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How Negligent Supervision Can Lead To Massive Fraud And Crippling Litigation

A lottery programmer recently pled guilty to rigging the winning numbers in states that used computerized lottery number drawings.

The programmer, his brother, and his friend purchased tickets with winning numbers and claimed the lottery money for themselves. The programmer, who worked for the Multi-State Lottery Association (MUSL), wrote and installed code for the software that picked several lotteries' random winning numbers. He found a way to design the code so that he knew the winning numbers in certain states on three days each year. 

The man and several accomplices successfully claimed millions of dollars in lottery prize money in Colorado, Wisconsin, Kansas, and Oklahoma between 2005 and 2011. His employer finally learned of the fraud after the man tried to claim a $16.5 million prize in Iowa through a recently-created anonymous trust. The state refused to pay, and its investigation uncovered the fraud.

MUSL, which terminated the programmer after learning of the fraud, faces lawsuits from lottery players who claim the employee's fraud cheated them out of winnings. "Mastermind of lottery fraud will explain how he rigged jackpots," www.lotterypost.com (Jun. 12, 2017). 


Commentary

Fraud occurs when a person intentionally deceives his or her victim to gain money or other personal benefits. Employee fraud takes many forms, including falsifying purchase orders, using company credit cards for personal purchases, creating a phantom employee to commit payroll fraud, and colluding with vendors to make payments for services never received.

In this case, the employee committed fraud by using his knowledge of, and control over, the organization’s lottery number-generating computer program to deceive his employer, other lottery participants, and lottery sponsors into believing the program was fair when instead it was programmed to make him or his cohorts wealthy. 

Although the employee’s deception is the headline, the greatest risks to the employer are the thousands of people who purchased tickets in many states, believing they had a chance to the win the lottery when they did not, and the sponsors who promoted the lottery.

One claim against the employer will be negligent supervision…that the employer did not have proper oversight and/or did not perform its due diligence auditing the computer programmer’s activities. Some will argue the employer even had a heightened duty to protect the public. The standard would be: did the employer have knowledge that the employee was committing fraud and if not, should the employer have known?

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