Massachusetts father and sons accused of defrauding Lottery of $21 million

Aug 25, 2021, 11:00 am (21 comments)

Massachusetts Lottery

"Statistically improbable" number of wins raises red flags

By Kate Northrop

A Massachusetts family is accused of defrauding the Massachusetts Lottery of nearly $21 million in a tax evasion scheme that took place over the past decade.

It wouldn't be farfetched to say that cashing in more than 13,000 winning lottery tickets worth almost $21 million over eight years would be statistically impossible, if not improbable. This many wins could not simply be attributed to sheer luck.

"A statistician will say that there's some astronomical odd," Lottery Executive Director Michael Sweeney told the New York Times. "But the reality is, it's zero."

Ali Jaafar, 63, and his sons Mohamed Jaafar, 31, and Yousef Jaafar, 28, conducted a ticket-cashing scheme commonly referred to as "ten-percenting," where scammers will buy winning lottery tickets from players for cash at a discount between 10-20% of the ticket's value. This means that players who originally held the tickets would not have to report the winnings on their tax returns or pay owed child support. The fraudsters then present the winning tickets to the Lottery as their own, claim the prize for themselves, and report the winnings on their tax returns such that they would be offset by alleged gambling losses, thus avoiding federal income taxes.

Between 2011 and 2019, Ali only paid $24,500 in federal taxes on the $15 million in lottery winnings he reported. On top of that, he received $886,261 back from the federal government in refunds.

The suspicions of fraudulent activity did not suddenly come out of nowhere. In 2019, Ali was named the "top individual lottery ticket casher," Mohamed ranked third, and Yousef ranked fourth. Combined, their winnings that year alone totaled $5.8 million. The Massachusetts State Lottery Commission had their eye on the Jaafar's since then and even suspended them from cashing in tickets.

In retaliation, the family brazenly sued the Lottery.

"I think it really speaks to a level of hubris," Sweeney said in an interview. "This is not the result of somebody who's lucky or somebody who is, quote-unquote, playing a lot."

In 2018, the Lottery introduced a policy that took aim at players who won with a frequency deemed "factually or statistically improbable." It allows the Lottery to freeze payouts for 90 days for anyone who claims at least 20 prizes valued at $1,000 or more in a year.

"If you're in violation of this policy, you should have the expectation that you will have a hearing and a potential suspension regarding this matter," Sweeney told WBUR.

The Jaafar family's prize claims were, without a doubt, factually impossible to the highest degree. State prosecutors said that Ali "would have had to purchase 12,411 tickets per day (each and every day), which equates to purchasing 517 tickets per hour and more than 8 tickets per minute," to account for the 569 winning scratch-off tickets he claimed for prize money over six months. The fact that the tickets were purchased "from Lowell to Nantucket, and Boston to Worcester" further drove the point home.

The Jaafars' claim was dismissed last year, and on Monday, they were collectively charged with over a dozen counts of fraud, money laundering, and tax evasion.

According to the United States Department of Justice, one count of conspiracy to defraud the IRS comes with a maximum sentence of five years in prison, one count of money laundering has a 20-year maximum sentence, and one count of filing false tax returns provides for a maximum of three years. The accused also face additional supervised release, fines, and restitution for each count.

Lottery Post Staff

Comments

Tony Numbers's avatarTony Numbers

Didn't they know only the lottery has permission to steal via the taxes!

Stat$talker's avatarStat$talker

I've long said the State Lottery's Motto iz... "We can Screw YOU,.. but nnaahh, YOU can't Screw US.!"

Now the real question iz.. Why aren't the Fedz investigating these cRoOkEd Lotteries with 15 min to 1 hr cutoff time before the actual Drawing?

Hell, I've got STATISTICAL data that clearly says what's happenin here in Ga is suspicious..!!.. but noticed how LOs relied on Probability & Statistics in support of their claim of suspicion...Huuummm.. They know that "Math doesn't lie"..

Mata Garbo

These guys started doing this in 2011, the authorities didn't figure it out until 2019. If these knuckleheads had not been so greedy they could have shut everything down in 2017 and kept all the money they had collected. Apparently there were a lot of customers who owed child support or who wanted to avoid taxes. You buy a scratch off and win $50,000......but instead going to Lottery Headquarters, you sell the ticket to Ali or one of his sons for $35,000 or maybe $40,000, you never have to notify the IRS and Ali and his sons collect thousands of dollars a week depending on how many winners show up at their store. When you are engaged in something like this you have to always remember......the postman always rings twice.

Thinking of...Mail For You

ieatdirt

Yeah not sure what is sadder: the fact they did it or the fact the lottery allowed it to happen

Stack47

"conducted a ticket-cashing scheme commonly referred to as "ten-percenting

The lottery was cashing their tickets over $5000 and withholding 25% for taxes. 

"Ali only paid $24,500 in federal taxes on the $15 million in lottery winnings he reported.

But the 25% withheld for taxes is $3,750,000. Where did that money go?

And why would anyone think they actually bought that many tickets? 

Oh and how is any of that defrauding the lottery?

TheGameGrl's avatarTheGameGrl

So to summarize the states' position. We have proof that you the player will always lose more then win. 

To the players: it's your dollar. Spend it or save it how you wish. 

Were the accused ?: store owners /retail licensed for the lottery? 

I could understand if they were retailers then they violated the contract rule. 

 

If the guys were avg Joe's willing to take a hit, then that is open to question. Clearly they 'claimed' the values on the tax. They didn't hide the values. So where's the problem?

noise-gate
  • This is one of many stories that LP has run in the past & at least we seeing the light at the end of the Jaafer tunnel. I am looking forward to finding out the following:
  • The " lead hand" lottery winner from Canada that supposedly gipped his colleagues out of millions.
  • The teenage son that bought a scratcher for his Dad sitting out in the car worth $5 mil only to be denied the winnings since the lottery said he was under 18 at the time.
Cruzincat

They withheld the taxes but the Jaffars filed their tax returns showing deductions for gambling losses and ended up getting refunds. The part about the refunds is in the story.

Gambler4Life's avatarGambler4Life

Hahaha!! Right you are!!!

Tony Numbers's avatarTony Numbers

So they assumed the tax obligation of the actual winner. In turn for a reduced payment to the actual winner as a fee for the service. So the actual winner has no tax liability. How dare the lottery use the argument that no one could be winning that much. If someone doesn't want to pay the tax they should be allowed to let someone else cash for them.

KY Floyd's avatarKY Floyd

"But the 25% withheld for taxes is $3,750,000. Where did that money go?"

The IRS withholding only applies to wins of more than $5000, so in theory you could claim prizes totaling a billion dollars and not have a dime in federal withholdings. Presumably the majority of the money was won  from prizes big enough to be reported but below the $5000 threshold that triggers federal withholdings.

"how is any of that defrauding the lottery?"

None of that defrauds the lottery, and they certainly didn't defraud the MA lottery of $21 million by claiming a bunch of prizes that were (presumably) legitimate. The fraud kicks in when you sign the claim form and claim that you're not helping anyone avoid their financial obligations. If the original ticket owner owed child support or other monies that would have been withheld then cashing a ticket for them is definitely helping them avoid their financial obligations. It's also helping the m avoid their tax obligations if thye get any proceeds from the ticket and don't claim it as taxable income.

"Clearly they 'claimed' the values on the tax."

I know it's incredibly confusing, but reporting the full value of the prize and then claiming fraudulent losses to avoid paying taxes on the full value of the prize isn't legal.

grwurston's avatargrwurston

Breaking it down.

13,000 tix/8 years= 1,625 tix per year.

1,625 tix/52 weeks= 31.25 tix per week.

31.25 tix/7 days= 4.46 tix per day.

Stat$talker's avatarStat$talker

Quote: Originally posted by grwurston on Aug 26, 2021

Breaking it down.

13,000 tix/8 years= 1,625 tix per year.

1,625 tix/52 weeks= 31.25 tix per week.

31.25 tix/7 days= 4.46 tix per day.

I think maybe the bulk of the suspicious winning tickets, came into Lottery Headquarters over the norm in a crowded period of time...That, maybe was the "Red Flag" trigger....

But in the way You just laid it out.. It doesn't immediately draw attention...

GiveFive's avatarGiveFive

Quote: Originally posted by KY Floyd on Aug 25, 2021

"But the 25% withheld for taxes is $3,750,000. Where did that money go?"

The IRS withholding only applies to wins of more than $5000, so in theory you could claim prizes totaling a billion dollars and not have a dime in federal withholdings. Presumably the majority of the money was won  from prizes big enough to be reported but below the $5000 threshold that triggers federal withholdings.

"how is any of that defrauding the lottery?"

None of that defrauds the lottery, and they certainly didn't defraud the MA lottery of $21 million by claiming a bunch of prizes that were (presumably) legitimate. The fraud kicks in when you sign the claim form and claim that you're not helping anyone avoid their financial obligations. If the original ticket owner owed child support or other monies that would have been withheld then cashing a ticket for them is definitely helping them avoid their financial obligations. It's also helping the m avoid their tax obligations if thye get any proceeds from the ticket and don't claim it as taxable income.

"Clearly they 'claimed' the values on the tax."

I know it's incredibly confusing, but reporting the full value of the prize and then claiming fraudulent losses to avoid paying taxes on the full value of the prize isn't legal.

It's "incredibly confusing" is correct.

What the article does not specify is exactly who the plaintiff's are.  The charges are federal charges brought by a federal prosecutor - a US Attorney. The charges are "over a dozen counts of fraud, money laundering, and tax evasion.

According to the United States Department of Justice, one count of conspiracy to defraud the IRS comes with a maximum sentence of five years in prison, one count of money laundering has a 20-year maximum sentence, and one count of filing false tax returns provides for a maximum of three years."

The federal government will prosecute these guys in a US District Court on behalf of both plaintiffs - The Commonwealth of Massachusetts and The United States of America. G5

Bleudog101

Quote: Originally posted by GiveFive on Aug 26, 2021

It's "incredibly confusing" is correct.

What the article does not specify is exactly who the plaintiff's are.  The charges are federal charges brought by a federal prosecutor - a US Attorney. The charges are "over a dozen counts of fraud, money laundering, and tax evasion.

According to the United States Department of Justice, one count of conspiracy to defraud the IRS comes with a maximum sentence of five years in prison, one count of money laundering has a 20-year maximum sentence, and one count of filing false tax returns provides for a maximum of three years."

The federal government will prosecute these guys in a US District Court on behalf of both plaintiffs - The Commonwealth of Massachusetts and The United States of America. G5

As a Juror I can attest that Federal court does not play vs what states do sometimes.

TheGameGrl's avatarTheGameGrl

The assumption by the lottery is that 'every/most' tickets funneled thru were done so to avoid child support/ liens or whatever the state has as it's condition of additional withholding. Wouldn't they have to prove that? Beyond a shadow of a doubt? They would have to do ALOT of gathering culprits ,, prove it was the little guy who was 'avoiding' his/her state ordered obligations.  Good luck with that. 

 

Will be interesting to read the court minutes on how both sides argue these charges..

GiveFive's avatarGiveFive

Quote: Originally posted by Bleudog101 on Aug 26, 2021

As a Juror I can attest that Federal court does not play vs what states do sometimes.

True.  The Fed's are the toughest.  Federal judges are called "Hard cases" by criminals.  These guys are in deep doo-doo.  G5

GiveFive's avatarGiveFive

Quote: Originally posted by TheGameGrl on Aug 26, 2021

The assumption by the lottery is that 'every/most' tickets funneled thru were done so to avoid child support/ liens or whatever the state has as it's condition of additional withholding. Wouldn't they have to prove that? Beyond a shadow of a doubt? They would have to do ALOT of gathering culprits ,, prove it was the little guy who was 'avoiding' his/her state ordered obligations.  Good luck with that. 

 

Will be interesting to read the court minutes on how both sides argue these charges..

I wouldn't call it an "assumption".  It's an allegation but there's no need to argue over the verbiage. 

Yes, the Fed's will have to prove beyond a reasonable doubt that the defendants fraudulently tried to evade additional witholdings, which they might not be able to do in order to convince a jury to find them guilty. That's one reason why other charges were filed. If the Fed's dont get them on fraud, they'll be happy with a conviction on income tax evasion, or conspiracy.  Wire fraud is probably the hardest count for the US Attorney to prove in order to obtain a conviction, but they're very experienced with it, so they're pretty good at it. 

Anyway, I'm willing to bet that nobody is going to read the court notes regarding this case. This case won't ever see the inside of a courtroom.  These guys will see that the Feds have got an air tight case against them, their lawyers will tell them it's in their best interest to accept a plea deal, and they'll take it. G5

Bleudog101

Quote: Originally posted by GiveFive on Aug 27, 2021

True.  The Fed's are the toughest.  Federal judges are called "Hard cases" by criminals.  These guys are in deep doo-doo.  G5

Though not on Federal cases, the Prosecutor did say about the Feds when a gun is used in a Federal crime that EACH bullet will add five years to the sentence.   Each bullet gets entered into evidence.

Bleudog101

Quote: Originally posted by GiveFive on Aug 27, 2021

I wouldn't call it an "assumption".  It's an allegation but there's no need to argue over the verbiage. 

Yes, the Fed's will have to prove beyond a reasonable doubt that the defendants fraudulently tried to evade additional witholdings, which they might not be able to do in order to convince a jury to find them guilty. That's one reason why other charges were filed. If the Fed's dont get them on fraud, they'll be happy with a conviction on income tax evasion, or conspiracy.  Wire fraud is probably the hardest count for the US Attorney to prove in order to obtain a conviction, but they're very experienced with it, so they're pretty good at it. 

Anyway, I'm willing to bet that nobody is going to read the court notes regarding this case. This case won't ever see the inside of a courtroom.  These guys will see that the Feds have got an air tight case against them, their lawyers will tell them it's in their best interest to accept a plea deal, and they'll take it. G5

The last sentence speaks volumes.   Here it is called rocket docket, will ask the Prosecutor next time if that is the same as an Alfred plea.  That means you are not saying you are guilty or not, but there is overwhelming evidence to convict you on the charge(s). 

KY Floyd's avatarKY Floyd

"I wouldn't call it an "assumption". It's an allegation"

The allegation is arguably based on an assumption, but the assumption is similar to the assumption that the sun will rise tomorrow morning. If he had won that many times by buying tickets his results would be really close to statistically normal. There's no getting around that, and it means that (as the article says) he'd have had to be buying an average of over 500 tickets per hour. While that's theoretically possible you can be sure that the lottery has a pretty good idea of what his financial situation is, and it's a very safe bet he doesn't have the financial resources to pay for that many tickets. The lottery also knows where and when each winning ticket was sold. All it takes is a couple of tickets bought at times and places that make it impossible for the same person to have bought them, and his story falls apart.

And then there's the millions of dollars in deductions he'd have had to claim to avoid paying taxes on the money he paid to the actual purchasers. Perhaps the worst case would be if he actually presents boxes of losing tickets, because then the lottery also know where and when all the losing tickets were bought, and there's zero chance that the data will allow for him to have been in all those places at all those times. At the end of the day I'd say the chance he won't plead or be found guilty of tax evasion is similar to the chance that he really bought all of those tickets.

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