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Treasurer requests lottery-game review

Inspector to look into Cash WinFall

By Andrea Estes
Globe Staff / October 20, 2011

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State Treasurer Steven Grossman has asked the inspector general to launch a “thorough and exhaustive independent review’’ of the lottery’s Cash WinFall game to determine how a single betting group was able to hijack a multimillion-dollar drawing last year, buying up nearly all the tickets and winning nearly all the prize money.

Treasury employees, including a state trooper, visited the Massachusetts State Lottery headquarters in Braintree yesterday to make sure all relevant information, including any communications between lottery employees and lottery players, was preserved and available for review by Inspector General Gregory Sullivan, who has already agreed to investigate.

“There is no presumption of wrongdoing,’’ said Grossman, whose office oversees the $4.5 billion lottery. “But we felt this was an important step we needed to take to protect the integrity of the lottery.’’

Grossman and Sullivan both said they have notified Attorney General Martha Coakley of the impending investigation of a game that has been increasingly dominated by big-time gamblers because of unusually generous payoffs during certain periods called “rolldowns.’’ Sullivan said his office will investigate the game’s entire history, from its planning in 2003 to this year, when Grossman announced it will be phased out in the spring.

“We’re very dedicated and committed to finding out whether or not anything improper happened here,’’ said Sullivan, “whether, for example, there could have been any improper information provided by anyone inside the lottery to any betting group. If we become aware of any serious violations, we will bring them to the attention of the attorney general’s office immediately.’’

Sullivan said that because of the “volume of records’’ his office will be reviewing, he could not predict how long the investigation will take.

The Globe first reported in July that a handful of betting clubs had essentially taken over the game, buying most of the tickets statewide - and winning almost all the prizes - during rolldown weeks when payoffs swell up to 10 times their normal size. In non-rolldown weeks, for example, matching 5 out of 6 randomly drawn numbers will generate a prize of $4,000. During a rolldown week, the same ticket could pay as much as $40,000.

But on Sunday, the Globe reported that in August 2010 one betting group - led by a Massachusetts Institute of Technology graduate with multiple degrees, including one in computer science - was able to outsmart its rivals and the public and single-handedly dominate one rolldown. The group was able to buy more than 80 percent of the tickets for the Aug. 16 drawing and grab nearly all the prize money - more than $2 million.

The game, which has two drawings a week, is unique in the country because of two features - its rolldown and the great odds of matching at least two of the six numbers.

The jackpot starts at $500,000 and grows each week until it hits or surpasses $2 million. When the jackpot hits $2 million and no one wins, the jackpot money “rolls down’’ into the lower prizes, making them much larger than usual. That’s when the betting groups and devoted Cash WinFall players - of which there are tens of thousands - pour big money into the game.

Betting groups figured out by 2005 that Cash WinFall is one of the most profitable games in the country, knowing that they are almost certain to win more than they lose if they buy enough tickets. And lottery officials were delighted, even providing extra machines to help the state’s biggest players buy more tickets faster.

Normally, the lottery notifies the public when a rolldown is approaching so that interested players can jump in, but that didn’t happen in August of last year.

A group led by 2007 MIT graduate Yuran Lu beat the system by buying huge blocks of tickets in the days leading up to the Aug. 16 drawing. For each ticket purchased, the jackpot grows by roughly 50 cents. Over four days, his group bought 700,000 tickets - pushing the jackpot above $2 million and triggering rolldown prizes.

Even though the lottery has access to daily sales reports and four stores frequented by Lu had requested permission to sell more than their $5,000-a-day limit, lottery officials said they did not realize that Lu was purchasing enough tickets to force a rolldown. Instead, they projected the jackpot would reach only $1.67 million with no rolldown.

As a result, the other betting groups and the public sat on the sidelines and did not play, costing the lottery hundreds of thousands of dollars in sales and allowing Lu’s group to collect almost all of the prizes.

Lottery officials said their computers could not predict the rolldown and they were unprepared for Lu’s tactics. They said they put protocols in place afterward to make sure it didn’t happen again.

But Gerald Selbee, a retired store owner from Michigan whose betting club has been the game’s biggest player, believes the lottery either allowed Lu’s group to plunder the game, or was grossly inept not to have seen the scheme as it was unfolding.

“They would have known which retailers were authorized to increase sales and would have seen they did increase sales,’’ said Selbee. “They would have known the jackpot would exceed $2 million. If they had let the word out, the agents would have gotten in touch with their players and everyone would have played.’’

After the first Globe story in July, the lottery restricted stores’ daily sales of Cash WinFall tickets, effectively putting the gambling groups out of business. The lottery also disciplined two sales agents who had allowed the groups to break lottery rules, by letting Selbee and his wife, Marge, operate ticket terminals.

Selbee said the punishments were unfair since the lottery has not only known of his group’s operations for years, but actually praised them for buying so many tickets.

“They knew exactly what we were doing,’’ said Selbee. “They were cooperating with this club and encouraging us to play.’’

Now, he said, they are “trying to cover their tracks. . . . They knew exactly what were doing and now they’re trying to cover their butt.’’

Andrea Estes can be reached at estes@globe.com.