Fasano Calls out Lottery Officials for Knowing Game Was Vulnerable To Fraud [Courant]

Article as it appeared in the Hartford Courant

Lottery officials knew in January of 2015 that there was a way for retailers to illegally access the numbers of the 5 Card Cash game on their computer screens and manipulate tickets—but waited 10 months to notify the Department of Consumer Protection that fraud was occurring.

At a legislative hearing Tuesday morning Connecticut Lottery Corp.’s chairman and acting president, Frank Farricker, acknowledged that “lottery officials put revenues over security issues” concerning the game, a mistake that cost the state at least $1.5 million.

In addition, the 2015 episode wasn’t the first in which the quasi-public lottery corporation failed to report problems promptly to the state consumer protection officials who oversee them.

Even in 2013, before the poker-based game was launched in Connecticut, the lottery’s security director, Alfred DuPuis, had discovered and told superiors that 5 Card Cash had been compromised by fraud in other states where it had been introduced previously.

DuPuis warned superiors that dishonest ticket sellers in other states had used the sleight-of-hand technique of “palming” winning tickets and keeping them for themselves.

But the lottery corporation “did not share this information” with the consumer protection agency, “and took no action to mitigate the problems,” consumer protection officials said in a two-page investigation summary that they submitted to the legislative public safety committee for the hearing.

Lottery officials have been criticized for the past year or so over their delay in reporting the fraud—but Tuesday was the first time it’s been made public that they knew in advance of the game’s vulnerability to fraud and decided against taking effective action to prevent it.

DuPuis told committee members that he had proposed a way of preventing the “palming” fraud, but it was rejected.

‘Palming Tickets’

DuPuis recalled that in 2013, during the planning stage for 5 Card Cash, he learned from lottery security directors in other states that this was a game that officials needed to be “very, very careful” with.

That was because vendors at stores in other states had already demonstrated an ability to quickly read the card symbols on the printed ticket to see if it was an instant winner; the symbols were printed in a quickly-visible spot on the ticket. They would “palm” winning tickets to keep for themselves.

DuPuis said he recommended to the lottery’s president at the time, Anne Noble, that the “palming” problem could solved by having the electronic terminal give an audible “congratulations” message—which would let the customer know he or she had just purchased an instant winner.

But Noble and others decided against taking that protective security measure, DuPuis said, because it would spoil the customers’ fun if they knew the ticket was a winner before they held it in their hands. The player wouldn’t “get to see the ticket and ‘play the hand'” – which would end up “killing the game,” DuPuis said he was told.

“I personally disagreed with that,” DuPuis said, based on warnings from his counterparts in other states who said the audible warning was critical.

But he was overruled.

And so the game was implemented, without the audible notification, and cheating soon surfaced in 2014 and 2015.

There was “palming,” as anticipated before the game was launched. Lottery officials mitigated that problem by printing the symbols on another part of the ticket that wasn’t as readily visible.

But it turned out there was another, more serious way to cheat: Terminal operators realized that they could read in advance on the machine whether a winning ticket would be printed out in the next moment. It wasn’t until January 2015 that lottery officials realized the problem, and it took them 10 more months to relay the information to Consumer Protection.

Ultimately, 15 arrests were made on fraud-related charges as the state Department of Consumer Protection embarked on a lengthy investigation for which some results have yet to be released. The 5 Card Cash game was shut down permanently in late 2015.

The state has recouped about $110,000 from vendors who participated in the scam, according to William E. Ryan, director of the gaming division at the Department of Consumer Protection. Officials are still seeking another $1.4 million in restitution from other vendors, he said.

Something Not Right

Consumer Protection’s investigative report Tuesday made it clear that the lottery knew early on that there was something wrong.

Data from the summer of 2014 showed that there was a slight increase in the number of instant winners of the Play 5 game which should have been a giant red flag to lottery officials.

But they didn’t realize they had a big problem until an honest retailer went to lottery officials in January 2015 and told them about being able to see the numbers on the terminal screen before they were actually drawn.

It wasn’t until Oct. 29, 2015 that lottery officials told the consumer protection department that it “suspect[ed] an issue with the 5 Card Cash game.” They tried to get online gaming vendor Scientific Games to design a “software fix” but on Nov. 12, once consumer protection officials gained a “complete understanding” of the problem, they ordered the game shut down, the Consumer Protection report said.

Revenue Over Security

After an emphatic rebuke Tuesday from Senate Republican leader Len Fasano at the hearing, Farricker admitted that the lottery “didn’t serve the state very well in the way we implemented” the game —adding that “we made a mistake in putting revenue concerns ahead of security concerns.”

Fasano called the 5 Card Cash game a “debacle” that “shakes the foundation of honesty” that is the lottery’s most precious asset.

He said the episode shows that quasi-public agencies such as the lottery, which enjoy greater independence than normal state agencies, are “out of control.”

“The revenue issue was more important than respect for the lottery itself,” Fasano said.

Fasano questioned the generous separation package that the lottery corporation gave Noble last September when she stepped down as lottery corporation president and entered a consultant’s role—which let her stay on the payroll until she qualified for pension benefits early this year.

Noble sat in the audience but was never called to answer questions. The committee ran out of time Tuesday, and its co-chairman, Rep. Joe Verrengia, D-West Hartford, said the hearing will re-convene at a future date to discuss subjects including Noble’s controversial separation package.

Noble said after the hearing that Consumer Protection has never allowed her “to be heard on this issue, and they are far from impartial.” Consumer protection officials “have a responsibility for preventing fraud, and fully participated in the 5 Card Cash game, and at all times my staff and I cooperated with them and kept them informed.”

“I ran the lottery for close to nine years…with exemplary performance and a commitment first and foremost to integrity,” she said. ” I should have an opportunity to be heard before they draw conclusions.”