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Gaming the system: Michigan Lottery cracks down on retailers who cheat customers

Michigan Lottery Bureau spokesman Jeff Holyfield says only a small minority of lottery retailers break the rules, but the agency takes swift action when they do.

This party store in Clinton Township was placed on probation for two years after a retailer identified a winning Keno ticket as a loser and then tried to cash the ticket himself. (Photo: Junfu Han, Detroit Free Press)

CLINTON TOWNSHIP — When a customer brought a Keno ticket to Nick’s Party Stop in Clinton Township, retailer Don Kallo ran the ticket through his lottery terminal, declared it a loser and tore it in half.

Kallo, the spouse of store operator Linda Kallo, then took the torn ticket — a $2,517 winner — to the Michigan Lottery Bureau to redeem it.

Suspicious lottery officials investigated and learned Kallo hadn’t purchased the ticket, as he claimed, records show.

“It was determined the ticket had been purchased by a customer who had been told by Mr. Kallo the ticket was not a winner and ripped the ticket,” according to lottery records obtained by the Free Press under Michigan’s Freedom of Information Act.

Records show Don Kallo of Nick’s Party Stop in Clinton Township told a customer a Keno ticket was not a winner and then tried to cash the $2,517 ticket himself. (Photo: Paul Egan/Detroit Free Press)

The state suspended the store’s lottery license for two weeks in 2016 and placed the store on probation until Dec. 18 of this year, during which time Don Kallo is not allowed to operate the store’s lottery terminal.

Nick’s Party Stop on Cass, which also uses the name Nick’s Party Store, is one of 269 Michigan lottery retailers — out of a total of nearly 11,000 — to have their licenses suspended or revoked since 2016, records show.

Most suspensions result from retailers getting behind on money they owe the Michigan Lottery from ticket sales, which just set a record of $3.3 billion for 2016-17, resulting in a $920-million boost to the state’s School Aid Fund.

Another major concern is a prohibited practice known as “discounting” — retailers buying winning tickets at a discounted price from players who want to prevent the state from seizing all or part of their prize to pay debts such as back child support.

Only a handful of the suspensions were for cheating, like Kallo was accused of doing.

“This truly is an aberration,” said Jeff Holyfield, a spokesman for the Michigan Lottery.

“Our retailers . really are focused, just as we are, on keeping customers happy.”

Still, even a few incidents can erode player trust essential to the success of a lottery. Like other states, Michigan devotes considerable efforts to making sure bad operators are disciplined and, if necessary, rooted out.

Retailers have strong incentives to keep their licenses in good standing. The 6% commissions paid to retailers on ticket sales just hit a record total of $248 million, based on preliminary numbers for the fiscal year that ended Sept. 30. Retailers also get 2% commissions on prizes they redeem. Lottery sales also bring in customers who buy other items, Holyfield said.

Still, the occasional retailer goes astray.

In Battle Creek this year, officials found that Capital One Gas manager Devinder Singh Ghotra had been scratching off tiny areas from instant game tickets to determine whether the tickets were winners, then selling the losing tickets to customers and keeping the winners, presumably for purchase by himself or an associate.

“On March 14, 2017, a Bureau representative visited Capital One Gas, inspected the tickets on sale, and confirmed that small areas had in fact been scratched off,” said a June 16 letter from lottery retail services manager Diane Carter, obtained under FOIA.

“The representative also observed the store manager, Devinder Ghotra, attempting to hide several other tickets that had similarly been scratched,” Carter wrote.

“Mr. Ghotra then admitted . he had been scratching small areas on the tickets to determine if they were winners and removing winning tickets from sale to the public.”

A retailer in Battle Creek was criminally charged after an investigation determined he was making small scratches in instant tickets to determine winners, then selling the losing tickets to the public. (Photo: Paul Egan/Detroit Free Press)

Ghotra, a relative of Capital One Gas operator Harpal Singh, was charged criminally with altering a lottery ticket — a five-year felony — and awaits a Jan. 16 preliminary examination, records show.

“This is an unusual case,” said Calhoun County Prosecutor David Gilbert. “I’ve been practicing since 1988, and this is the first case I’ve seen of a retailer allegedly manipulating the tickets like this.”

Lottery officials initially suspended the lottery license for Capital One Gas for one week and placed the outlet on probation for two years.

But after Singh resisted firing Ghotra — one of the terms of the probation — the bureau took the rare step of revoking the Capital One Gas license and adding one-week suspensions at seven other outlets licensed to Singh or his wife in Battle Creek, Kalamazoo and Burlington.

“Mr. Ghotra’s conduct is an extremely serious matter that negatively impacts the honesty and integrity of lottery games offered by the Bureau,” Carter wrote Singh.

“Further, your unwillingness to remove an employee caught engaging in this conduct does not provide assurance of reasonable security precautions nor regard for public trust in the fairness and integrity of lottery games.”

Ghotra’s attorney, J. Thomas Schaeffer of Marshall, said his client denies intentionally trying to cheat customers and he wants to resolve the case with prosecutors. “It’s not a big deal,” Schaeffer said.

Singh did not return a phone message.

In the Nick’s Party Stop case, Don Kallo told lottery officials he didn’t have on his glasses and made a mistake when he declared the winning Keno ticket a loser, Holyfield said. It wasn’t clear from the records whether Kallo or the customer tore the ticket, but Holyfield said it was Kallo.

After Kallo admitted he hadn’t purchased the ticket, he helped lottery officials locate the rightful prize winner, a regular customer who didn’t want to press charges, he said.

Inside the store Tuesday, a manager answered to Don Kallo until a reporter started questioning him about the incident and a Free Press photographer took his photo. He then said he was not Don Kallo, who he said did not come to the store much anymore. He took the reporter’s card and said he would give it to Don Kallo with a message to call the reporter. Don Kallo never called.

Alan Applebaum, a Farmington Hills attorney who represented the store in the case, said he didn’t dispute the violation, but argued without success for a reduced penalty.

“These are in my opinion good citizens — very hardworking people,” Applebaum said of Kallo and his wife. “Maybe it was an honest mistake.”

Many retailers now have electronic units players can use to scan their own tickets to determine whether they are winners, which would avoid problems like the one at Nick’s Party Stop, Holyfield said.

Of the license suspensions since January 2016, three others involved suspicion of dishonesty or ticket tampering by a licensee or a store employee.

In January 2016, Repete’s Party Store in Holland had its license suspended for one week and was placed on probation for two years after an employee was found to have tampered with instant lottery tickets, records show. It’s not clear from the records what was done to the tickets, but a requirement was that employee Cassandra Guerra not operate the lottery terminal during the probation period, according to lottery records.

A call to Michael Travis, an operator of Repete’s, was not returned.

And in March 2016, A&C Supermarket in Hamtramck received a similar punishment for selling instant tickets that had been tampered with, records show.

Hakem Hakim, the owner of A&C, said Wednesday he’s not sure how the tampering happened or what was done to the tickets, but the store has taken steps to secure its instant tickets to avoid a similar incident.

Going a week without lottery sales was “inconvenient more than anything else,” he said. “You’re not taking care of your customers as they come in.”

In August, Capital Liquor in Detroit received a suspension and a 30-day revocation notice for an unspecified act that “seriously impairs (the licensee’s) reputation for honesty and integrity.”

Another 20 retailers were suspended for buying winning tickets from customers at discounted prices, then claiming the full value of the prizes themselves, or for cashing so many winning tickets that they were suspected of doing so.

It’s a big issue, since before paying a lottery prize of $1,000 or more, the bureau is required to seize from the winning prize purse any arrears in required child support payments, unemployment benefit restitution, or court payments.

Winners who know they face likely seizure of all or part of their prizes sometimes turn to retailers to take the tickets off their hands — for a reduced price.

It’s called discounting, and retailers know it’s against lottery rules.

Records obtained by the Free Press show the Michigan Lottery Bureau ran a sting operation in Detroit this year — using a fake Daily 4 ticket programmed to scan as a $5,000 winner — and nabbed 10 retailers who agreed to purchase the ticket for a discounted price.

Each of those retailers had their license suspended for one week and was placed on probation for two years, records show.

They were: Bailey’s Liquor and Food Mart; Flamingo Liquor; Hatter Marathon; Michigan & Livernois Gas; New Merchant Food Center; Serena Group LLC; Special Way Market; Swanson Sunoco; West End Liquor Store; and Woodmere Liquor, records show.

While acknowledging the records spoke for themselves, Holyfield didn’t want to discuss clandestine methods the bureau sometimes uses to monitor retailers.

“We don’t want anyone to know what the secret sauce is,” he said.

But the bureau also uses a 20/20 rule, under which any time a retailer redeems 20 tickets worth more than $600 in a certain time period, or any number of tickets with a total value exceeding $20,000, an investigation is launched into possible discounting, he said.

One-week license suspensions and probation terms were issued to 75 & West Road Inc. in Woodhaven and Romulus Gas & Mart LLC in Romulus, both operated by Michael M. Berry, who claimed 47 winning tickets above $600 since 2011; FW Fuels Inc. in Harper Woods, where Fayez Allahmad “claimed several winning tickets which may be related to discounting,” and Kelly’s Beverage & Deli in Eastpointe, where Jawher Gumma claimed 67 winning tickets above $600 since 2009, records show.

In the case of Kelly’s Beverage & Deli, store attorney Peter Abbo argued the suspension was issued based on “suspicion and conjecture,” rather than fact. The Lottery Bureau reviewed the case, but the penalty stood.

Licenses can also be suspended or revoked if a retailer is convicted of a crime other than a traffic offense.

George’s Cafe in Union, which sold Club Keno tickets, was notified in June its license would be revoked after owner Robert George, Jr. was convicted of felony gambling for having illegal slot machines, resulting in his liquor license being placed in escrow, records show.

Most suspensions — and most of the 80 to 100 license revocations issued each year —are for retailers falling behind on the money they owe the Michigan Lottery, records show.

Between Jan. 1, 2016 and Oct. 2 of this year, the Michigan Lottery Bureau suspended or revoked the licenses of 80 licensees who were overdue on payments of nearly $528,000, plus 65 other licensees who had been repeatedly delinquent on payments or fell behind while they were on probation, records show.

Another way lottery retail licenses get suspended, and ultimately revoked, is through inactivity.

Since January 2016, the licenses of 91 outlets were suspended or revoked because they hadn’t sold or validated tickets for an extended time period. In many of those cases, the inactivity related to a change of ownership, records show.

About 270 Michigan lottery retailers — out of a total number of nearly 11,000 — have had their licenses suspended or revoked since 2016, records show.

What happens when Michigan lottery retailers try to game the system

Lottery spokesman Jeff Holyfield discusses the lottery’s eight-person security unit. Detroit Free Press

LANSING – A Detroit gas station and convenience store owner scratched hundreds of instant game tickets the Michigan Lottery sent him for sale to customers, trying to identify the winners so he could buy them himself and claim the prizes, officials say.

For each package of tickets, Mubarak Morshed calculated whether the total prize money exceeded the purchase price. If not, he reported the pack of tickets “missing.” If yes, he purchased the tickets and sought to collect the cash, Michigan Lottery spokesman Jeff Holyfield said.

Not surprisingly, Morshed’s actions drew suspicion. He not only lost his license to sell at Balasan Mini Mart on East Seven Mile, but was required to pay $14,600 for the 28 packages of tickets he scratched his way through, according to internal lottery records the Free Press obtained under Michigan’s Freedom of Information Act.

The Michigan Lottery revokes about 100 retailer licenses a year, for a variety of reasons. (Photo: Ryan Garza, Detroit Free Press)

“As criminal mastermind schemes go, this wasn’t the greatest,” Holyfield said. “This was a guy who probably kind of got carried away.”

Though officials say the vast majority of the 10,500 Michigan lottery retailers deal honestly with both the agency and their customers, a few are always looking for a new way to game the system. It’s the job of the lottery agency’s eight-person security unit, which handles about 1,500 cases a year, to investigate those offenders, and, if necessary, shut them down.

“We just want players to know that we take the integrity of the game and the integrity of our operations very seriously,” Holyfield said.

Jeff Holyfield (Photo: handout, handout)

Two store owners — one in Ypsilanti and one in Battle Creek — were caught in the last two years intentionally paying customers less prize money than their tickets were worth, records show. Both had their licenses revoked.

And 29 retailers around the state received license suspensions for “discounting” — agreeing to pay customers less than a winning ticket is worth and keeping the full value for themselves.

Many customers don’t want to cash winning tickets because the state will carve out of the winnings state-related unpaid debts such as child support.

Many of the store owners who had their licenses suspended after offering to help winning players out — for a price — were caught in “sting” operations run by state officials, who used undercover investigators looking to sell tickets and bogus Daily 4 tickets that would appear to be winners if scanned at a lottery terminal, records show.

Though lottery officials have investigated retailers previously for manipulating scratch and win tickets, also known as instant games, the case involving Morshed, the Detroit retailer who went on a ticket scratch frenzy, was unique, Holyfield said.

“I don’t know if it’s ever happened before,” he said. “Let’s say he was a pioneer, but not in a good sense.”

Morshed, who did not respond to a phone message left at the store, scratched the tickets after he’d confirmed receipt of them, but before they were activated for sale, Holyfield said. Because the tickets had not yet been activated, Morshed was able to report “unprofitable” packs of tickets as having been lost, Holyfield said.

Balasan Mini Mart on East Seven Mile in Detroit. (Photo: Paul Egan/Detroit Free Press)

But Morshed, who did cash some winning tickets before he was caught, drew suspicion because of the number of packs of tickets he reported missing. “It turned out he had all of the tickets sitting in his office,” Holyfield said.

Though Morshed lost his license and was required to pay $14,600 for the 28 packs of tickets he scratched, the lottery did not attempt to recover any prize money he collected, Holyfield said. Nor did the agency recommend criminal charges.

Another case, involving Ypsilanti-area convenience store owner Mohammed Abed illustrates the severe consequences a retailer can face if the lottery agency determines they cheated a customer out of even a relatively small amount of money.

Abed, owner of Quick Mart on Textile Road, was notified in February his license was suspended and would be revoked because he underpaid a customer by $30 on a winning Poker Lotto ticket, failed to cooperate with the ensuing investigation, and had on occasion allowed lottery players to operate his terminal and print their own tickets.

Abed’s Sterling Heights attorney, Marshal Garmo, told lottery officials in a series of letters that Abed’s first language is Arabic and the issue with the customer could have been an honest mistake, compounded by Abed’s difficulty speaking English.

“I spoke to Mr. Abed today,” Garmo wrote on March 15. “He was crying.”

Abed “said his business is down considerably since he lost the lottery sales. He said the store is empty and hardly any customers walk into the store because most of them want to buy lottery tickets.”

Even during the few minutes it took for a reporter to leave a message for Abed inside his store on a day last week, a customer buying another item asked for Mega Millions tickets and was surprised to learn the store did not sell them.

“If the lottery license is not returned, Mr. Abed and his family will be out on the streets,” Garmo wrote. “His wife is pregnant with their first baby.”

But Diane Carter, the lottery bureau’s manager of licensing and retail services, said in a letter to Abed that the case was reviewed by Lottery Commissioner Brian Neill and Abed’s request to reinstate the license was denied.

The player had a ticket with a diamond flush poker hand worth $50, but only received $20 from Abed, Carter wrote.

One lotto sign still appears in front of Quick Mart near Ypsilanti. But tickets are no longer available, after lottery officials determined the owner shortchanged a customer on a winning ticket. (Photo: Paul Egan/Detroit Free Press)

“When he asked for the rest of the prize, (Abed) told him the ticket was a $20 winner,” she wrote.

The player then asked for the ticket back, at which point Abed printed him a new ticket that was not a winner at all and denied ever having seen the ticket with the diamond flush, she wrote.

Lottery records show the $50 ticket was checked, but not redeemed for a prize, just before 4 p.m., that a new ticket was printed about 30 seconds later, and that the $50 ticket was redeemed about two minutes later, after the unhappy customer apparently left the store, the letter said.

Abed told the lottery investigator that store security video of the sequence of events was not available, despite the fact the Washtenaw County Sheriff’s Office said the store had provided security video to them for another, unrelated incident.

Garmo told the Free Press he felt lottery officials handled the case fairly, but Abed’s wife, Doha Abed, said she and her husband feel a suspension would have been more appropriate.

“It was very unfair,” she said. “It’s been very difficult without the lottery license.”

The Michigan Lottery also revoked the license of Jasvir Singh, at Handy Dandy Party Store on West Michigan in Battle Creek, after he allegedly underpaid a player by $10 on a winning Poker Lotto ticket.

No additional details were available about that incident, beyond the December 2017 revocation notice sent to Singh. The Handy Dandy Party Store, owned by JKS BC LLC, was sold after the Michigan Lottery revoked its license and a new license was issued in October 2018 to the new owners, Deep Liquor LLC and Mandeep Kaur, Holyfield said. The store has again been selling lottery tickets since then.

The Free Press published an earlier report about lottery retailer discipline cases, in November 2017. That article, which looked at cases that had arisen since January 2016, found five instances of lottery retailers cheating customers or tampering with instant game tickets. Only one of those cases resulted in revocation of a retailer’s license, and that was after a clerk at a Battle Creek gas station sold customers tickets that he had already scratched and determined were losers.

Capital One Gas initially received only a one-week suspension and a term of probation, but that penalty was increased to license revocation after the retailer refused to fire the offending clerk, which was a requirement of his probation.

In one case examined in 2017, a Clinton Township party store received only a two-week suspension and probation after the husband of the store’s owner declared a customer’s Keno ticket a loser, tore it in half, and then cashed it himself for $2,517.

For the more recent cases examined in the last two years, all cases of cheating customers or tampering with tickets resulted in license revocation, even when the amounts involved were as small as $10.

Holyfield denied there has been a shift by lottery officials to harsher discipline in such cases, and said each case is judged individually, weighing many factors including whether the retailer has been in trouble before. In the case of the Clinton Township store and the customer cheated of $2,517, Holyfield said an important factor was that the offending clerk was not the person who held the license, but was her spouse.

Lottery retailers can also lose their licenses for committing crimes unrelated to the lottery.

Records show retailer Raymond Gedeon of Dollar Palace in Lansing lost his license in March after he was convicted of food stamp fraud. Gedeon was sentenced to two years in prison in February after pleading guilty to food stamp conspiracy in federal court in Grand Rapids.

The Michigan Lottery revokes about 100 retailer licenses a year. The most common way to lose a license is not by cheating customers or by discounting, but by getting behind on money owed to the lottery.

Since October 2017, the lottery sent revocation notices to about 75 retailers who had collectively fallen behind by more than $350,000 on their payments to the Michigan Lottery, records show. During that time, close to 100 retailers received revocation notices for being repeatedly late with payments, or being late with a single payment while on probation, records show.

After receiving such notices, many retailers quickly pay what they owe and in some cases post bonds to ensure prompt payments in future, Holyfield said.

Retailers have strong incentives to keep their licenses in good standing. They receive 6% commissions on ticket sales, plus 2% commissions on prizes they redeem. Lottery sales also bring in customers who buy other items.

In the 2018 fiscal year, the most recent year for which data is available, the Michigan Lottery set new records for sales, at $3.6 billion, prizes paid, at $2.2 billion, and commissions paid to retailers, at nearly $267 million. The lottery also contributed a record $941.3 million to the School Aid Fund.

Discounting, at least for a first offense, is typically dealt with by a license suspension and probation, not a revocation.

Since October 2017, 28 retailers around the state received one-week license suspension for discounting, while one retailer received a two-week suspension. The suspension comes with a $700 investigation fee and a term of probation of one to two years, during which time the retailer is prohibited from cashing winning tickets for themselves.

West End Liquor Store on Joy in Detroit received the two-week license suspension. An aggravating factor in that case was that the license holder admitted to discounting tickets on previous occasions, records show.

Receiving one-week license suspensions for discounting were Detroit retailers including:

  • Special Way Market on Schoolcraft
  • Hatter Marathon on Fenkell
  • Serena Group LLC on West Warren
  • New Merchant Food Center on East 7 Mile
  • Mays Liquor on West Chicago
  • Roseberry Market on Roseberry
  • Caesar’s Palace Liquor on West McNichols
  • Food Giant Supermarket on Greenfield
  • Omni Party Store on West Seven Mile
  • Fifth Avenue Liquor Spot on Fenkell
  • N&A Market on Whittier
  • Express 100, Inc. on Livernois
  • Six Mile X-Press Party Store on West McNichols
  • Bottom Up Party Store on West 8 Mile
  • Barrel and Bottle Party Store on Dexter
  • Holiday Party Store on Joy
  • Van Dyke First Stop LLC on Van Dyke
  • Super Spot Liquor on Harper.

Also receiving one-week suspensions for discounting were:

  • Huron Plaza Party Store and Prime Time Liquor and Kitchen in Pontiac
  • Muthana Gas Mart in Highland Park
  • Dairy Mart 6231 in Allen Park
  • Tele Fuel Mart LLC in Redford Township
  • Z&H Groesbeck Service Center in Mount Clemens
  • Miss Tracy in Grand Rapids
  • Trade Winds in Farmington Hills
  • K&B Mini Mart in Rochester Hills
  • Sunshine Liquor Shop in Troy

Discounting is also dealt with on a case-by-case basis, and retailers get a chance to appeal their suspensions, Holyfield said.

Only one retailer, Wine Captain in Dearborn, was successful in having a proposed one-week suspension reversed during the nearly two-year period examined by the Free Press.

Owner Fady Kasgorgis had been licensed since 1986 without a prior violation and offered an explanation lottery officials could not refute, Holyfield said.

“The owner said that one of his employees found a stack of tickets on the counter at the business,” Holyfield said. “He scanned them and discovered one was a winner and informed the owner. The owner said he waited for someone to come back to the store to claim the ticket, but no one did. So, he tried to claim the prize and found that the ticket was a copy of a winning ticket.”

Fares Hattar, owner of Hatter Marathon in Detroit, appealed his suspension, but without success.

“Prior to the incident in question, I had held a Michigan lottery license for a period of 25 years without committing a single infraction,” Hattar wrote in October 2017. “Many regular customers patronize my business on a daily basis for the exclusive purpose of purchasing Michigan lottery tickets,” and even a one-week license suspension “runs the risk of doing irreversible harm to my business.”

Hattar said Wednesday he got through the suspension OK by being up front with his customers and telling them it would only last a week.

Despite his worries, “they ended up coming back,” he said.

The Free Press used the Freedom of Information Act to obtain records about Michigan Lottery retailers who had their licenses revoked or suspended.