Fraudulent lottery deal costs firms $6.5M penalty

When the DC Council awarded a lucrative lottery and sports betting contract in 2019, it came with promises of a big win for local small businesses. But beneath the surface of the multimillion-dollar deal lay a web of deception, as revealed in a $6.5 million settlement recently announced.

Officials say Intralot, Inc., the prime contractor, and its small-business subcontractor, Veterans Services Corporation (VSC), orchestrated an elaborate scheme to mislead the DC Council into approving the no-bid contract by falsely claiming that VSC would do the majority of the work and reap most of the profits. Now, both companies are paying the price for their alleged betrayal of public trust and the small businesses the contract was supposed to help.

The initial contract

An investigation by the Office of the Attorney General (OAG) showed that Intralot and VSC worked together in 2019 to secure the DC Council's approval of the lucrative contract on a sole-source basis. This meant there would be no competitive bidding process because Intralot and VSC promised that VSC would perform 51% of the work — all with its own resources — and then receive an equivalent percentage of the revenue. In addition, other small businesses would receive a minor additional share.

However, that promise was not true. Authorities say Intralot and VSC secretly agreed that a subsidiary of Intralot — which wasn't VSC — would provide most of the resources for the sole-source contract. In exchange for that agreement, return payments from VSC would be sent to Intralot.

Once the contract was in place, Intralot and VSC worked together under this covert agreement to obtain millions of dollars from the District under false pretenses. They did this by misrepresenting that VSC was performing the work that Intralot's subsidiary actually did and that VSC was receiving a majority of the compensation despite sending much of it back to Intralot.

The scheme was discovered

Once Intralot and VSC won the contract, they started falsely inflating the amount of money Intralot was spending on subcontracting with VSC. Intralot also paid VSC's owner, Emmanuel Bailey, hundreds of thousands of dollars per year for his participation in the scheme.

Both companies also submitted false and misleading documents to District agencies and the DC Council, which included verification forms that inaccurately documented the amount of work VSC performed and quarterly reports that misrepresented how much Intralot spent subcontracting with VSC.

When District regulators discovered the misconduct by Intralot and VSC, the companies claimed they would cease. In 2021, Intralot restated its previous reports and disclosed about $4.3 million in previously undisclosed payments it received from VSC.

However, Intralot's subsidiary continued to provide resources to VSC on multiple occasions, and VSC continued to return payments to Intralot. By the time they said they had reformed their arrangement in 2021, Intralot and VSC had submitted over 100 fraudulent invoices.

Penalties enforced

Attorney General Brian L. Schwalb announced today that Intralot and VSC will pay the District a combined $6.5 million for their role in obtaining this multimillion-dollar, multiyear lottery and sports betting contract under false pretenses.

Attorney General Schwalb said:

This is a warning to any company that tries to manipulate and exploit District contracting laws, especially laws intended to build the capacity of the local businesses vital to our economy.

He went on to say that the sports betting deal between Intralot and VSC was a “sham from the start — an elaborate scheme to secure a lucrative, high-profile opportunity on a sole-source basis while circumventing the District's small business contracting laws.”

The terms of the settlement are:

• Intralot pays $5 million to the District.
• VSC pays $1.5 million to the District.
• Both companies agree to accurately report contract and subcontract information in any future bids, contracts, or subcontracting plans with the District.
• In any current or future District contracts, Intralot agrees not to use any entity to provide resources to a District business with which it has a subcontracting relationship, and VSC likewise agrees not to use any undisclosed resources provided to it by any other entity.

Enjoy playing the District of Columbia lottery, and please remember to play responsibly.