Number Cruncher

07.07.15 5:15 AM ET

Inside the Biggest Lottery Scam Ever

A locked room, a fat suit, and a pump-and-dump stock scheme: They’re all part of what the cops say is the ultimate attempt to rig the lotto.

It was two days before Christmas in 2010 and Eddie Tipton had a $16.5 million lottery winner in his pocket.

Sporting a hooded jacket, the stocky 47-year-old approached a silver-haired clerk at the counter of an Iowa-based Quik Trip market at around 3:30 p.m., stacking on the counter $3.17 worth of hot dogs, a fountain soda and two tickets.

But Tipton didn’t need Lady Luck. The Quik Trip purchase was phase two of a crafty plan to take the 29 million-to-1 odds out of the lottery equation.

The first phase came a month before when Tipton inputted the same winning numbers in the computer system tucked away in Iowa Lottery’s secure “Draw Room.”

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At least, that’s the story Iowa prosecutors would have you believe.

To hear Eddie Tipton tell it, he’s a lottery patsy.

“I’m having to defend myself against hundreds, if not thousands, of hours of investigative time,” he told The Daily Beast in an exclusive phone interview at his home, where he was awaiting trial after posting $10,000 bail. “They’re running against time because the statute of limitations was almost up and they gotta find somebody. So they throw it all on me,” he said.

On January 15, 2015, more than four years after the Hot Lotto ticket was bought at the mini-mart, Tipton was arrested for attempted fraud by the Iowa State Police. “I was like ‘What for?’—It came as a complete shock,” he said.

Tipton faces five years in what amounts to an alleged lotto shakedown. Now 52 years old, unemployed, and living off his savings, his trial begins on July 13.

Tipton believes he’ll be exonerated, although the authorities have already released a video of the Hot Lotto ticket purchase. According to a criminal complaint, voice experts and a Tipton pal all say it’s Tipton on the screen. Authorities also accuse Tipton of using his security clearance to juke the lottery’s computer, and teamed with a close friend to recruit a crew to collect the winnings.

Eddie Tipton’s case may piece together the most ornate and brazen run on the lottery of all time. It’s certainly the largest jackpot claimed and then withdrawn in lottery history. And Tipton—if he did pull off the attempted heist—may not be the only one in on the job.

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After 12 loyal years and a six-figure salary as director of security under the employ of the Multi-State Lottery Association (MUSL) a nonprofit agency overseeing several lottery games throughout the U.S., Eddie Tipton took his job seriously. “I was more of a consultant and helped them with following the rules and showed them how to comply with them,” he said.

Tipton says he had no reason to toss it all way. “I was not hurting for money,” Tipton said. “Not hurting enough that I need to take a chance and ruin my whole life. No way.”

But now that he’s been accused of trying to rig the lottery, Tipton stands to lose everything.

On November 20, 2010, Tipton allegedly went into the lottery’s fortified “Draw Room,” where only he and four colleagues had access. He said he was there to update the lottery computer system to the passing of Daylight Savings Time. Instead, the authorities say, he tinkered with the room’s video recorder and closed circuit cameras.

According to multiple criminal court documents, the footage from November 20 didn’t properly capture what went on in the room. Instead, Tipton either on or before that day allegedly set the machine to record “roughly one second per minute,” according to a reply to Iowa prosecutors’ motion by Tipton’s lawyers filed on April 9, 2015. The other 59 seconds were invisible.

With the cameras disabled, prosecutors allege, Tipton could have enough time to insert a memory stick that loaded a so-called “root-kit” program. That would’ve given him the ability to do anything we wanted on the computer—like fixing the lottery numbers and “self-destruct without a trace”—which means the program would be undetectable.

Authorities paint Tipton as a cybersecurity obsessive who preached about root-kits; “he even made a presentation about them at a lottery conference,” according to document filed by Tipton’s lawyers. The same papers say “[Tipton] tampered with the camera equipment to have an opportunity to insert a thumbdrive into the [computer] tower without detection.

But Tipton insists that he’s taking the blame because of his access. “The only reason I’m in trouble is because I’m an employee,” he said, unwilling to get into the backroom rigging details.

Tipton believes he’s the one “holding the bag” because of the Iowa Lottery’s lapses. He claims he never bought that winning ticket—some still-undisclosed stranger did, instead. “If I knew who the mystery person was that bought the ticket I would serve them up on a platter just to clear my name,” he said.

Tipton, clean shaven and heavyset, couldn’t have been the man in Quik Trip footage, his lawyer, Dean Stowers, insists. The lotto ticket buyer was “wearing a fake beard” and could have been a “skinny man in a fat suit” to mimic Tipton’s stout figure,” Stowers told The Daily Beast. “Those photos certainly show that my client didn’t have a beard on that day, unlike the person seen in the video.”

***

Whoever bought the tickets, authorities believe, he didn’t act alone.

Also arrested in the caper was Tipton’s close friend, 46-year-old Robert Rhodes. The Sugar Land, Texas-based man is also being charged with defrauding the Iowa Lottery.

It’s Rhodes who allegedly is the conduit to a crew of five stretching from South America to Canada—all of whom are named in the criminal complaint as colluding with the pair to try to grab the lotto loot.

There’s the Canadian lawyer named Philip Johnston, who splits his time between St. Pacome, Quebec, and sunny Turks and Caicos. He allegedly was the first one to take a swing at the lotto piñata.

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Johnston tried to get at the lottery windfall by claiming he was in possession of the Hot Lotto ticket in a phone call on November 9, 2011. He submitted the “unique” 15-digit security number printed on the winning ticket but said he was too sick, according to a reply Iowa prosecutors’ motion by Tipton’s lawyers filed on April 9, 2015, to make the trip to the lottery HQ in Des Moines. He asked if they could take pity on him and instead mail a check.

Then he failed to answer a couple of softball security questions. He said he was wearing a tweed suit on the day he bought the winning ticket. (The guy caught on tape wore a hooded coat) He said he was in his 60s. (The real winner appeared to be in his 30s or 40s). So, the lottery officials declined Johnston’s bid.

He tried again, two weeks later on December 6, 2011. This time, Johnston had a new story: He wasn’t the guy who had the ticket after all. The winning ticket actually belonged to a wealthy mystery man and together they had set up a Belize-based trust called Hexham Investments, according to multiple documents, including the criminal complaint.

Somehow, Johnston and company erroneously assumed they could cash in the ticket through a trust to keep the buyer anonymous. But this was another oversight: Iowa is one of several states that mandates winners be identified to the public.

The jig was up. Johnston later told investigators he was approached on Oct. 17, 2011, by Tipton’s friend Robert Rhodes and by Robert Sonfield, both of Houston, Texas. They asked for Johnston’s “assistance with claiming the lottery ticket,” according to the criminal complaint. Sonfield told Johnston that he was representing a lotto winner who “wanted to remain anonymous.”

Somehow—it’s not clear how, exactly—Sonfield got hold of the Hot Lotto ticket. He sent it via FedEx to his longtime friend Crawford Shaw, a New York City lawyer.

Just before the ticket was about to expire, Shaw came forward acting as a trustee for Hexham Investments (for which Johnston was a principal). Shaw initially retained a respected Des Moines-based law firm to present the signed ticket.

On Dec. 29, 2011, 1 hour and 50 minutes before the ticket was to expire, two lawyers from Davis Brown law firm brought the ticket Shaw sent them to the state lottery offices in Des Moines, and tried to claim the prize with the trust name alongside Shaw’s signature. The trouble is, Shaw misspelled the trust’s name as “Hexam” and skipped the second “h.” The lawyers were sent away without a dime.

Then Shaw hopped on a flight to meet with Iowa Lottery officials in Des Moines on January 17, 2012. Unwilling to reveal the name of his mystery client, Shaw couldn’t persuade lottery officials to cut him a check.

Nine days later Shaw signed an affidavit and officially withdrew his claim to the ticket.

(When reached by phone last week Shaw identified himself to The Daily Beast, but repeated, “I am not going to comment,” before hanging up.)

Nearly two years went by. Finally, on Nov. 7, 2014, an Iowa Division of Criminal Investigation agent quizzed Tipton, according to the criminal complaint. Tipton told the investigator he knew the rule that he wasn’t permitted to play the lottery. What’s more, the authorities should scratch his name off the list of suspects because he “wasn’t even in town in that time period” when the ticket was purchased.

Tipton told the agent he was in Houston, Texas, visiting “all family.” Yet the complaint points to cellphone records that put Tipton in Des Moines at the time the Hot Lotto ticket was issued. What’s more, Tipton was having “frequent lengthy phone calls” with Robert Rhodes, according to the complaint. When asked twice about his Houston contacts Tipton “did not mention Robert Rhodes,” the complaint reads.

But Tipton told me he was forthcoming with the investigator. “He asked me, ‘Do you have a friend named Robert Rhodes?’ and I said ‘Yes.’ I asked them, ‘Did I do something wrong?’ and they said, ‘No.’ Then months later they make this stuff up and I’m fighting for my own freedom,” he said.

***

Tipton said that Rhodes remains a dear friend of over 20 years. He worked with him at the Houston-based oil and gas programming company Systems Evolution for seven years.

Despite his ties to Rhodes, there was never any real communication with any of the other alleged participants in the lotto scheme. “I don’t know Robert Sonfield,” Tipton said.

But Rhodes is tight with Sonfield. And the pair have been earned a questionable rep in Houston. One source—who is both involved in litigation with the pair and asked to remain anonymous—told The Daily Beast that the two have worked in “pump-and-dump” penny stock schemes, driving up the price and selling it off quickly.

Rhodes and Sonfield are in multiple business arrangements with Philip Johnston, the Canadian lawyer who called in sick to claim the lottery ticket, according to the Division of Criminal Investigation records. For example, Sonfield has 20,000 shares and Shaw 2,000 shares in a company called Platinum Energy. Its president: Johnston.

Johnston and Sonfield are prominently named in stock portfolio documents associated with a company known as Arrayit. Rhodes was briefly CEO of the company’s pharmaceutical subsidiary, but was quickly voted out by shareholders.

Documents from a bankruptcy case involving a Houston-based telecommunications company called Digerati portrayed the pair as taking actions that hiked legal fees. They’re also accused of jamming up the case with legal trickery, including making unsupported motions to scattering litigation in different venues.

Sonfield himself admitted to an array of “technical irregularities” and “defects in the issuances of the shares.”According to bankruptcy filings in the Digerati bankruptcy case filings from September 18, 2013, Robert Rhodes was just a figurehead CEO and “was not properly appointed or elected.” Philip Johnston—who was believed to be a fictional person—was issued 1,000 shares of stock that should be “cancelled or deemed invalid.”

Tipton insists he doesn’t know Johnston, Shaw, or Sonfield from Adam. “There’s no communication between me and them,” Tipton said, adding that there’s no way to connect him with these people—other than circumstantially. “My name is nowhere,” Tipton said.

Ask Tipton about the evidence and he comes back with his own version of conspiracy and innuendo. He never bought the ticket. Some mystery man did.

“I have to prove that it wasn’t me because whoever did it—we don’t know who it is,” he said.

“I know how the game works,” Tipton added. “So either I’m an incredible genius that did something stupid or I’m just plain incredibly stupid. But how can I be an incredible genius and do something stupid at the same time?”