Rigging the lottery wasn’t enough for Robert Rhodes: He also wanted a tax break on his ill-gotten gains.
Rhodes, 49, pleaded guilty in January to his role a scheme to scam millions from the Iowa Lottery. In exchange for a lenient sentence, he agreed to testify against his co-conspirators, two of whom pleaded guilty to the scheme last week. Court records first reported by the Associated Press reveal that Rhodes and a co-conspirator agreed to funnel their scammed lottery winnings through a shell company and into an offshore insurance scheme in order to reap tax benefits.
Rhodes, a Texas businessman, is a longtime friend and former colleague of Eddie Tipton, an information security director responsible for writing the computer program that picked random winning lottery numbers in Iowa and other states.
As a lottery employee, Tipton was not allowed to enter the drawings. But in December 2010, he purchased a ticket from an Iowa convenience store.
Tipton’s lucky ticket, worth $16.5 million, would go unclaimed for nearly a year. And when it resurfaced, it was in the hands of Philip Johnston, a Canadian man who tried claiming the prize over the phone in November 2011, prosecutors alleged. Iowa Lottery officials denied his request, after Johnston failed to answer basic security questions. Johnston called back the following month, claiming to represent an offshore trust, whose owner Johnston said had purchased the ticket. With two hours remaining before the ticket expired, two attorneys working on behalf of the trust tried to claim the ticket, but were denied after they misspelled the trust’s name.
The increasingly bizarre claims were set in motion months earlier, when Rhodes and a business partner approached Johnston seeking “assistance with claiming the lottery ticket,” according to a criminal complaint. All three men have business ties.
Though the $16.5 million ticket went unclaimed, investigators began honing in on Tipton. His friends and family had enjoyed suspiciously lucky lottery odds, winning the draw in 2005, 2007, and 2011. Rhodes was also implicated in the 2007 case, a Wisconsin Megabucks drawing that won him $783,257.
Rhodes recently testified that Tipton had also been behind the 2007 winning ticket, and that Tipton had urged him to store his winnings in an offshore corporation. With Tipton’s encouragement, Rhodes said, he placed the money into a limited liability corporation called Delta S Holdings. The LLC never conducted any business except to buy an exorbitantly expensive insurance policy from a St. Lucia-based company, which loaned back a large chuck of the money, while allowing him to write off the purchase as a tax-deductible “business expense,” he testified.
The scheme reportedly netted him an additional $150,000 in federal and $36,200 in Wisconsin tax refunds. Bank records reviewed by the Des Moines Register show that the LLC transferred some of the money to Tipton.
Rhodes’ lawyer did not return a request for comment.
For his testimony against Tipton, Rhodes will avoid jail time, instead serving out a six-month house arrest in his Texas home. In agreeing to testify, Rhodes implied that Tipton might shoot him for snitching.
“Here is my best friend. And my best friend, he’s a big boy. And he’s a good old boy. And in Texas good old boys have lots of guns and they have pickup trucks,” Rhodes said in a March deposition. “A good old boy might get pissed off and come after you.”
And until last week, Tipton firmly maintained his innocence.
“They’re running against time because the statute of limitations was almost up and they gotta find somebody. So they throw it all on me,” Tipton told The Daily Beast in a July 2015 interview. At the time, he characterized himself as an unfairly maligned lottery worker.
“The only reason I’m in trouble is because I’m an employee,” he said.
On June 29, over two years after his arrest, Tipton pleaded guilty to writing a computer code that let him predict winning lottery numbers. He faces up to 25 years in prison.
“I didn’t think that anybody was breaking the law at all by giving numbers away,” Tipton said in court of the multimillion-dollar scheme. “But I gave the numbers away knowing that someone could win.”