After Robert Rhodes collected a Wisconsin Lottery jackpot that had been rigged by his friend Eddie Tipton, he used the windfall for an investment scheme that produced another wave of undeserved government money, court records show.
Rhodes, an accomplice in a scandal that has shaken state lotteries, recently explained under oath how he used the $783,000 payout to receive an additional $180,000 in bogus tax refunds. The Texas businessman sent his lottery winnings offshore to buy a phony insurance policy for a personal corporation that never did any business — except receive the lottery prize. He then claimed the policy as a tax-deductible "business expense."
The upshot: Rhodes received roughly $150,000 from the U.S. government and $36,200 from Wisconsin in tax refunds on the lottery payout. But in an ironic twist, the St. Lucia-based insurer where Rhodes sent his cash would later be accused of duping investors and, in Rhodes' words, "abscond" with a chunk of the loot.
Rhodes and Eddie Tipton, former security director for the Multi-State Lottery Association, recently pleaded guilty to rigging the Dec. 29, 2007, Megabucks drawing advertised at $2 million. They agreed to refund Wisconsin the $783,000 payout and an additional $18,100 apiece to cover the state tax refund.
Investigators say Tipton installed computer code that allowed him to predict winning numbers on three days of the year, and that he worked with Rhodes, his brother Tommy and other associates to buy winning tickets and claim prizes worth millions in multiple states. Tipton and his brother pleaded guilty last week in Iowa, where the lottery association is based.
Rhodes, a 49-year-old father, pleaded guilty and cooperated with investigators in exchange for probation. He disclosed the offshore scheme in a deposition under questioning from Tipton's lawyer, Dean Stowers, who called it money laundering and tax fraud.
Rhodes, who did not return a message seeking comment on his testimony, employed Tipton at a Houston tech company in the 1990s and they became friends. Tipton supplied him with notecards listing dozens of potential winning combinations before the Wisconsin drawing, and Rhodes bought them, including the winning ticket.
With Tipton's encouragement, Rhodes formed a limited liability corporation, called Delta S Holdings, to claim the prize. Rhodes had previously visited the lottery association's office and both worried their ties would be discovered if Rhodes was listed as the winner. The LLC filed a lawsuit to obtain the prize after Wisconsin lottery officials said they couldn't pay the corporation without a court order.
Rhodes said he then turned to experts for tax planning advice on his windfall, buying a plan that "allowed me to get a tax refund."
Under the arrangement, Rhodes sent $450,000 to Bancroft Life & Casualty ICC Limited in St. Lucia to buy an "insurance policy" for Delta S Holdings. His tax returns claimed the purchase as a business expense, producing refunds when the governments determined they withheld too much of the prize.
Bancroft recruited tax-weary, wealthy individuals to invest in its insurance. Customers would buy expensive policies that their businesses didn't need but could write off. Bancroft would loan back up to 70 percent of their premium payments.
Rhodes received a $250,000 loan from Bancroft after buying his policy. He also received an insurance claim for $75,000 for "regulatory changes" that he said harmed Delta S Holdings, even though it never did any other business. Asked what regulations had changed, Rhodes testified, "I don't remember." He said its prospects in "real estate" and "consulting" never materialized.
Rhodes said Tipton wasn't told about the offshore deal until later and received none of the refunds. He said the deal went sour in 2012, when Bancroft became insolvent and the company "absconded" with $150,000 his LLC had left.
"I started getting insurance account records that say all of the money that Delta S Holdings had put there through paying the premium was gone," he said. "Some expletives followed on my part, you know, what... happened to whatever money was there to pay insurance claims? Well, there is none."
Timeline of the biggest crime in US lottery history
The following is a compilation of Lottery Post news coverage chronicling the Hot Lotto mystery and subsequently discovered crime.
We start the timeline with a news story indicating that only 3 months remained for the $16 million Hot Lotto jackpot to be claimed.
- Iowa Lottery security chief bent on determining identity of jackpot winner, Jan. 10, 2012
- NY lawyer in lottery mystery travels to Iowa this week, Jan. 17, 2012
- Iowa Lottery security chief to grill NY lawyer over Hot Lotto ticket, Jan. 17, 2012
- Representative of Hot Lotto winner named in lawsuit, Jan. 20, 2012
- Hot Lotto trust representative won't name winner, Jan. 20, 2012
- Iowa Lottery threatens to deny jackpot payout if winner stays anonymous, Jan. 23, 2012
- Lawyer gives up $14 million Iowa lottery ticket claim, Jan. 26, 2012
- $14.3 million Hot Lotto prize claim withdrawn, Jan. 27, 2012
- Iowa Legislators satisfied with Lottery's handling of mystery jackpot winner, Feb. 1, 2012
- Iowa Lottery to give away millions from jackpot mystery, Feb. 26, 2012
- Iowa Lottery director: 50-50 that Hot Lotto mystery will be solved, Aug. 9, 2012
- Iowa officials trying to solve lotto mystery, may release surveillance video, Aug. 19, 2012
- MUSL employee arrested in Hot Lotto jackpot mystery, Jan. 15, 2015
- BOMBSHELL: MUSL employee might have rigged Hot Lotto computerized drawing, Apr. 13, 2015
- Texas man charged in Iowa lottery case contests extradition, Apr. 20, 2015
- Extradition trial begins this week in $16.5M Hot Lotto fraud case, Jun. 7, 2015
- Inside the biggest lottery scam ever, Jul. 7, 2015
- Trial underway in world's biggest lottery fraud case, Jul. 14, 2015
- Lottery security chief: Rigging computerized game "sadly" possible, Jul. 15, 2015
- Prosecution rests in Hot Lotto trial, Jul. 16, 2015
- Defense quickly wraps up in Hot Lotto trial, Jul. 16, 2015
- Hot Lotto case moves to jury for deliberations, Jul. 17, 2015
- Former lottery security employee guilty of rigging $14.3M drawing, Jul. 20, 2015
- MUSL security worker who rigged drawing gets 10 years, Sep. 9, 2015
- HOT LOTTO DRAWING CHEAT CHARGED WITH RIGGING MORE JACKPOTS, Oct. 9, 2015
- Texas authorities had previously investigated brother of lottery cheat, Oct. 14, 2015
- Another $1.2M Hot Lotto jackpot rigged by Tipton, officials say, Nov. 21, 2015
- Jackpot-fixing investigation expands to more state lotteries, Dec. 18, 2015
- Prosecutors say Tipton rigged two jackpots he purchased tickets for in Kansas, Dec. 21, 2015
- Maine gives names of Hot Lotto winners to Iowa team looking into rigging scheme, Dec. 23, 2015
- S.C. Lottery assures public no computerized drawings used in state, Dec. 23, 2015
- Kansas lottery players questioning game's integrity, Dec. 23, 2015
- MUSL CHIEF OUSTED OVER JACKPOT-RIGGING SCANDAL, Dec. 23, 2015
- Lottery scandal unlikely to affect New Mexico, official says, Dec. 26, 2015
- Tipton granted delay in next trial until July, Dec. 29, 2015
- Iowa Lottery CEO Terry Rich to answer lottery player questions live Monday evening, Jan. 11, 2016
- First lawsuit in state lottery-fixing scandal seeks millions, Feb. 4, 2016
- MUSL seeks to dismiss lawsuit over rigged jackpot, Apr. 1, 2016
- Lottery scammer's brother facing criminal charges, Apr. 6, 2016
- Investigators find Tipton's software code to rig computerized lottery drawings, Apr. 7, 2016
- Lottery rigging scandal prompts security audit in South Dakota, Apr. 13, 2016
- Preliminary hearing rescheduled for Tommy Tipton in lottery rigging case, Apr. 22, 2016
- Third suspect surrenders in national lottery rigging scandal, Apr. 28, 2016
- Lottery scam investigation comes to Tennessee, May 11, 2016
- Investigators find another friend of Tipton who cashed rigged lottery prize, May 11, 2016
- Convicted computerized drawing fraudster argues Iowa court appeal, Jun. 16, 2016
- US Senate panel demands info in lottery scandal, Jun. 22, 2016
- Lottery rigging trial to be moved out of Des Moines, Jun. 27, 2016
- Eddie Tipton's new trial delayed until 2017, Jul. 1, 2016
- Iowa court reverses part of Tipton's lottery fraud conviction, Jul. 28, 2016
- Internal investigation concludes Tipton acted alone to rig lottery drawings, Aug. 10, 2016
- Prosecutors say 2 more men may be linked to lottery riggings, Aug. 24, 2016
- Judge: winner's lawsuit in lottery-fixing case can continue, Oct. 13, 2016
- Alleged lottery scandal conspirator to enter new plea, Nov. 14, 2016
- Accused lottery rigger Eddie Tipton facing new Wisconsin charges, Dec. 22, 2016
- Man files lawsuit over rigged lottery jackpots, Jan. 4, 2017
- Trials for Tipton brothers charged in lottery scandal delayed, Jan. 8, 2017
- Former MUSL official received severance amid lottery jackpot scandal, Jan. 10, 2017
- Texas man pleads guilty to fraud in lottery scandal case, Jan. 11, 2017
- Iowa Supreme Court hears lottery rigging case, Feb. 14, 2017
- Kansas files lawsuit against accused lottery rigger, Mar. 16, 2017
- Best friend to testify against Tipton at July lottery rigging trial, Mar. 31, 2017
- Mastermind of lottery fraud will explain how he rigged jackpots, Jun. 12, 2017
- FBI missed rigged jackpot in 2006 before lottery scheme grew, Jun. 19, 2017
- The 5 lottery jackpots Tipton and his friends stole, Jun. 20, 2017
- Lottery jackpot rigger's Iowa convictions dismissed, Jun. 23, 2017
- IT'S OFFICIAL: Tipton pleads guilty to rigging computerized lottery drawings, Jun. 29, 2017