MIT Students Scammed $8 million from the Massachusetts State Lottery
Back in 2002, there was a story floating around how a group of MIT students and a professor were able to count cards at casinos around Las Vegas. Well, a MIT researcher and some of the students were able to scam the Massachusetts Lottery.
Do you know what the really messed up part of the story was? The Massachusetts Lottery knew the group were doing it—and they didn’t stop them. Instead, the Massachusetts Lottery decided to cash in on the scam rather than keep the integrity of the game intact.
The MIT math students were looking for a unique project to do for their class. Some of the students discovered that if they were to spend roughly $100,000 to purchase lottery tickets, they would be guaranteed a big win in the Cash WinFall game. When the jackpot would rise to $2 million or more, they would collectively make the purchases and they would share the prize money. According to the Boston Globe, by 2005 the students had earned approximately $8 million in winnings.
Now, if I was as smart as these MIT students—who actually didn’t scam anything, they just used advanced math and probability—I would have done the same thing. Perhaps the only real “scam” that was perpetrated was by the lottery officials. They continued to allow the students purchase 300,000 of the $2 tickets to be purchased at a time.
How Did The Greatest Scam Work?
Whenever a jackpot hasn’t been won, it will be held and rolled over to the next jackpot. This will result in a larger prize. Pretty simple, right? The particular game that the students were playing, the Cash WinFall, had a prize cap of $2 million. When the public was unable to match all the numbers, the prize money would be redistributed. This would mean that any monies that was left over after the $2 million cap, the smaller prizes would be inflated, sometimes 5 to 10 times higher than normal.
If the students spent $600,000 worth of lottery tickets (can I just say that is a jackpot in itself for the majority of people!), it will guarantee a 15 to 20% return on investment. The original hypothesis was proven by James Harvey. Harvey was able to turn $1,000 into $3,000. When he made this discovery, he made the “project” larger and formed Random Strategies Investments. He would spend hours filling out betting slips and met with people eager to invest in the “project”.
Good-Bye to the Daily Grind; Hello Full-Time Scheme
It was reported that many people who participated in the scheme quit their jobs because the scheme had become so lucrative. Well, not only was the project proving successful, it was also a lot of work. There were hundreds of thousands of betting slips that needed to be filled out, checked, and sorted. Harvey was able to create a computer program that helped him generate numbers that would provide the best distribution range across various drawing results. Even though the computer program helped select the numbers, the slips had to be filled out by hand, as per the Lottery rules. Luckily, betting slips were able to be reused; so that part of the process was a one-time only thing.
Oh, but it doesn’t get any easier after that part was completed. Oh no, next the group was tasked with finding locations that would take their massive amount of tickets. Many retailers complained because the time it took to process 10,000 tickets, plus scanning the slip with the desired numbers, would take up so much time. Even though the retailer would gain 5% commission on any Lottery sales, the managers of the stores complained that simply tying up a clerk at the lottery terminal for hours would hinder regular operations. In the end, the group did find several locations that would process the tickets accurately. These four locations would be the groups “go to” Lottery agents.
On top of filling out the betting slips and being at a retailer for hours having the tickets processed, the group also had to actually go through the tickets and identify the winning numbers. Although Harvey wouldn’t share the methods of sorting the tickets, he did reveal that he kept records that showed panels of six-number sets that were played in each drawing. By doing this, he was able to identify how many winners the group had at each prize level. Harvey also shared that he had millions of lottery tickets in storage boxes because every year since he began playing the Cash WinFall, both State and Federal tax authorities would audit his group during tax season.
Speaking of taxes, whenever the group turned in winning lottery tickets, they generated a W-2G form for every member of the group—even the smallest investor who won only $800 would receive dozens of these forms. The people would have to spend several hours accounting for their winnings on their taxes. This hassle was enough to make some people drop out of the investment group all together. At the height of the group, there were 40 to 50 investors. When the Cash WinFall game finally ended in 2012, the group only had 10 members.
Was All That Work Worth It? You Decide…
When Harvey was asked how much the group won over the course of the seven years they were playing the Cash WinFall, he declined to answer. He did say that they were able to bet $17 million to $18 million. It was estimated by the OIG that the group won at least $8 million before taxes.
Those numbers don’t seem to add up. Over seven years, a group of people bet $17 to $18 million, but they only walked away with $8 million? What? It’s not clear if that was $8 million per member of the group or total. If it’s total… I think they actually lost money.
Either way, it’s pretty interesting that they were able to beat the system, as it were. In my opinion, this has to be one of the most eye-opening scams around.