IOWA CITY, Iowa (AP) - A prominent lottery official who was stripped of power after a subordinate allegedly carried out a prolonged jackpot-rigging scheme received a $284,000 severance payment, a recent tax filing shows.
The Multi-State Lottery Association made the payment to its longtime executive director Chuck Strutt as part of a “voluntary termination agreement” signed March 31, according to its 2016 tax return. The filing, released by the group in response to a request by The Associated Press, also reveals that its legal and security expenses have skyrocketed as a result of the case.
The group’s board, which includes directors from the 37 state and territorial lotteries that are members, placed Strutt on leave Oct. 15, 2015, after the disclosure that the jackpot-fixing allegations against former employee Eddie Tipton had expanded to involve prizes claimed in other states.
Investigators allege that Tipton, the association’s former information security director, installed software code on random number generators used by lotteries that allowed him to predict winning combinations on three days of the year. Investigators say Tipton and his associates used that knowledge to buy winning tickets worth millions of dollars in Colorado, Oklahoma, Wisconsin, Kansas and Iowa between 2005 and 2011.
Tipton’s friend, Texas businessman Robert Rhodes, pleaded guilty Monday to his role in unsuccessfully trying to claim a $14.5 million Hot Lotto ticket that Tipton bought in Iowa. He is also expected to plead guilty to charges in Wisconsin, where he told investigators that he had split a $783,000 Megabucks jackpot with Tipton in 2008.
Tipton and his brother, a former Texas justice of the peace, are awaiting trial in Iowa. No other lottery association employees, including Strutt, have been accused of any wrongdoing. Strutt has cooperated with the investigation and prosecution.
Strutt, who was the Iowa-based association’s first employee in 1987 and helped run the popular Powerball game since its inception, said he was shocked to learn of the allegations against Tipton, saying the organization was “defrauded by a trusted person.” In his first interview since the scandal broke, Strutt told the AP on Monday that he’s not aware of anyone internally who had suspicions about Tipton.
“The association had accepted practices in place to prevent fraud and Eddie Tipton found a way around them,” Strutt said. “Every lottery out there follows industry practices and is constantly on the watch for improving their security. But bad actors do sometimes get through. Eddie is not the first and he won’t be the last.”
Strutt, 64, said he had supporters and critics on the board. After meeting with them, he said he ultimately agreed to step aside so the organization could take a fresh look at what happened and plot its best path forward. He called his severance payment - which amounted to about one year of salary - part of a standard settlement for the industry.
“It is an American tradition that when a scandal rocks an organization, the head person often moves on,” Strutt said. “I understand that.”
Dawn Nettles, an industry watchdog who runs the Lotto Report newsletter, said state lotteries have tried to keep the jackpot scandal quiet and Strutt’s termination agreement appears to be part of that effort.
“They paid him off, but I figured he would have got a whole lot more than $284,000 because that’s just peanuts to them,” she said. “To me, it’s just a cover-up and poor Chuck had to take the fall for it, even though he’s about the most honest lottery person there was.”
In a statement, the association’s board praised Strutt’s long career but said that “new leadership will benefit the rebuilding of the association.”
Reeling from the scandal, the association’s spending increased by 17 percent, to $6.1 million in the tax year that ended June 30. That includes a surge in legal expenses to $560,830, or nearly eight times as much as it spent two years earlier. It also reported paying $147,650 to SeNet International Corporation, which has helped advise the group on how to improve its security.
The association is fighting two lawsuits that seek millions of dollars on behalf of players who claim they were defrauded or shortchanged. One filed last week seeks class-action status and alleges that the association was negligent in failing to prevent Tipton’s alleged fraud.
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