Iowa Lottery investigation layered in complexity

January 27, 2012 - 5:55 PM

IOWA CITY, Iowa (AP) — Criminal investigators looking into the suspicious circumstances behind a now-withdrawn claim for a $14.3 million Iowa Lottery jackpot will have numerous layers of complexity to unravel, stretching from a wealthy New York suburb to Central America, observers said Friday.

The Iowa Division of Criminal Investigation said it was examining whether a crime was committed related to the purchase and presentation of the Hot Lotto ticket. But Dave Button, who leads the agency's gaming bureau, acknowledged investigators may have no way to compel the man who may have the answers — a 76-year-old New York lawyer — to give them up.

Crawford Shaw of Bedford, N.Y., withdrew his claim for the jackpot Thursday after refusing for weeks to tell the Lottery the identity of the person who bought the ticket and anyone else who possessed it before he did. He said he didn't know the ticket owner, who wished to remain anonymous. After the Lottery rejected his lawyers' last-minute offer to give the money away to charity, he withdrew the claim "to avoid further controversy."

Rather than end the story, the move marked the beginning of a criminal investigation led by DCI and the Iowa attorney general's office. It could take weeks, and they may never conclusively determine what happened.

"Good luck to whoever is trying to nail this down," said Tom Curran, a New York lawyer who represents Industrial Enterprises of America. The company is suing Shaw, who served as its CEO from 2004 to 2005, before it was looted and driven into bankruptcy. "I suspect the Iowa officials are encountering some of the same difficulties we've had in terms of Mr. Shaw being a many-layered person."

Shaw promised Thursday to explain his decision Friday — but didn't answer his phone or return messages, a pattern he's repeated in recent weeks. A Des Moines law firm representing Shaw declined additional comment Friday after issuing a brief statement Thursday.

His former company is seeking to recoup millions of dollars, including $2.3 million paid to Shaw for consulting work that Curran said never happened, with a lawsuit in bankruptcy court in Delaware that alleges systemic fraud by its prior management. Curran said the company would have tried to recover any Iowa Lottery proceeds that went to Shaw.

"If they have a legitimate entitlement to lottery winnings, who sits there and says, in response to that very rational request to give information, 'Nevermind, keep the money.' Who does that? Who does that? No one," Curran said.

After the jackpot went unclaimed for a year, Shaw's lawyers shocked Lottery officials when they showed up two hours before the Dec. 29 deadline with the winning ticket in hand. Security checks showed the ticket was valid. Shaw signed it on behalf of Hexham Investments Trust (misspelling Hexham as Hexam), which listed its address as a post office box in Bedford, N.Y., a wealthy enclave where Shaw lives on the property of his daughter and son-in-law Gregory Fleming, the president of Morgan Stanley Investment Management.

Shaw told Lottery officials during a meeting earlier this month that all of the trust's proceeds would go to a corporation based in Belize, a Central American country that has a reputation as a tax haven. (The advantages of the money going there aren't entirely clear, as Lottery spokeswoman Mary Neubauer said the agency would have withheld 30 percent in federal taxes, instead of 25 percent, if a foreign corporation was ruled the winner).

Making matters more complex, Shaw's lawyers told the Lottery that Shaw was retained by an attorney who was representing the ticket purchaser — whose identity was unknown, even to Shaw. Shaw agreed to represent the purchaser's attorney on the condition that both of their identities and all discussions would remain secret because of attorney-client privilege, they said.

At the same time, Shaw's lawyers said in their Tuesday offer to give the money to charity that the person who legally bought the ticket, possessed it and transferred it to the trust approved the deal. They said Iowa law did not require the disclosure of the name and address of the buyer, but giving the money to charity would assure "that no prohibited player may benefit from the payment of the prize." Iowa law does not allow anyone under the age of 21 or employed by the Lottery to play.

Neubauer said Lottery officials rejected the offer because they weren't sure the claim was legal. She said Iowa law requires the release of the winner's information, which she said could potentially be a trust. She said the Lottery in the future will evaluate claims of winners who wish to keep their identities from the public for safety or other reasons on a case-by-case basis.

Neubauer said investigators might consider, at some point, releasing surveillance footage showing the person purchasing the winning ticket on Dec. 23, 2010, at a Kwik Trip gas station in Des Moines — an act that set in motion 13 months of intrigue and counting. Investigators have said the buyer appears to be of legal age, but they have withheld the tape because its release would compromise their case.

"It may be one of those situations where the questions ultimately go unanswered," Neubauer said. "But would it have been responsible to pay millions of dollars to a blind trust that benefits a corporation in Belize without any of the basic information we needed? No."