Outraged lottery players and others in Massachusetts say lottery officials committed a "significant breach of trust" by allowing a now-defunct state lottery game to continue, even though they knew large syndicates were "likely to claim an inordinately large share of the prize money," according to a report by the Massachusetts Inspector General.
Charged with detecting and preventing fraud involving public funds, the Inspector General's office has published a report on the Massachusetts State Lottery's Cash WinFall game, which ended in January. The report described how high-volume bettors made millions from the game, sometimes aided by lottery retailers, while lottery officials allowed the game to continue.
One of the four syndicates identified was a group of students from the Massachusetts Institute of Technology, who made at least $3.5 million before taxes, the Inspector General's Office estimates.
The report tells of James Harvey, a student who, in his last semester at MIT in January 2005, decided to evaluate which lottery games were the most advantageous from the player's perspective.
He soon realized that each ticket for Cash Winfall was worth more than it cost and that it was possible to make a profit by buying large numbers of tickets during certain periods.
Harvey, whose interview was described in the report, declined to say how much the group had won. ABC News could not reach Harvey for comment.
Though the lottery organization was aware of syndicate betting in 2005, it wasn't until six years later that State Treasurer Steven Grossman and the Massachusetts State Lottery asked the Inspector General's office to conduct a review of the game's design and the way it was administered. This was prompted by reports last year about the syndicates in the Boston Globe.
Instead of being driven by large jackpots, once the betting pool for Cash WinFall reached $2 million with no winner, the game was designed to "roll-down" the pool to lower-tier prizes, increasing the winnings for those categories, the State Treasurer's office said. Thus, playing the game during a roll-down draw was more lucrative than during regular draws. In some cases, depending upon the total number of tickets sold, there was a jump from $4,000 to as much as $134,000 for a match of five of six numbers, the Globe reported.
Because the odds of winning changed, players took advantage of that loophole. Convenience store owners reportedly bought as many tickets as they could once they realized they could win multiple times.
In a statement, Grossman said the "game's design was not flawed, and it worked as intended." The treasurer's office also said the Inspector General "found no evidence of any illicit activities or collusion among bettors, Lottery officials, or Lottery agents" and "no players were disadvantaged by the game."
"The game was profitable for the Lottery and the taxpayers benefited from those profits, which were returned to the Commonwealth's General Fund for unrestricted local aid and other purposes," the state treasurer's office said in its statement.
However, some people question whether the lottery organization stretched rules for a game that was profitable for the state.
"The result was big jackpots for people in the know, blockbuster profits for the lottery - and a significant breach of trust with the general public," said a Boston Globe editorial.
The treasurer's office said that until the Boston Globe "brought the matter to light, the Lottery was passive in its response to the problem even though it was well aware of the syndicates' activities." The lottery eventually shut down the syndicate betting for the remainder of Cash WinFall's life and suspended the licenses of agents who had inappropriately assisted the syndicates.
The treasurer's office acknowledged, "These steps should have been taken much sooner."
The Lottery Commission did not immediately return a request for comment.