Will receive $300,000 from Scientific Games, not $4M sought
The Connecticut Lottery Corp. has agreed to settle for a fraction of the nearly $4.2 million it had claimed that Scientific Games, the international gambling giant, lost in last year's hacking of the popular "5 Card Cash" instant game.
Frank Farricker, acting president of the lottery, said Monday that Scientific Games will provide about $300,000 to develop a new, more-secure operating system. The Las Vegas-based company has also agreed to retrain lottery sales and IT staff.
Farricker, in an interview, said that Anne M. Noble, the former lottery president who is now a consultant to the lottery board, overstated the damages, which were contested in an eight-month exchange of claims and counter-claims between Noble, lottery lawyers and Scientific Games' executive and attorneys.
"The circumstances were not as clear cut as maybe my predecessor would have believed," Farricker said. "I think the $4 million claim was not good. There was not a good working relationship between Anne and Scientific Games. They're our partner in many respects. We invest a lot in them and they invest a lot in us."
Patrick McHugh, Scientific Games' senior vice president of global lottery systems, said the company had responded adequately.
"We look forward to continue helping the CLC with its impressive growth and commitment to its beneficiaries," McHugh said in a statement.
The conflict dates back to March, when Noble charged that the software glitch that allowed some retailers to manipulate their computer terminals and give themselves winning tickets was a violation of Scientific Games' contract.
In April the lottery sent Scientific Games a bill for $4,192,500 for its failure to provide adequate software and its inability to detect the fraud, according to documents released under Connecticut's Freedom of Information Act.
The game ran from May of 2014 until mid-November of last year, when lottery investigators found the defect and shut down the game after stacks of winning instant tickets were found at two separate stores. More than a dozen retailers have been charged with fraud in the scandal.
Farricker, said the thefts totaled $1.1 million.
"I still don't believe moving that case forward was in the best interests of the people of Connecticut," Farricker said. "I believe it should have been handled in a much different fashion. When I took over at the end of August, I wanted to find a way to take care of our issues with Scientific Games."
Haggling over responsibility
In March, lottery officials calculated the damages at $500 a day, multiplied by the 559 days the 5 Card Cash game was in operation, times 15 cases uncovered in an investigation.
In late May, a Connecticut-based lawyer for Scientific Games deflected the request for a payment.
"Contrary to what you state in your letter," wrote attorney Alfred U. Pavlis, "Scientific Games put forth a meaningful proposal after the meeting, one that would have generated millions of dollars in sales for CLC (Connecticut Lottery Corporation) through a new product, but was summarily rejected by CLC."
Pavlis, whose letter was a "response and appeal" of the invoice, denied the basis of the request for payment. "The harm suffered by CLC is the direct result of intentional misconduct by CLC's own retailers, who violated criminal laws and their contractual obligations to CLC," he wrote.
According to Scientific Games' 2015 annual report to the federal Securities and Exchange Commission, Scientific Games reported $2.76 billion in revenue, up $972 million from 2014. The company, registered in Delaware in 1984, has 975,000 gambling machines in North America and operates in 146 international jurisdictions. It bought Bally for $5.1 billion in 2014 and WMS Gaming, a machine manufacturer, a year earlier for $1.5 billion.