Dec 6, 2014, 11:30 am
Some people seem to have all the luck. And in New Jersey, some of the luckiest people are retailers who sell lottery tickets.
Or so it appears from the New Jersey Lottery's list of winners.
An Asbury Park Press review of Lottery claims submitted since 2009 found that half of the 20 most frequent prizewinners are either licensed lottery retailers or family members of store operators.
As a group, those 10 people collected 840 prizes totaling almost $1.8 million, the Press found. About 70 percent of these payouts were for winning Pick 4 tickets, where the odds of winning the top prize are 1 in 10,000.
Odd? The New Jersey Lottery thinks so. It says it's investigating some of the people on the Press' list to see if they're actually cashing in other player's winning tickets, a common but unlawful practice across the country called ticket discounting. When this happens, the real winners may be avoiding having to pay child support judgments, taxes or other government debts that are required to be taken out of their winnings. The discounter takes a cut of the prize, usually 20 percent or more.
What's the harm? For one thing, discounting allows people to potentially cheat the government, and even launder dirty money, lottery fraud experts say. But it can also jeopardize the Lottery's reputation for absolute fairness. Learning that some lottery retailers and other insiders are winning so frequently makes regular players like Kenneth Nuckols wary.
"It sounds shady," the 41-year-old Atlantic City resident said. "It definitely sounds very unfair, if that's going on. It sounds like I won't be playing the lottery as much."
The serial prizewinners who are also lottery merchants — mostly mom and pop-type store operators — stretch across the state, from Paterson in the north to Atlantic City, the Press found.
A leading lottery statistician calculated that some of these people would have to have spent more than $1 million on tickets over the course of their winning streaks to be so successful.
Lottery merchants and their relatives account for five of the New Jersey Lottery's six most frequent prizewinners since 2009, the Press found. The most prolific winner — the mother of an Ocean County lottery retailer — has collected 134 prizes worth more than $275,000 over that time. Relatives of another retailer in Atlantic County have collected 368 prizes dating back to 2004.
Retailers, who are free to play lottery games themselves, earn commissions equal to 5 percent of their lottery ticket sales, plus 2.5 percent of any jackpot or other top-tier winning tickets they sell. In fiscal year 2013, those payments amounted to almost $158 million.
Here is how illegal discounting commonly works: A customer wins a $1,000 instant scratch off prize, but he has $5,000 in court-ordered debts he doesn't want the government to grab. A ticket discounter offers to buy the winning ticket for $800. The customer walks away with the cash and the discounter pockets a quick $200 profit after collecting on the claim. The discounter may also avoid income taxes by balancing his prior lottery losses against his new winning. Discounters can even buy boxes of losing tickets off of the Internet, just in case they are audited.
The Press reviewed 455,000 winning claims of $600 or more and shared its list of serial winners with the Lottery.
"We've done investigations and we're continuing to do investigations," spokeswoman Judith L. Drucker told the Press. "There are people on your list who were on our list as well."
The Lottery, a division of the New Jersey Department of the Treasury, has some 7,000 licensed agents across the state, ranging from small corner grocers to major liquor and convenience store chains. Together, they helped generate $2.8 billion in gross sales in 2013, pumping more than $1 billion into state programs benefiting students, veterans and the disabled.
The Lottery reports prize claims of $600 or more to the Internal Revenue Service. The IRS withholds 25 percent of winnings above $5,000 and the state collects an additional 3 percent tax for prizes above $10,000.
Before disbursing checks, the state cross-checks the winner's personal information against databases to determine if they owe back child support, court fees and other government debts. If so, those amounts are deducted from the winnings. Since 1992, the state has garnished more than $7 million in lottery winnings this way.
The Lottery's rules, reinforced by retailer training programs, strictly prohibit licensed retailers from discounting, even as a favor for customers.
The Press reviewed dozens of disciplinary decisions handed down by the Lottery since 2004 and found 58 cases involving ticket discounting by licensed vendors or their employees.
The practice can prove costly. Violators can face civil penalties up to $10,000 per discounted ticket, and risk having their lottery licenses suspended or revoked.
But that rarely happens. In the Lottery enforcement actions, there were just five instances since 2004 where ticket sellers implicated in discounting schemes were permanently suspended or stores had their lottery licenses revoked. In the 58 discounting cases the Press reviewed, the average fine assessed was less than $5,700, about the same as the top payout for a pair of winning Pick 4 tickets.
Even store operators who admitted to discounting tickets for as long as 21 years were allowed to stay in business, the Lottery's records show.
"If that's the punishment, that's nothing. There's no disincentive to engage in this activity," said statistician Skip Garibaldi, associate director of the Institute of Pure and Applied Mathematics at the University of California, Los Angeles, a leading lottery watchdog who reviewed the Press' findings.
The state's most prolific prizewinner since 2009, according to the Press' analysis, is Pramila Baile, of Millstone, whose son operates two liquor stores in Ocean County that sell lottery tickets. Over a span of almost six years, she has claimed 134 prizes totaling more than $275,000.
Going back to 2004, Baile's winnings swell to 167 prizes totaling nearly $350,000. That amount includes payouts of $5,000, $12,000 and $20,000 for instant scratch-off games, and dozens of prizes for winning "straight bets" in Pick 4.
"I'm surprised that she's won that much," said her son, Shravan K. Baile, the owner of Bailey's Discount Liquors in Lakehurst and Wine World in Manchester.
One of Baile's customers, Harry "Hatt" Daguiar, of Lakehurst, can't imagine how someone could be that lucky.
Since 2004, the 61-year-old retiree, who says he buys tickets for Pick 4 and other drawings three or four times a week, has won just three times, for a total payout of $5,338, lottery data show. How, then, he wonders, could the store owner's mother have such an incredible winning streak?
"If Joe Schmo up the block here hits 100 times in four years, and the guy behind him is playing just as much and he never wins, there's a red flag somewhere in there," Daguiar said.
Shravan Baile, of Millstone, said his mother was in India and unavailable for comment. Because she enjoys lottery games, he said, her extended family regularly sends her tickets.
They must arrive by the boxful.To produce such a high number of wins, a winner with Baile's claim history would have had to have spent approximately $1.2 million on lottery games, or about $300 per day over the course of nearly 11 years, Garibaldi estimated.
A nationwide trend
Garibaldi and other lottery experts weren't surprised by the Press' findings.
They point to recent lottery investigations in Florida, Michigan,Massachusetts, Georgia,Kentucky, Ohio and California, among others, which also uncovered individuals and families who have racked up surprising numbers of lottery wins over many years.
In many cases, these top prizewinners turn out to be the very store owners and clerks who are selling lottery tickets.
"You're going to see the same thing — massive wins by retailers," said Bill Hertoghe, a former chief of investigations for the California Lottery. "That seems to be a pattern nationwide — probably worldwide is my guess."
Drucker, the Lottery spokeswoman, said the division aggressively enforces the discounting ban, using random field inspections and undercover visits to stores to make sure agents and their employees are abiding by the rules.
So far this year, she said, the Lottery's Security Unit has initiated more than 1,200 investigations involving agent claims, and established 41 cases attributable to ticket discounting. Some of those investigations are still underway.
All told, license holders were assessed $40,000 in civil penalties through mid-November of this year, up from $37,500 in 2013, Drucker said.
Drucker noted that players on the Press' list of top 20 prizewinners, all of whom have submitted 48 or more claims since 2009, represent a minute fraction of the more than 100 million winning New Jersey Lottery tickets sold every year.
"I think that puts a little perspective on it," she said.
The top prizewinners in some other states had higher totals, Drucker added. The top player in Florida, for example, scored more than 250 lottery wins in a span of less than seven years, while three members of one Massachusetts family combined for 339 wins in just two years.
Only one of the agents on the Press' list of top 20 prizewinners since 2009 has faced disciplinary action in the past decade, the Lottery's records show.
In September, Niharika P. Dwivedi, a former part-owner of the North Broad Food Mart in Hillside, admitted to discounting 155 tickets totaling almost $280,000 over more than 13 years, according to the disciplinary decision signed by New Jersey Lottery Executive Director Carole Hedinger.
Dwivedi, of Nutley, has the sixth highest prize total since 2009 — 84 claims totaling almost $155,000, lottery data show. Dwivedi could not be reached for comment.
Shri Hari Corp., of which Dwivedi was identified as the owner by the Lottery, was fined $10,000. North Broad Food Mart and another business that Dwivedi co-owned, the Kosh News Stand in Newark, both had their Lottery license revoked, the Lottery stated. Dwivedi's partners in Kosh News were informed they can reapply for a new license at a later date, provided Dwivedi was no longer involved in the business. In addition, one of Dwivedi's discounted claims, for a $10,000 prize, was denied.
Violators caught discounting rarely have more than one claim negated, and none since 2004 has had more than three, records show. Still, losing out on even one prize can be more costly than a fine, depending on how much the discounter actually paid for the winning ticket. Claims ranging from a few hundred dollars to $150,000 were denied in 31 discounting cases since 2004, the Press found.
The Lottery's disciplinary reports include five ticket discounting cases involving retailers in Monmouth and Ocean counties.
In one case last year, Bharat Kumar Patel, then a co-owner of the Country Farms store at 380 Drum Point Rd., Brick, admitted to discounting 15 winning lottery tickets over five years, and submitting the claims under the names of his son and daughter. The business was fined $5,000 and placed on a 1-year probation. The Lottery also denied a $10,000 claim. The store has since changed ownership.
In another 2013 case, Minakshi Patel, whose husband owns the Welsh Farms store at 492 Joline Ave., Long Branch, admitted to discounting lottery tickets on at least two occasions. One of the tickets had previously been discounted and resold to her by another retailer. Her husband, Ramesh Patel, also was cited for failing to notify the Lottery that he had been sub-letting the business to another person for three years. The Welsh Farms store received a fine of $7,500 and a 1-year probation, and the Lottery denied two claims totaling $7,505.
One of the methods the agency uses to counter discounting is to flag all agent prize claims of $5,000 or more, Drucker said. But the Press found that most of the claims filed by serial prizewinners with connections to retail stores were for Pick 4 prizes that fell beneath the $5,000 threshold.
Garibaldi, for one, thinks New Jersey and other states should be more aggressive.
"I think when you set the bar at $5,000," he said, "you've just declared that you're not interested in catching ticket discounters."
Discounting's dark side
While discounting can be mutually beneficial for the parties involved, it's far from a victimless act, experts say.
For one thing, it deprives New Jersey children of some of the approximately $3.5 billion that's owed in unpaid child support.
It also can be a way for lottery winners on public assistance to hide winnings that could disqualify them from meeting the income requirements for those benefits.
In addition, experts say, discounting can lead to the exploitation of illegal aliens who are falsely led to believe that filing a claim with the state could trigger their deportation.
"That's not the case in almost every state I know of," Hertoghe, the former California Lottery investigator, said. "But that's not what they're told."
Drucker, the Lottery spokeswoman, insisted that undocumented immigrants aren't targeted by immigration authorities based on the filing of a lottery claim. The only penalty is that the winnings of claimants without a valid Social Security number are subject to a maximum tax deduction of 30 percent, she said.
An even darker side to ticket discounting, experts say, is money laundering.
It's possible for a drug dealer or other criminal figure who wants to launder dirty money to buy large numbers of winning lottery tickets at a discount from players who don't want to file a claim, and then re-sell those tickets to a retailer or another discounter in exchange for "clean" money, all the while remaining under the government's radar.
"I think there's a lot of money laundering going on," said Hertoghe, now a private investigator. "That's a whole other thing, and I wish somebody would look at it."
"It's not a local problem. It's an underground...enterprise that is widespread, and it's up to the government to stop it," Gregory Sullivan, a former Massachusetts inspector general who investigated suspicious lottery activity in that state, said of ticket discounting.
"The best way to stop it is to have a system in place to detect it," he added, "and it sounds like in New Jersey, and here in Massachusetts, they haven't done enough to detect it."
'Our personal thing'
For some top prizewinners, success playing the lottery appears to run in the family.
The Press used public documents, including property records and business filings, to establish relationships between lottery winners.
In one case, the Press found more than two dozen prizewinners whose names and towns matched members of an extended family that operates a chain of Cedar Food Market stores in Atlantic County. Together, they've claimed a total of 368 prizes worth nearly $958,000 since 2004.
What's their secret?
"That is a subject we're not interested in talking about," one of the winners, Nimer Nammour, 55, of Atlantic City, told a Press reporter before hanging up the telephone.
At the Cedar Food Market on Pennsylvania Avenue in Atlantic City, store manager Fares S. Nammour, another winner, who was shown a printout of the family's claims, which is several pages long, initially said he didn't recognize the names.
"No, they're not relatives of mine," he said.
Later, he gave a different answer.
"No, we're related. I just don't know them," he said.
A woman working behind the counter at a Cedar Food Market in Pleasantville told a Press reporter that the names on the list were "cousins" of each other. But soon after she became upset that the reporter and a videographer from the Press were attempting to interview her on camera and she had another man call the police. The woman then unsuccessfully tried to detain the reporter in the store to wait for the police to arrive.
Another family with a long history of lottery wins is the Altieros of Randolph, Morris County.
Fred Altiero, a lottery agent who operates Altiero Liquors in Paterson, has claimed 244 lottery prizes totaling more than $500,000 since 2004, lottery data show.
Similar to Pramila Baile, Altiero would statistically have had to spent more than $1.2 million over the course of almost 11 years — or about $315 per day — to produce so many wins, Garibaldi calculated.
Over that same period, his wife and grown children have claimed an additional 88 prizes worth another $209,439.50. Altiero did not return calls to his store and home seeking comment.
A man who identified himself as the husband of lottery agent Lissmol Paul, owner of Yogi's Quick Shop, in Washington Township, Gloucester County, also didn't want to discuss his wife's prolific wins — 94 prizes worth more than $130,000 since 2009, the fourth-highest prize total in the state.
To produce such wins, Garibaldi calculated, Paul would statistically have had to have spent at least $1.4 million, or about $840 per day, playing the lottery.
"Why do you want to ask all those questions?" the husband asked. Before hanging up, he said he didn't want to discuss the matter further, calling it "our personal thing."
Where Lottery funds go
The New Jersey Lottery is the state's fourth-largest revenue producer. In fiscal year 2013, the Lottery grossed more than $2.8 billion in sales. More than a third of those funds, or $1 billion, were earmarked for the following state agencies:
'I think when you set the bar at $5,000 you've just declared that you're not interested in catching ticket discounters.' Skip Garibaldi, lottery watchdog
'If Joe Schmo up the block here hits 100 times in four years, and the guy behind him is playing just as much and he never wins, there's a red flag somewhere in there.' Harry Daguiar, a lottery customer
Facts about lottery discounting
Ticket discounting leads to fines, suspensions
Discounting winning lottery tickets is not a crime in New Jersey, but it violates the rules governing New Jersey Lottery agents and their employees.
The Lottery's Security Unit investigates suspicious claims and conducts informational conferences with suspected violators. While accused agents may request a formal disciplinary hearing before the Lottery's executive director, most cases are settled quickly with a consent agreement.
Retailers caught discounting can be assessed civil penalties of up to $10,000 per discounted ticket, and risk having their lottery licenses suspended or revoked, but cases usually settle for far less. In 58 ticket discounting cases dating back to 2004 that the Asbury Park Press reviewed, the average fine was less than $5,700. Some agents also were penalized by having the payout for one or more of their discounted tickets denied.
Here are summaries of some of the discounting cases the Lottery has handled in the past five years, based on disciplinary decisions handed down by the Lottery's executive director:
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