Thursday, August 30, 2012

Massachusetts: $8M Lottery Scam by MIT Students, Prof; Cover-Up by Lottery Officials

Posted by Nicholas Stix

“[sic]”s are due to punctuation errors by the Daily News.

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MIT students scammed Mass. Lottery for $8M
By Ryan Gorman
August 3, 2012

Maybe MIT should stand for "muggers in training."

Ten years after a group of Massachusetts Institute of Technology students and a professor famously took Las Vegas casinos to the cleaners counting cards, a new gambling scandal has arisen that involves MIT: a researcher and a group of students scammed the Massachussets Lottery.

Worse though, is that the Massachusetts Lottery knew they were doing it and chose to share in the windfall instead of protecting the integrity of the game.

The math whizzes were looking for a unique school project when a couple of them figured out that it would only take about $100,000 in tickets to guarantee success in the Cash WinFall game. When the jackpot rose to $2 million or more, group members bought in and shared in the prize money. By 2005, the group had earned about $8 million in winnings, reported the Boston Globe.

Students at the Boston school manipulated the state lottery for over $8 million over the course of 6 years through the use of probability and advanced mathematics.
Despite an obvious conflict of interest in knowing that the game was compromised, officials continued to allow hundreds of thousands of $2 tickets to be bought by the merry band of thieves, the paper reported.

Here's how the scheme worked: If the jackpot in a lottery game isn't won, it usually is held over to the next drawing, creating a larger jackpot. In Cash WinFall the jackpot was capped at $2 million. When no one matched all the numbers, the jackpot would be redistributed - "rolled down" to make lesser prizes 5 to 10 times greater than usual, reported the Globe.

The game was so lucrative for the students, that they gave up jobs to stick it to the system on a full-time basis. Additionally, they were backed by investors who shared in the profits, according to a report by State Inspector General Gregory Sullivan cited by the paper.

Buying $600,000 worth of tickets virtually guaranteed a 15-20 percent return on investment. The initial premise was proven by James Harvey, who turned $1,000 in tickets into $3,000 Feb. 7, 2005. He immediately made the "project" larger, forming Random Strategies Investments and spending hours filling out betting slips and lining up eager financers. Within a few years, more groups popped up, but the MIT group figured out how to win the whole jackpot in a single drawing by 2010, reported the paper.

In an email discovered by the paper, a lottery supervisor shamelessly asks ""How do I become part of the club when I retire?"

Despite knowing about the game's lack of integrity as far back as 2005, according to the paper, officials only stopped the game this year.

"I feel it is important to essentially apologize to the public because a game was created that allowed syndicates to gain special opportunities that others did not have," State Treasurer Steve Grossman told the paper. "using [sic] machines themselves, partnership with lottery agents, using them after hours. We're sorry some gained unfair advantage," Grossman added " [sic] "Revenues were tremendous and the lottery benefited, but there were practices that were not appropriate and things done that were not right."

Officials knew things weren’t right when Random Investment Strategies cashed in 860 of the 983 winning tickets of $600 or more during one rolldown, Sullivan’s report said.

Despite repeated denials by lottery officials to the Boston Globe, Sullivan concluded they knew the game was compromised as far back as 2005 - even authorizing the sale of extra tickets and installation of extra ticket machines to the specific stores used by the students.

rgorman@nydailynews.com

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