Lottery lets players collect 100-plus prizes. Is something fishy?

How the AJC identified improbable winners

The state’s database of winners, which goes back to 2003, includes everyone who has won prizes of $600 or more – 540,000 prizes won by about 240,000 gamblers. (To claim prizes of $600 or more, winners must provide proof of identity.)

Mathematician Skip Garibaldi, who has studied other state lotteries, identified the people who, given the odds, would have had to spend at least $1 million to amass their winnings. Here’s his methodology, which errs on the side of underestimating the scope of the problem:

He focused on scratch-off games. His previous analysis of 72 scratch-off games had shown that it typically requires more than $28,000 worth of tickets to win a prize of at least $600. (The median spending was actually far higher, $57,000.)

He added $28,000 to each gambler’s estimated spending for each scratch-off prize claimed – a very conservative figure. (A player who won once or twice might defy the odds, but everyone on the final list won at least 38 times.)

Because games like Cash 3, Cash 4, and Keno are trickier to analyze, Garibaldi ignored those prizes when estimating spending. That makes the overall result even more conservative.

He also subtracted the value of all prizes won from the estimated spending. The theory is that someone who won big prizes could have played off the winnings. Again, the methodology bends over backward to assume that nothing untoward is happening.

Calculating in this way, Garibaldi found 134 gamblers for whom estimated spending was over $1 million.

How do certain people win the lottery several times in a single day, and not just piddling sums, but prizes of $600 or more? How does someone win prizes of that size at an average pace of more than once a month for a decade?

How can at least 134 people, many of them store owners who sell lottery tickets, amass winnings that, given the odds, would have required that they spend $1 million or more on tickets?

Those logic-defying patterns say one thing: Some people are claiming prizes they did not win themselves.

Georgia Lottery Corporation officials don’t dispute that conclusion, drawn by a mathematician who helped The Atlanta Journal-Constitution analyze the state’s database of winners.

The bottom line: At least $16.3 million has been paid out since 2003 to people whose winning patterns are so improbable that someone should have asked hard questions. That is a very conservative estimate; the actual figure is probably considerably higher.

Past and current lottery officials concede that something is amiss, but until recently the corporation made almost no attempt to learn the scope of the problem or to stop people from manipulating the system for personal gain.

“If you are asking me, did somebody win 200 tickets legitimately over that time, I don’t think that they bought those tickets,” said Joe Kim, who was hired as the lottery’s vice president and general counsel in April. Over the summer, the lottery began instituting tighter controls.

Kim’s predecessor, Kurt Freedlund, said the patterns are no secret. “It’s a problem, it is one that everyone in the lottery industry is aware of, and it’s something that really needs to be addressed,” said Freedlund, who left at the beginning of February. “But it’s a very difficult thing to address.”

He and Kim disagree on an arcane but crucial legal point: whether, under Georgia law, winning lottery tickets, like cash or checks payable to the bearer, can be transferred from person to person. Freedlund believes they can, Kim thinks otherwise.

In response to questions from the AJC, past and current lottery officials emphasized that they have always fully investigated complaints about retailers.

Some states have taken more initiative. Investigators in those states have uncovered two types of lottery manipulation, which, as Freedlund said, are now well known throughout the industry.

One is known as discounting. It happens when someone who owes back taxes or child support wins a prize and sells it to someone else at a discount to avoid paying the state the money that is owed.

“I really think the issue is what we call discounting or retailer trading, where people come in with winning tickets but they don’t want to pay the tax on it or they might have back child support that’s due,” said Bill Hertoghe, the former deputy director of security and law enforcement for the California lottery.

Debbie D. Alford, the president and chief executive of the Georgia Lottery Corporation, was not available for an interview about the AJC’s findings, but she emailed a statement. “We believe most of these cases involved retailers agreeing to cash winning tickets on behalf of their customers – a violation of law, rules and regulations,” Alford wrote.

Someone who makes a profit by buying the ticket at a discount and collecting the full winnings does not commit a crime. But the Lottery Act says that once a player has won, the prize cannot be sold to someone else. If it is, the ticket becomes worthless – or it would, if the lottery rigorously enforced the law.

Kip Wise owns a store in Griffin that sells lottery tickets. “Believe it or not, a lot of people owe the government,” said Wise, who admits he bought winning tickets but said he didn’t think he was doing anything wrong.

“They owe the state. They are drawing welfare checks. They are drawing unemployment checks. A lot of them don’t want (their winnings) to be reported, and if a person is going to have to pay a 33 percent tax, and they can sell it at a (discount), they’re up a little bit, too.”

The second type of practice is a crime. It happens when a customer hands a ticket to a store owner or clerk to determine if it is a winner, and the owner or clerk lies, saying it’s not, when it actually is.

More than a third of the people red-flagged by the AJC’s analysis have the same names as people who own, or once owned, stores that sell lottery tickets. If they are involved in any practice not in keeping with the Lottery Act, it may simply be discounting. But it could be worse.

“It’s not that clerks and owners can’t play the lottery, but if they come forward with an awful lot of winning tickets, that’s a red flag,” said Hertoghe, who is now a private investigator and consultant for state lotteries.

Margaret DeFrancisco, who retired as the lottery’s chief executive in 2012 after a nine-year run, said the lottery always responded to customer complaints about possible abuses. “If we learned about something and it was reported to us, we investigated it,” she said.

A statistical analysis such as the one performed by the AJC can identify people whose winning patterns are so improbable that they merit a closer look. But it can’t prove that any individual is actually gaming the system, or if so, how.

That takes old-fashioned detective work.

But the corporation has only two staff investigators, and until recently they focused on prizes of $250,000 or more and addressing player complaints. (The folks on the AJC’s list of wildly improbable winners most often claimed prizes of $1,000, sometimes multiple times in a single day.)

The phenomenon of players with grossly improbable winning patterns has gotten lots of attention in recent months. First, The Palm Beach Post, a sister paper to the AJC, exposed the problem in Florida. The Boston Globe followed suit in Massachusetts.

The AJC’s analysis focused on winning tickets worth more than $600 from October, 2003, to May of this year. At that level the state requires winners to fill out a claim form and provide proof of identity and a social security number. Before handing over the cash, lottery employees check each winner’s name against state databases of people who owe taxes, child support, education loans or other debts to state agencies.

Until recently, if the winner wasn’t a retailer and if the prize was under $500,000, the player walked out with the winnings the same day. Store owners that sell tickets have to wait to be paid out on prizes over $250,000.

Getting a handle on practices such as ticket discounting in Georgia is complicated by the fact that the lottery doesn’t maintain all the data needed for a definitive analysis. For starters, it has no record of winners before October 2003, when a software conversion corrupted all its data.

Here’s another gap: To determine which players are truly suspicious, you must know the odds of winning each specific amount on each specific game. Those odds – amounting to thousands of different variables for multiple different games and versions of those games – aren’t computerized. The lottery keeps them in a thick binder of documents, a format absolutely useless for analyzing suspicious winning patterns.

To get around that problem, the mathematician who helped the AJC, Skip Garibaldi, had to rely on knowledge he gained in helping The Palm Beach Post analyze Florida’s database of winners. To avoid overstating Georgia’s problem, Garibaldi, who holds posts at both Emory and UCLA, opted for the most conservative estimates Georgia’s database of winners would yield.

In recent months, the lottery has started to ramp up enforcement by flagging high-frequency winners.

If officials find a pattern of wins they consider highly questionable, Kim said, they can hold up a winner’s prizes indefinitely or sever the corporation’s relationship with a retailer. Thus far the lottery has refused 11 payments based on win patterns.

It has also created what Kim calls a “bad boy’s list” of 65 high-frequency winners. Most are, or once were, lottery retailers. Whenever someone on the list shows up at a lottery district office to claim a prize over $600, employees have orders to send the person to the lottery’s headquarters in downtown Atlanta.

Seven retailers with improbable win patterns have been sent notices of possible suspension. “The extraordinarily improbable win patterns … create a prima facie case that tickets are being assigned to you by third parties,” the warning letters read.

Wise, the Griffin retailer, is one of the ones who got a letter. He was also denied a prize this summer.

He said he’s won the lottery many times legitimately. Wise said he can’t recall how many times he bought tickets from other winners at a discount. He said he will no longer cash in tickets he’s bought, or even play the lottery.

Catching people who claim prizes they didn’t win is more complex than flagging people who win large amounts or who win repeatedly. You must look at the number of locations where a person wins, the time span during which wins took place and other factors.

But complex doesn’t mean impossible. Alford and Kim are the first lottery executives in Georgia to employ tools other states have used. They’ve hired two private investigation firms to help the in-house investigators conduct stings, a technique used in states including California.

A sting involves presenting a retailer with an actual winning ticket, and “seeing if they are going to buy it from you at a discount, or if they are going to lie to you about the value of the ticket,” Kim said.

Kim said the lottery is also talking with technology giant SAS of Cary, NC, about using its software suite to ferret out suspicious players.

Priyanka Chawla is one of the retailers who recently got a letter from the state. Chawla is listed by the lottery as the owner of several stores throughout the state. She has cashed in at least 107 winners worth at least $600 for a total of $126,812.

By Garibaldi’s estimate, she would have had to spend at least $2.5 million to achieve those wins – roughly $1,000 a day in the roughly six and a half years during which her wins took place.

“Even if the probability of winning each prize was one chance in a thousand, and it’s probably much less, (she) would have had to buy something like half a million tickets during this time period to have a plausible chance of winning so many prizes,” said Jeffrey Rosenthal, a University of Toronto statistician. A few years ago, Rosenthal helped Canadian journalists uncover retailer fraud in the Ontario lottery.

When reached by phone, Chawla said she has not bought winning tickets from other players. All the wins were hers, she said. “I play a lot, and then you get lucky. And I don’t like playing small tickets, dollars here or there.”

Sometimes, retailers avoid suspicion by hiring “runners” to cash in winning tickets they have acquired from the actual winners.

Eddie Allen of Bowman, who cashed in at least $161,081 worth of tickets, says he used to do the deed for retailers who just handed him tickets. He got to keep 10 percent of the winnings for himself, he said.

When asked whom he worked with, he said, “ … you know, like liquor stores … I don’t keep up with names. They’re out of business now, they sell the stores and they move on.”

Miteshkumar Tilva, who owns a package store in Smyrna, said he would never cash in anyone else’s ticket. But he has been approached by customers who asked him to do it.

“They’ll say: ‘Down the road, there’s a guy who will do it for me,’” he said. “I just say: ‘Go there!’”

Tilva’s case shows why using data to spot people who may not adhere to the Lottery Act is so complex. He is on the state’s list of high-frequency winners. But he wasn’t flagged by the AJC’s analysis, because many of his wins were at Keno and Cash 4. Garibaldi excluded those games from his spending calculations because it’s trickier to determine how much a player must spend to win a given amount.

Tilva also said he’s won some very large prizes, which gave him ready cash. “I’ve hit $65,000,” he said. “I’ve hit $45,000. This year, I’ve hit $60,000. When you get those kinds of hits that gives you a boost. I’ve been just playing with the winnings.”

Mohammad Shafiq is on the AJC’s list. In June, he walked into a lottery office and tried to claim a $1,000 prize with a lottery ticket torn in half. Lottery employees refused to pay.

At the time, Shafiq owned at least two stores that sold lottery tickets in Hull and Athens. The torn ticket was a red flag, something a store owner or clerk might do to persuade a customer who handed in a winning ticket that it was worthless.

Since 2004, Shafiq has won at least $159,327 on tickets worth more than $600. Given the odds, he would have had to conservatively spend nearly $3 million to amass those winnings.

After the lottery refused to pay his prize, Shafiq told officials he was getting rid of his stores. Soon afterward, he switched ownership to someone who lives at the same address he does, Kim said.

The lottery suspended both Shafiq and the new owner from selling lottery tickets. He has filed an appeal.