Connecticut 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 before the ill-fated game was launched in Connecticut, the lottery's security director, Alfred DuPuis, had discovered and told superiors that the 5 Card Cash game had been compromised by fraud in other states where it had been introduced previously.
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 fraud, but it was rejected.
He 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 read the computerized terminals to see that a ticket they had just sold was a winner — so they would "palm" it and keep it for themselves, and then print out a new, losing ticket to give the customer.
DuPuis said he had 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 — would let the customer know an instant winner was coming in the simulated card game.
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.
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 Ryan. Officials are still seeking another $1.4 million in restitution from other vendors, he said.
Something Not Right
Consumer Protection's 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 5 Card Cash game which should have been a giant red flag to lottery officials.
Instead, it wasn't until January of 2015 when a retailer went to lottery officials and told them about being able to see the numbers on the terminal screen before they were actually drawn.
It turned out that terminal operators could slow down their lottery machines by overloading them with requests for database reports and other information. The operator could decide to print tickets surreptitiously, and each time that happened her or she could see on the screen if the tickets were instant winners. If tickets were not winners, the operator could cancel the sale before the tickets printed. If they were winners, the operators could print them and keep them for themselves.
Lottery officials didn't tell DCP about that potential issue with the 5 Card Cash game for another 10 months. Once they were told, DCP shut the game down within 13 days, Ryan said.
Revenue Over Security
Farricker acknowledged after an emphatic rebuke from Senate Republican leader Len Fasano that lottery "didn't serve the state very well in the way we implemented the 5 Card Cash game" and "we made a mistake in putting revenue concerns ahead of security concerns."
Fasano said that 5 Card Cash game was 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," and security should be paramount, 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 she had never been given a chance by consumer protection officials to give her side of the situation — adding that her performance had been exemplary, and that the investigation by Consumer Protection had been far from impartial.
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