They cheated the Iowa Lottery but got to keep the money

Jason Clayworth
The Des Moines Register

First in a series investigating the integrity of Iowa's lottery system.

© Copyright 2017, Des Moines Register and Tribune Co.

State officials never tried to reclaim the $25,000 Iowa Lottery ticket win Jackie "Jack" Hatler Jr. illegally passed to his girlfriend in 2015.

Investigation: Winners, losers and cheats. An investigation of the Iowa Lottery

And they never came after Natasha Nieman's $30,000 win after she was convicted of felony lottery fraud that same year for doing something similar.

Both are recent examples of Iowa Lottery winners who got to keep their cash despite being convicted of fraud or theft. And they're not the only ones.

In 2009, the state ombudsman first warned state leaders about the problem, issuing a report that found 43 cases where people convicted of lottery crimes in a three-year period were not ordered to repay their bogus winnings.

Jackie "Jack" Hatler Jr. pleaded guilty to a theft charge last year after Iowa officials accused him of illegally passing a $25,000 lottery ticket to his girlfriend. State officials did not try to reclaim the prize.

The report also identified a host of issues that it warned could threaten the "integrity and dignity" of Iowa's lottery system.

It recommended 60 fixes to shore up a gaming agency that "has a weak, reactive enforcement system where large-scale fraud may be occurring without customers or the lottery realizing it."

Eight years later, a Register investigation has found that many of those problems remain unfixed, in part because lottery executives say some of the solutions the ombudsman offered were impractical.

But critics of the Iowa Lottery contend that officials may be afraid to tinker with an industry that in 2015 generated nearly $74 billion in national sales, according to the North American Association of State and Provincial Lotteries.

"It makes no sense" these issues aren't fixed, "but I sense a fear that opening this up potentially lends the lottery to additional scrutiny," said Tom Coates, a gambling opponent and director of Consumer Credit of Des Moines, a nonprofit that helps people manage financial debt.

Natasha Nieman was convicted in 2015 on a felony charge of lottery fraud involving a $30,000 ticket Iowa officials said she illegally passed to another person.

As part of its investigation, the Register identified seven cases since 2012 where people who admitted or were convicted of Iowa Lottery crimes got to keep their winnings, including Hatler and Nieman. The remaining cases involved wins of $100 or less.

Lottery officials say it's not always easy to recover questionable winnings, since their agency often is not the financial victim.

The money paid out in fraudulent lottery wins doesn't affect the lottery's finances because the winnings were budgeted as part of games and already paid by retailers for the tickets, they said.

But the ombudsman discounted this explanation in 2009, saying seeking restitution would financially benefit the lottery and reinforce the integrity of the games by sending a message that "crime does not pay."

Longtime gambling opponent Tom Coates believes some changes to improve security measures at the Iowa Lottery have been ignored because state officials don't want to diminish their profits.

Moreover, critics such as Coates and Ames City Councilman Tim Gartin contend that failure to collect illegal wins decreases the odds that those playing the games legally are getting a fair shot.

"To me, it's just more evidence of an ugly sap on those who can least afford it," Coates said.

Winners, losers and cheats. An investigation of the Iowa Lottery

Winner owes unemployment benefits

A common type of lottery fraud involves buyers who give winning tickets to other people to collect the payout.

The mere act of passing on a ticket for collection is legal, but it's illegal to do so to avoid paying debt to the state. That's a felony.

Iowa law requires the lottery to participate in the state Income-Offset Program, which is used to collect money owed to governmental institutions, including child support, court fees and back taxes.

All prizes of $100 or more claimed at a lottery office are checked against the income-offset database.

Hatler, of Monona, in northeast Iowa, told the Register he passed his winning $25,000 ticket to a now ex-girlfriend because he didn't have a valid bank account or ID, in part because of a past drug conviction.

Jerry Vander Sanden, Linn County Attorney

Hatler owed $5,638 in unemployment benefit overpayments. But lottery officials passed over the chance to pursue repayment of the $25,000, according to prosecutors.

"They never replied to our request," said Jerry Vander Sanden, Linn County Attorney. "Therefore we were unable to request victim restitution without that information."

Iowa Lottery officials initially told the Register they had not been notified of Vander Sanden's effort to seek restitution but later said the request had been overlooked as part of an office move.

Hatler said in an interview that he erroneously believed the unemployment overpayments he received had been paid automatically when his tax refund was garnished.

He said he never intended to defraud the government by asking his girlfriend to cash the ticket.

Hatler ultimately entered an Alford plea to aggravated misdemeanor theft. Under the agreement, Hatler conceded there was enough evidence to find him guilty of the charge had the case gone to trial.

He was sentenced to two years of probation and deferred judgment, which means the charge might never be officially filed if he successfully completes probation.

Hatler's girlfriend was never charged.

Hatler believes it would have been unfair to have forced him or his girlfriend to repay the winnings, since the ticket was legally purchased.

"I was excited. Me, a born loser, actually saw the little guy win something," Hatler said. "I would never have thought that would happen."

Winner owed child support

A similar case happened three years ago involving unpaid state debt.

Nieman owed more than $6,000 in back child support when she won a $30,000 scratch ticket game at a Waterloo convenience store in June 2014.

Black Hawk County prosecutors said she knew she couldn't cash the ticket without the state confiscating part of her winnings.

Prosecutors said another man, Jason Stolfus, cashed the ticket for Nieman.

Nieman was arrested and later pleaded guilty in 2015 to felony lottery ticket fraud. Stolfus pleaded guilty to the same crime in 2016 and was given a deferred judgment.

Nieman was sentenced to five years of probation, and a fine of $750 was suspended as part of her negotiated guilty plea.

But Black Hawk County did not seek restitution of the $30,000 lottery win and did not notify lottery officials of the opportunity to recapture the prize money.

The case ended without the state collecting the child support Nieman owed, but a court order remained in place for her to pay, said Jim Katcher, an assistant Black Hawk County attorney who worked on the case.

"There were things that had been purchased that could have been seized, but would they have been worth much?" Katcher asked. "It didn't seem like it would have been worth the trouble to try to sell things just to get a few dollars back."

Child support payment information is generally considered confidential in Iowa, and the Register was unable to confirm if payments have been made.

Nieman could not be reached for comment. Her attorney in the case, Adam Junaid, said he could not discuss the case without Nieman's permission.

Efforts to reach Stolfus and his attorney, Aaron Hawbaker, were unsuccessful.

Amy McCoy, a spokeswoman for the Iowa Department of Human Services, did not respond to questions about the prevalence of cases like Nieman's or efforts from her agency to collect lottery winnings following fraud convictions of people owing child support.

"It is always challenging to deal with situations where the individual may take a fraudulent action to avoid paying their debts," McCoy said.

Iowa Lottery headquarters in Clive

Lottery officials say issues are few 

Lottery officials have consistently maintained the issues raised by the ombudsman and the Register are isolated.

Edward Stanek, the lottery's former CEO, for example, said in a 2009 response to the audit that no large-scale problems were found and that "no existing laws, regulations or administrative practices are perfect.

Iowa Lottery Director Ed Stanek in 2005 with the plaque given to him honoring his development of the Power Ball game.

"At first glance, some of the recommendations appear proactive with potential, but experience will dictate that they too have limitations."

They also say resolution of many of the cases the Register identified were out of the lottery's hands because they involve decisions made by prosecutors and courts.

Lottery security employees do not have peace officer status, which means the lottery can't file criminal charges and pursue the matter like other law enforcement agencies. 

"We will investigate any allegation that might result in the commission of a crime," said Rob Porter, an executive of the Iowa Lottery, "but if we determine a law might have been violated, we turn the matter over to investigators."