of the time value of money. Um. To answer your question. I know this goes against the conventional wisdom, but I think I want the 29 year annual payment, okay. Because. Right. The conventional wisdom is to take the lump sum, is it.

Greg Kyte: Not I think I don't know, I don't know, I think I think most people I don't know if it's conventional wisdom, but most people, myself included generally if it's [00:04:30] like, are you going to take the payout? Are you going to take a lump sum? They go, give me that lump sum.

Caleb Newquist: Yeah, I don't know. I think it'd just be an exciting day in your household every single day for like three decades. Like you'd get so used to it that then the $10 million just drops into your bank account. You just forget about it. You're like.

Greg Kyte: Oh my God, like the day that one day every year when you know it's coming, it's like, yeah, it's it's like, oh, Christmas Eve times 10 million. Yeah.

Caleb Newquist: Next Friday is the $10 million payday. Ah. [00:05:00] And then you and then and then you throw a party. Right, right, right, right. It's fucking great. I don't know, that's that's just me like. Yeah. Like I said, maybe that goes against the conventional wisdom, you know, because I honestly, I, I, you know, I cannot stand when the lottery jackpots get up this high. I, I cannot stand the tax planning articles that fucking just come out of the woodwork in the mass media. Yeah. Oh yeah, I wrote, I wrote like, all kinds of, like breathless screeds about, [00:05:30] like, hating on all this. Yeah, the tax planning and all this shit about winning the lottery, right? Like you won the fucking lottery. Just enjoy it, right?

Greg Kyte: Right? Right.

Caleb Newquist: Idiots.

Greg Kyte: Yeah, just just don't be a dummy. I mean, because it reminds me.

Caleb Newquist: It ruins. It ruins people's lives plenty, right? Right, right. But also, let's not ruin it with tax planning also.

Greg Kyte: Oh, you mean the lottery ruins people's lives in general?

Caleb Newquist: Oh, yeah. Don't. Yes.

Greg Kyte: Don't screw up people's lives even more by, like, forcing them to plan how they pay [00:06:00] their how they minimize their taxes on their winnings. That's right. Yeah. Nice. Nice I love that. Oh, which which actually leads me to the next question. If you had this ungodly amount of money, what would just I mean, you gotta I gotta know what would you spend your money? What would you spend these lottery riches on? Caleb Newquist.

Caleb Newquist: Oh, yeah. No, I love this. Um, I, I like traveling, and I like cities. Yeah. So, uh, uh, I would probably buy a lot of predators, you know, um, [00:06:30] which, like, means to.

Greg Kyte: To us unclassy.

Caleb Newquist: People that don't know French. It's just a, it's a, it's a usually a small apartment used for occasional use.

Greg Kyte: Oh. Gotcha. So you just you just buy some properties in, in cool places that you like to travel to.

Caleb Newquist: Yeah, absolutely. So like, I used to live in New York, so I, and I love New York, so like, I'd probably splurge in New York, like I'd get a brownstone there, so I'd buy a brownstone there. Okay. I like London and London. You can get anywhere in the world from London, so to have a place [00:07:00] there would be good. Yeah. And I like San Francisco. So you can get. So you can get to Asia easier. Yeah. Yeah. So yeah I'd have those three and then I'd kind of scope out the rest to see if like, oh is it going to be Singapore. Is it going to be uh, is it going to be Cape Town. You know, you figure these things out, you know, when you're rich. Yeah.

Greg Kyte: And you got you got 10 million a year. So it's basically every year you. Yeah, you got a whole year to figure out where the next one is, what you're gonna buy.

Caleb Newquist: And the other thing too, is like, aside from the brownstone in, in, in New York, you know, I don't need, like, extravagant [00:07:30] places in every city I can have, you know, you can have a flat, you know, and for sure, that's all you need, right?

Greg Kyte: Right. So it's not it doesn't have to be something that's going to cost 5 million of your 10 million that you get every year. Yeah.

Caleb Newquist: I mean, you can, you could.

Greg Kyte: You could really you could really, uh, slum it and get a 1.

Caleb Newquist: Million a very nice, uh, a very nice studio for a millionaire.

Greg Kyte: What do you call it?

Caleb Newquist: Piazza tear. Yeah.

Greg Kyte: Okay. Yeah. There we go.

Caleb Newquist: There you go. And then on the ultra, kind of on the altruistic side, uh, I would definitely buy [00:08:00] land and for conservation, like, I would just buy land and and undeveloped. It essentially.

Greg Kyte: Cool. That's amazing.

Caleb Newquist: I think so I'd like to think so. That's a that's.

Greg Kyte: A that's a very fun plan. That's a very.

Caleb Newquist: Yeah. And you know, smug slightly smug okay.

Greg Kyte: There's a little bit of that with the. Yeah the. Yeah. Whenever you have, whenever you plan includes a French terme. It's a pretty it's it's a smug plan.

Caleb Newquist: Without a doubt.

Greg Kyte: Uh, the reason any of this is relevant to our fraud podcast is [00:08:30] because today we're going to look at a case where a guy stole millions from his employer, and his employer was the Multi-State Lottery Association.

Caleb Newquist: You might not believe it, but lotteries have been around in the United States since colonial times. Jamestown, Virginia, funded lotteries to support the colony, and at some point, every one of the 13 original colonies had a lottery.

Greg Kyte: It's [00:09:00] weird to me that Puritans were cool with the lottery.

Caleb Newquist: Yeah, right.

Greg Kyte: Like, I like there's so many things that they're not cool with. Like gambling. Yeah, let's sure do it all day long. A game.

Caleb Newquist: A game of chance, right? The Lord, the Lord doesn't have any problem with the with a game of chance.

Greg Kyte: But they. Yeah, yeah, apparently so many things are against. But not this.

Caleb Newquist: Yes. Good. Good point. Beginning in the 1830s, public opinion started to change for religious and moral [00:09:30] reasons, as well as a loss of public trust due to corruption and various scandals. By 1890, the only states with lotteries were Delaware and Louisiana. And that kind of makes sense in a strange way. And by 1895, there was a complete prohibition of lotteries throughout the United States. They started popping back up in 1934 when Puerto Rico started one. The next one was in 1964, in New Hampshire. Today, there are only four states that do not indulge in lottery sales. [00:10:00] Neither Alabama nor Utah have lotteries for religious reasons.

Greg Kyte: I can attest to that.

Caleb Newquist: Tracks Nevada doesn't have a lottery because they want people to lose money in their casinos, and no one knows why Hawaii doesn't have a lottery.

Greg Kyte: It's a mystery. It's there's no no explanation.

Caleb Newquist: No explanation. Greg, do you remember ever watching the ping pong ball lottery draws on TV? Yeah.

Greg Kyte: Uh, yeah, I do. Back back in the day in Washington state. Which, by the way, [00:10:30] I did find out Washington state started having lotteries in 1982. Uh, and I vaguely remember sort of this new, exciting what? You can win $1 million. You're going to be set for life with $1 million. That's unreal. Uh, and, uh, and yeah, they would have the draws on, uh, on TV and we would actually watch them from time to time. Yeah. Nice.

Caleb Newquist: Well, you might not believe it, but the biggest lotteries, Powerball and Mega millions still select their winning numbers using the old school [00:11:00] ping pong ball style lottery machines. But there are a lot of lotteries that have switched over to random number generators just about a year ago. Lotto America switched from numbered balls to a digital draw system. Now, we weren't able to find an accurate statistic on what percent of lotteries used numbered balls versus lotteries that use random number generators. Because there are a million different ways to do lotteries across 46 states, and [00:11:30] they're all regularly changing how they select their winning numbers.

Greg Kyte: In the summer of 2014, Rob sand, who was the youngest member of the Iowa Attorney General's office, was given a weird case. Uh, because at the end of 2013, somebody played the Hot Lotto and won a $16.5 million jackpot. But listen, the ticket didn't get claimed until the afternoon [00:12:00] of the very last day of the one year claim period. The winning ticket was physically presented to the Iowa Lottery Claims Office by a lawyer who was claiming the prize on behalf of a trust that had been established in Belize. Does that sound sketchy?

Caleb Newquist: That's, uh. That's mildly suspicious. Yeah, I'll give you that.

Greg Kyte: Yeah, yeah, but but here's the problem. An anonymous trust can't claim a winning ticket, because in Iowa, there's [00:12:30] a rule that lottery winners must be identified.

Caleb Newquist: So those Iowans, they're sticklers when it comes to their, their their lottery winnings.

Greg Kyte: They do that out. They have some very peculiar rules. And we'll get into even more of them a little bit later on. But because of this rule, their last minute claim was denied. The clock ran out and the unclaimed $16.5 million jackpot went back into the coffers of the Iowa Lottery.

Caleb Newquist: So [00:13:00] yeah, that was weird. But according to the doctrine of no harm, no foul, the story should have ended there. But the Attorney General's office wasn't ready to let it go for several reasons. First off, a veteran executive of the Iowa Lottery said that in her entire tenure, she had never seen a payout of over $1 million go unclaimed. Believable. So that adds to the weirdness which.

Greg Kyte: But have you? I've always thought about that. And I go, there's got to be people [00:13:30] who buy tickets and and misplace them and that there's absolutely big jackpots that go unclaimed. But apparently that does not happen very often, according to this senior executive of the Iowa Lottery.

Caleb Newquist: Hence the added weirdness.

Greg Kyte: Yes.

Caleb Newquist: Second, and more importantly, about a month earlier, an attorney from Canada named Philip Johnston called the Iowa Lottery office. He said that he had the ticket and [00:14:00] he even gave the correct 15 digit serial number. The lottery office asked him what he was wearing when he purchased the ticket. Kind of a weird question, yeah. Johnston said he was wearing. It's like.

Greg Kyte: Hey, that's the right ticket number. What are you wearing?

Caleb Newquist: What are you.

Greg Kyte: Wearing? Oh, I mean, what we're sorry. What were you wearing when you bought when you bought the ticket.

Caleb Newquist: Right? Johnston said he was wearing a sports coat and gray flannel dress pants. And [00:14:30] that was the wrong answer. You see, since the prize was so large, the lottery office went to the QuikTrip convenience store where the winning ticket had been purchased, and obtained the surveillance video of the person who bought the winning ticket. That guy was wearing jeans and a hoodie and a baseball hat. Now you might still be thinking, who the fuck cares? Well, Iowa fuckin cares because they also require that the person who claims [00:15:00] a winning ticket must also be the person who bought the winning ticket, which is so weird.

Greg Kyte: I had no idea that that was ever a rule, because that basically means you can't gift someone a lottery ticket, at least not in Iowa, right? At least not in Iowa. And I'm. And I know that it's not that they don't have those same laws in other states, but yeah, like I said, that was that's that seems like a very peculiar and specific law to the state of Iowa.

Caleb Newquist: As someone who grew up [00:15:30] next door to Iowa, I can confirm that there are a bunch of fucking weirdos. Okay.

Greg Kyte: Right. Okay. I didn't know there was. There was Nebraska Iowa beef, but here it is.

Caleb Newquist: Love you, Iowa, but.

Greg Kyte: You're a bunch of fucking weirdos.

Caleb Newquist: Bunch of fucking weirdos. Okay, when they told Philip Johnston about that, he admitted to telling a fib and said that he was really just assisting a client who won but didn't want to be identified. Like we said earlier, winners had to be identified. [00:16:00] So Johnston withdrew his claim to the winning ticket, which raised even more red flags because who the hell thinks their anonymity is worth more than $16.5 million? Yeah. Anyone?

Greg Kyte: That's not me. No, not me, not me. You can. I'll give you my Social Security number for $16.5 million.

Caleb Newquist: Yeah, but wait, there's more. After the last minute Belizean trust situation transpired. The Attorney General's office did a little digging and found out that the president [00:16:30] of the trust was Philip fucking Johnston.

Greg Kyte: The lawyer from Canada. I have no idea how anyone thought this was a good use of taxpayer funds, but the AG's office wanted more answers. Uh, I guess there were just so many red flags about this that they assumed somebody, somewhere was doing something illegal. And not to mention they the attorney general who's firsthand [00:17:00] account I read he said that he was worried about the safety of the guy in the video that actually bought the ticket. He was worried that that guy is carcass was rotting in the middle of some Iowa cornfield. So the AG's office sent investigators to go talk to Johnston up in Canada. Uh, Johnston pointed them in the direction of a Texas businessman named Robert Rhodes. And when they went looking for Robert Rhodes down in Texas, he basically just [00:17:30] never answered his door. And he never answered his phone until the investigators gave up. So weird. Uh, upon weird and super suspicious. But still, none of that's criminal. You were just just, uh, more patient than the Iowa investigators were. And I was gonna.

Caleb Newquist: I was gonna say, did the investigators give up easy? Because, like, I usually investigators aren't known for giving up easy.

Greg Kyte: In the account, [00:18:00] it said that they waited for days at his house, and he either never came out or never came home. Wow. So, yeah, this was. Yeah, he was he he was he was clearly trying to.

Caleb Newquist: Avoid them, I am, I am satisfied, yes, I am satisfied.

Greg Kyte: So at this point, the AG's office decided to release the video, including the audio to the public, and not long afterwards listen. No less than [00:18:30] four people, all of whom worked for various lotteries, positively identified the guy who purchased the mystery ticket by his voice. Here's a quote from the book The Winning Ticket, it says. At the Multi-State Lottery Association, a receptionist watched the video, then handed her earbuds to Noel Krueger, another employee, and told her to listen without saying what she was listening to. Why am I listening to a tape of Eddie talking? She [00:19:00] replied by Eddie. She met Eddie Tipton, their coworker. He was the security director for the Multi-State Lottery Association.

Caleb Newquist: Pretty much everybody knows that people who work for the lottery can't win the lottery. But it's not a crime to simply buy a ticket if you work for the lottery. So the AG's office still needed to find an actual crime. [00:19:30] They sent investigators to talk to Eddie. Eddie told them that he had moved to Iowa from Houston. It just so happens that the mysterious Robert Rhodes was also from Houston. Eddie also explained his job that he was the security director, not just physical security. Physical security was part of the job. So I guess that means he was kind of like a bouncer for the lottery office, right?

Greg Kyte: Like if if people were like, no, check the numbers again. If they did that too many times he had he he was the guy who was like, I think it's time for you to leave the office of the Multi-State. [00:20:00]

Caleb Newquist: Lottery out on their ass. They went.

Greg Kyte: I think maybe something like that.

Caleb Newquist: Yeah, not totally sure, though. But he was also the guy who wrote the computer programs that draw the winning numbers. Now, I don't know many bouncers that are also computer programmers, but nevertheless.

Greg Kyte: Now you know one.

Caleb Newquist: There you go. After the interview, the investigators did a little digging and discovered that Eddie and Robert Rhodes were connected on LinkedIn, which maybe doesn't mean anything. [00:20:30]

Greg Kyte: Just one more reason to not be on LinkedIn.

Caleb Newquist: Yeah, got that right. But LinkedIn showed them that Eddie and Robert went to the University of Houston together and had the same major. It also showed that Eddie used to work for a company founded by Robert. Uh, yeah. Yeah, yeah.

Greg Kyte: Pulling on your collar a little bit. Yikes.

Caleb Newquist: It doesn't take the Manhattan Project to connect the dots here. The guy who wrote the program that [00:21:00] picks the winning numbers for the lottery knew what the winning numbers were going to be. He bought the winning ticket, and the video showed that he picked his own numbers, even though the vast majority of tickets sold are quick picks. And he had his old college buddy claim the ticket because he was prohibited from doing it himself. In Iowa, it was a class D felony to attempt to influence the winning of a lottery prize through the use of fraud, deception, or tampering [00:21:30] with lottery equipment. Eddy told investigators that he was in Texas on the day that the ticket was purchased, but his cell phone records showed that he was in Iowa. Uh oh. His credit card records showed that he had rented a silver Ford Edge, the same car that the purchaser in the video was driving. Oh, no. It's not looking good. The attorney General's office had enough evidence to file charges, so they did. And Eddie was arrested in October [00:22:00] 2015. A jury convicted Eddie Tipton of falsely attempting to redeem a lottery ticket and tampering with lottery equipment. Unsurprisingly to the prosecution, Eddie appealed the decision. But then, right near the end of 2015, the prosecutor received a phone call. An anonymous tipster informed him that quote. Eddie's brother, Tommy Tipton, won the lottery maybe about ten years back. Somewhere out west, maybe Colorado.

Greg Kyte: Since [00:22:30] Eddie had appealed, that meant more evidence could be gathered and submitted. So the AG's office obviously looked into Tommy's jackpot. Before this, the AG didn't have any evidence that Eddie had rigged any of the lotteries, but they were pretty damn sure that this wasn't Eddie's first rodeo. Here's another quote from that book, The Winning Ticket. It says not only had Tommy Tipton won a lottery, [00:23:00] but he had also had another person claim the ticket for him. And turns out it was another manual play win rather than a quick pick ticket. And on top of that, Tommy and his friend then made some poor decisions that led to an FBI interview. So here's what happened. Buckle up, because this is where a weird story gets plenty weirder. Tommy was in Colorado on a Bigfoot hunt. Yeah, a Bigfoot [00:23:30] hunt because he was a member of the Bigfoot Field Researchers organization. And what are you going to do? Be a member of the Bigfoot Field Researchers organization and not go on a Bigfoot hunt? No, you're going to go. You're going to go hunt for a fucking Bigfoot. So while he was in Colorado, he didn't find Bigfoot, but he did win a $500,000 lottery jackpot. Tommy said his marriage was in the toilet, and he didn't want his wife to find out that he won [00:24:00] the lottery. So he gave one of his Bigfoot hunting friends a 10% cut of the jackpot for cashing the ticket on his behalf. But then Tommy was left with this suitcase, apparently full of sequentially ordered bills that apparently came directly from the Treasury and were wrapped with those little. Paper wrappers that say this money came directly from the Treasury. I don't know, something [00:24:30] like that. He didn't like it, obviously.

Caleb Newquist: Yeah. These guys maybe also didn't know much about Watergate. I don't know.

Greg Kyte: Right, exactly. But but one way or another, Tommy.

Caleb Newquist: But he didn't like he didn't like that.

Greg Kyte: He didn't like it at all.

Caleb Newquist: So he maybe he does know Watergate.

Greg Kyte: Maybe he did. Yeah. He. Well, here's the thing. Bigfoot hunters. If anything looks suspicious, they're gonna. They don't like that. Especially if it has anything to do with the government. They're going to try to remedy that as quickly [00:25:00] as possible. Yep.

Caleb Newquist: It's like, what are they hiding?

Greg Kyte: So. Here's what he did. He went to another buddy, a guy who ran a fireworks stand and asked him to trade, uh, his nice, crisp, sequential, uh, $450,000 for his buddy's $450,000 of beat up fireworks stand money. Because apparently, just after the 4th of July, fireworks stands have a ridiculous amount of just cash around.

Caleb Newquist: Just a sweaty, [00:25:30] sweaty pile, right? Of money fucking, you know.

Greg Kyte: Cash money that's been in a 13 year old's pocket while they rode their bicycle to the fireworks stand? Yeah, that's what we're talking about here.

Caleb Newquist: Absolutely.

Greg Kyte: But obviously this seemed super suspicious to the fireworks guy. So what did he do? He called the FBI. The FBI got a hold of Tommy. They questioned Tommy, and he told them this entire story, and it all seemed super weird, but none of it [00:26:00] was illegal. It looked like money laundering. But if you listen to episode 52 of this podcast, you'll remember that you can't be guilty of money laundering if you got the money legally. And this guy's a Bigfoot hunter. So the money laundering wasn't the weirdest part of his story. Not by a long shot.

Caleb Newquist: The Attorney General's office continued to look for other [00:26:30] lottery wins tied to Eddie Tipton. They found out that Robert Rhodes won a $2 million Wisconsin Lottery jackpot in 2007.

Greg Kyte: That the luck that guy has unbelievable.

Caleb Newquist: Some people, some guys. Some guys got what? No, no. Yeah.

Greg Kyte: No, I think you're right. I think that's who they wrote that song about was Robert Rhodes.

Caleb Newquist: Nice, nice. They also found a guy named Billy Khan who won a $644,000 jackpot in the Oklahoma Lottery in [00:27:00] 2011. Oklahoma. Where the winds. How does that one go?

Greg Kyte: Oh, Oklahoma, where the feet are big. I think that's how it goes.

Caleb Newquist: That's how it goes. Yeah, yeah. Billy turned out to be a Bigfoot hunting friend of Tommy Tipton. And there was a $22,000 Kansas jackpot that was won by one of Eddie's old girlfriends. They also were able to discover Eddie's malicious random number generating code on a machine [00:27:30] in Wisconsin. With all this new evidence, the Iowa Attorney General had more ammo to use against Eddie, and they decided to indict Tommy as well. They both agreed to a plea bargain in exchange for telling the Attorney General everything about how they pulled off the biggest lottery scam in US history. The Hot Lotto lottery died and was replaced by Lotto America. The game I talked about at the top of the show, that's the one that started out as a numbered ball pick game to increase trust in the results, but [00:28:00] just one year ago switched to a digital draw system.

Greg Kyte: So this was the biggest lottery scandal in US history, but not the only lottery scandal in US history. In 1980, Nick Perry, the guy who was in charge of drawing the Pennsylvania Lottery, replaced the regular balls with weighted balls. All the balls were weighted except four and six, making them much more likely to be drawn after the draw. He replaced the regulation [00:28:30] balls and burned his weighted balls with fire. It was a triple pick game, and his deal with the devil was complete when six, six, six was drawn and he won big. But authorities were already tipped off to the scheme because of, quote, unusual betting patterns, which I guess means too many tickets were sold with lots of fours and lots of sixes.

Caleb Newquist: Okay. [00:29:00] Greg. Uh, did we learn anything?

Greg Kyte: Uh, yeah. Well, we released, like, often happens. Or at least reminded of some things.

Caleb Newquist: Yes, at the very least. Yeah. Of some things.

Greg Kyte: For instance, there were a couple of red flags that stood out. Uh, one of those was the Eddie owned an 8500 square foot home that included a 20 seat theater room and a basketball court in the basement.

Caleb Newquist: Okay.

Greg Kyte: I gotta believe not too many people with state [00:29:30] agency jobs can afford an 8500 square foot home with a 20 seat theater and a basketball court in the basement.

Caleb Newquist: Yeah, I don't know. Maybe heads of security at, uh, lottery associations are handsomely paid. Great. Well, no. And the.

Greg Kyte: Guy. And that's the thing, he probably was well compensated because he clearly was, uh, good at the computer stuff and computer stuff. That's one way to put it. Computer stuff usually pulls in a good paycheck, but I don't [00:30:00] think 8500 square foot home. Good. How big is your home, Caleb?

Caleb Newquist: Not 8400ft².

Greg Kyte: I my my home. It has, uh, 2222ft² in it. Are you.

Caleb Newquist: Serious? Are you fucking with me? No.

Greg Kyte: That's why that's how I can remember it is because. Wow, that's a lot of twos. Yeah, yeah.

Caleb Newquist: So ours is. Yeah. Ours is. I don't know the exact. These are not details that I commit to memory, but it's around. It's probably around 3000. So his.

Greg Kyte: His home 3 to 4 times bigger [00:30:30] than my home. And the funny thing is, you know, I don't know if this is relevant or not. He single guy, no kids. So he, uh, he does a space for one dude. I mean, it's not like, you know, you can say, does he need all that room for his family? No, because he doesn't have one. It's just him. But even if he had a family, you don't still need 8500ft². So, um. So anyways, so we know that living beyond your means is the single biggest red flag that someone is committing fraud. So [00:31:00] there's that. We've covered that a million times. Here's another interesting tidbit about Eddie. Uh, in Texas, when Eddie was younger, he had two non-felony convictions, one for theft and one for burglary. Uh, yeah. So that was on his record. And that probably should have disqualified him from the job of security director at any company, including.

Caleb Newquist: The.

Greg Kyte: Multi-state Lottery Association. So next thing we're reminded of background checks. Very [00:31:30] important. Uh, if your company's not doing them on people in key positions, uh, you can do you can still do background checks on people even after the fact. It might feel a little weird, might feel a little intrusive, but also, um, might be very well worth the money and time spent to do it. Uh, another thing that I learned. And again, Caleb, it seems like every. I think we can say every single fraud is the result of poor internal controls.

Caleb Newquist: I can't think of a one [00:32:00] because.

Greg Kyte: If there was.

Caleb Newquist: That would if there were, would that were that were that did not have poor internal controls.

Greg Kyte: Well, and even logical.

Caleb Newquist: Controls of some kind.

Greg Kyte: Yeah.

Caleb Newquist: Even logically, yeah.

Greg Kyte: If there are internal controls that are working properly, the fraud wouldn't have. Right.

Caleb Newquist: Like, I can never remember a podcast that we've done, Greg, where you said to me, Caleb, there are actually some pretty solid controls in this case. And yet. The masterminds of this fraud, [00:32:30] right? Slipped right by them. Like you never said that to me. Exactly.

Greg Kyte: Because, like, uh, like I. I'd like to think that in Die Hard, they had really good controls. Uh, but the the bad guys, you know, they had a big mechanical safecracking device. So that's, that might be an example.

Caleb Newquist: Right.

Greg Kyte: Of internal controls being in place, but somebody just brute force overwhelming them. Bank. What are you talking about?

Caleb Newquist: Are [00:33:00] you talking about Die Hard with a vengeance? Which one are you talking about?

Greg Kyte: Die hard? The first one they had the they had all the they all the all the bearer bonds in the, in the, uh oh the the bearer bonds.

Caleb Newquist: Yeah, the bearer bonds.

Greg Kyte: And they had the big drill that was going in. That was. Yeah. Come on. Yeah. That's good. You gotta remember.

Caleb Newquist: That one only at Christmas.

Greg Kyte: Christmas. Do you remember studying about bearer bonds?

Caleb Newquist: I do remember about bearer bonds as well. And and Die Hard came up. Die hard came up, did it. Then when I learned. Oh, it absolutely did.

Greg Kyte: Oh no kidding, I, I was like, are those real. Well [00:33:30] I think yeah I not anymore.

Caleb Newquist: Nobody they don't use.

Greg Kyte: Right. Exactly. Even when we were studying it in school they were like, okay, uh, apparently I have to teach you about bearer bonds because it's in the textbook, but just, you know, this isn't nobody uses these.

Caleb Newquist: Nobody.

Greg Kyte: Yeah, but what's weird? Lottery tickets, actually, very similar to bearer bonds. They are when you think about it. So, uh, so the internal controls in this case kind of sucked. Uh, they looked okay on the outside, but they were actually crap. [00:34:00] There's an organization called Gaming Labs International or Gli. It's this independent third party that approves all of the Multi-State Lottery Association lottery machines. And so here's another quote from the book, The Winning Ticket. It says around 2008, Eddie would send Gli the pure source code. That's the code that a human could read to review and confirm that it was a random number generator. Gli would review it to ensure [00:34:30] that it was what it was supposed to be, and then watch Eddie compile it. To compile code is to turn it into ones and zeros, like a computer would read. Uh, they'd watch through a remote connection, uh, through which Gli could view Eddie's computer desktop. Before 2008, Eddie Tipton would just send a single email to Gli. Both source code and compile code were attached with an understanding that they were the same code, but no means of [00:35:00] verifying that just, you know, Scout's honor. So, uh, clearly not the not the glaring holes in the internal.

Caleb Newquist: Controls I think you and I have well established. And I mean, a lottery association is not necessarily a small business. But if you're going on the honor system, yeah, you're gonna get ripped off.

Greg Kyte: Yeah, yeah.

Caleb Newquist: Ah, it's just a matter of time. But also just the right the [00:35:30] right person in the right situation is going to take advantage of your, your little honor system.

Greg Kyte: Exactly. But but will you concur that from the outside this looks very legit, where it's like, oh my gosh, we have an independent outside party. Oh, Gaming Labs International that reviews all of our code before it's installed into a machine. And that's true. But yes, not in a manner whereby you can't sneak malicious code in. Right. So some of Eddie's winnings, they came before 2008 with the LAX codes, [00:36:00] but most of it came after 2008, uh, even with the more robust controls. But there were still flaws. Even with the more robust controls. Glee could only see one of Eddie's monitors, even though they knew that he had multiple monitors and they couldn't actually physically see Eddie himself. They just saw his monitor, so he was apparently pulling some shenanigans. Uh, kind of like a magician doing a magic trick where they're like, they're distracting the glee with [00:36:30] the one monitor they could see while behind the scenes. He's, you know, inserting the code that actually allows him to know what the winning numbers are going to be.

Caleb Newquist: Right.

Greg Kyte: One last thing that I thought was interesting that I learned about this case was, uh, and this goes back to our perennial discussion of was justice served. Um, and, and one of the things that because the book, the winning, the winning ticket, that was my main source for this entire podcast [00:37:00] and it was written by the attorney general who, uh, who who investigated this case. And he, he brought up something very interesting where it kind of some of the calculus that, uh, that organizations like the attorney General Office does when they're doing things like sentencing and things like that, because he was talking about how with financial crimes. Well, I guess first off, he was talking about non-financial crimes. He says, if somebody if you [00:37:30] murder somebody, there's no way to pay that back. Uh, you can't bring a dead person back to life. So the way justice is served is by punishing the person. You just have to punish. It's just through punishment and that's it. Punitive? Exactly. Financial crimes are different because justice is served. If the people who were robbed get all their money back. Yeah.

Caleb Newquist: Restitution is.

Greg Kyte: Made. Exactly. So which I think really adds an interesting light to a lot of our prior [00:38:00] conversations about justice, because, yeah, that makes sense. It's if if the if the party that got stolen from gets all their money back, you know, again, the doctrine of no harm, no foul, we're all good. Let's move on. So uh, with but because of that with not just with sentencing, but even with the way that a lot of criminals get released, you know, because we talk about they got you know what Tipton, I think got 25 years because of what he did. And [00:38:30] he I think he got out after five years or less.

Caleb Newquist: Okay.

Greg Kyte: But the ag, he's all good with that because he's like, Eddie needs to start working to pay back some of the money that he stole. And you know what he can't do while he's in jail? He can't earn money to pay back any of the money that he stole. He.

Caleb Newquist: So he can't he can't commit another fraud to pay back millions of dollars.

Greg Kyte: Right? Right. Exactly. There's well, there's that too. But if as long as he steals from someone that's not the multi-state lie. Somebody who. As [00:39:00] long as he's like a Robin Hood kind of stealing, then. Maybe that's okay. Yeah. What about you? Anything that stuck out to you?

Caleb Newquist: I mean, you know, the lottery is, um. It's I don't play the lottery. So to me, it's like I have less of a fascination with it than than that you do. But it is still, um, I guess the, um, it kind of reminds me of a quote that I am [00:39:30] not going to remember, which is a weird thing to say. It reminds me of a quote that I can't remember, but the ingenuity you just stop.

Greg Kyte: It reminds me of a quote I can't remember. Well, that's it for this episode.

Caleb Newquist: Yeah. There you go. There you go. No, the the the ingenuity of fraud, uh, never ceases to amaze me. Mhm. Mhm. And so like I think this is an example of where somebody's just like we got access to a lot of fucking money. So let's figure out how to get some, you know. And they figured it out. And I mean there's [00:40:00] obviously you know there's fucking Bigfoot people and there's other these weird other things that are involved which make it a awesome story. But yeah, the cleverness and the ingenuity of like of, of of fraud is, is, is on is on display here. And uh, I, I have a, I have a while. I don't condone it. I, I can appreciate it.

Greg Kyte: Yeah. You can, you can respect it. Which is. Yeah. Which is funny because the attorney general says basically that exact same thing in the book. And what's [00:40:30] interesting when, when Eddie and Tommy were spilling their guts after the plea deal. Um, some of the it was interesting the way that Eddie framed all of his evil doings, sort of in the in the rationalization side of the of the fraud triangle, because on the one hand, he he he kept insisting that he never had some master plan to rip off the the the lottery. What he what he was is he was a dude who who prided himself [00:41:00] on being the smartest guy around. And so he was like going, I wonder if there's a way. I think he even told a story of some accountant going, well, now that you're programing how the, the, the, the random number generators work, you're probably going to be winning a lot of those lotteries. Yuck yuck yuck. And then he was like, hmm, maybe I could. And then I mean, again, he framed it as I'm just a computer nerd. And I wanted to see if I could actually do it. Like, um, do you remember the the movie? [00:41:30] Uh, what was it? Was it WarGames? The Matthew Broderick movie from 1980?

Caleb Newquist: Oh, yeah, I did. That's I was a little too young for that.

Greg Kyte: Okay. Because same thing where it's like, he's just he's just a computer nerd who just was like, I wonder if I could break into to, uh, to the national defense, uh, computer. And he was like, oh, shit, I did. And now he started World War Three, and he's like, that's kind of how it was here. I was just trying to see if I could do it, and the only way I could prove if I could do it is to actually do it. [00:42:00] And then and then to further that once he once he did win these lotteries, he was like. So I passed it on to my friend Robert Rhodes. He was this businessman he gave me. He did some favors for me and his businesses were tanking. So I was like, hey, this will help you out. So he painted himself as kind of a Robin Hood sort of guy, where it's like, I'm stealing this money, but nobody really feels it because it's coming out of this lottery fund anyways. And I'm helping some people and yeah, I'm getting I'm getting a taste of myself, but really, I'm a good guy. I'm a good guy. I'm just a right. You know, [00:42:30] I'm just very I'm a curious, hard working guy that that wondered if he could do this. And I was able to do it. And then when I did, I just was like, uh, hey, I'm gonna help some people out. And the AG at that point stopped and was like, wouldn't the better decision to be to go to your boss and go, hey, I was able to hack our system and program it so we have some flaws. Maybe we should work on that. And he was like, oh yeah, that totally would have been the better way to go.

Caleb Newquist: Yeah. [00:43:00] I mean, I don't know, I kind of, I kind of, I that's kind of that's kind of endearing though too.

Greg Kyte: It is. Well, because.

Caleb Newquist: You're just like, wouldn't the one of the right thing to be done is told your boss about the, the problems at your job? It's like, yeah, but you know, yeah. Make mistakes. That would have been.

Greg Kyte: Yeah. Now that I'm confessing it all, you're, you're absolutely you're sure? But the other funny thing was the AG was just like, he he wasn't buying any of it. He thought that it was just. Oh, really? He thought it was just Eddie [00:43:30] trying to paint himself in a, in a good light during his official proffer or whatever they call it, when you're sure doing that sort of thing to me, I to me, it's I think it sounds legit because again, as we know everybody, we're all programed wanting to have a positive self image of ourselves. And so the narrative is I it was a challenge I wanted to see if I could do. And then it's like, okay, so I so I did it. Yeah, maybe it was a mistake, but I was helping some people out. So you're kind [00:44:00] of patting yourself on the back along the way. So again, the story he told as recounted in that book lines up with a lot of the other stuff that we've looked at in the past.

Caleb Newquist: Do you think this is a victimless crime?

Greg Kyte: No, no, I don't. Okay. Um, because, uh, there were people who sued different lotteries as a result of this crime because because, as you know, lotteries jackpots increase, and once there's [00:44:30] a winner, it drops back down to the to the minimum. So there's people who won, uh, jackpots after the falsely won jackpots. And they were like, my jackpot should have been multiples of what I won. But it wasn't because some jackass rigged the thing and and and took all my money. But also it kind of still feels like a victimless crime because it's like, okay, so you didn't win $18 million, you only won $2 million. Cry me a fucking river, [00:45:00] you little.

Caleb Newquist: Yeah, kinda.

Greg Kyte: Yeah, yeah.

Greg Kyte: All right, well, that's it for this episode. Remember, for this week's Mega millions, try picking eight, 14, 32, 34 and 67 with a mega ball of 12.

Caleb Newquist: And also remember, for this week's Mega millions, try picking eight, 14, 32, 34 and 67 with a mega ball of 12.

Greg Kyte: Also remember for this week's Mega [00:45:30] Ball, try picking eight, 14, 32, 34 and 67 with a mega ball of 12. Do you understand what we're telling you, listeners? If you want to drop us a line, send us an email at Omi. Fraud at earmarks. Com. Caleb, where can people find you out there on the internet landscape?

Caleb Newquist: You can find me on LinkedIn at slash. Caleb Newquist Greg.

Greg Kyte: Uh, [00:46:00] same thing, but find me on LinkedIn. I'm Greg Kite, CPA.

Caleb Newquist: Oh, my fraud is written by Greg Kite and myself. Our producer is Zach Franc. Rate review and subscribe to the show wherever you listen to podcasts. If you listen on earmark, you can get CPE. Cpe is good if you're an accountant.

Greg Kyte: I love it.

Caleb Newquist: Join us next time for more average swindlers and scams from stories that will make you say.

Greg Kyte: Oh my, oh my fraud.