City Hits Lottery Firm with $1.4 Million Fine
The District government has assessed a $1.4 million fine to the company that runs the D.C. Lottery for security breaches, a penalty that could rekindle a debate over the future of the city's gaming industry.
In a letter dated Wednesday to Lottery Technology Enterprises, D.C. contracting officer Eric W. Payne said the failure of company included $72,855 in payouts to fraudulent winners and $86,166 in stolen tickets in 2005 and 2006.
"As a result of the breach to the system's security, the [D.C. Lottery Board] incurred losses and costs both as a direct result of the breach and as part of a prudent effort to prevent recurrence," Payne wrote.
In addition to asking for the money to be paid back, the city asked LTE, a joint enterprise between national gaming powerhouse GTECH and local businessman Leonard Manning, to pay $95,000 in work hours by District government officials, $63,000 in legal fees, $60,000 to pay for future monitoring of the system and $980,000 in damages to the Lottery Board's reputation.
Last spring, D.C. Chief Financial Officer Natwar M. Gandhi and Mayor Adrian M. Fenty (D) said that switching lottery services to another company, W2I, would save the city $5 million. Fenty put forward legislation that would transfer the lottery contract to W2I, a joint effort between national firm Intralot and local businessman Warren Williams.
But the D.C. Council objected and Fenty withdrew the legislation, rather than allow it to be defeated. Both of the lottery firms have members with deep political ties to District leaders, and the fight is perceived as much political as operational.
If Fenty does not put forward the legislation, LTE will maintain control of the lottery.
Update 2:10 p.m.: Crystal Wright, a spokeswoman for W2I, calls the breach the "largest breach of a U.S. lottery system in modern history" and called on the D.C. Council to move the mayor's legislation.
"We hope that more liquidated damages futher convince the council and Chairman [Vincent] Gray that our contract, which was won fairly and squarely, is a better deal for the District," she said. "We hope the news forces action on this. If no action is taken, this irresponsible vendor will continue to be paid. If they're failing, why are we still paying them? It's an arrogance of political power."
Update 5:22 p.m.: LTE spokeswoman Ann Walker Marchant called the fine "wild" and "unreasonable" and suggested that it was politically motivated to get the council to support the mayor's legislation. She said the company was willing to pay some damages, but that the city's figure was "outrageous."
The fine from the city is "unreasonable and not consistent. They're wild charges, that don't have actual merit," Marchant said. "The timing of the issuance of the penalty is suspect."
Update 5:44 p.m.: D.C. Acting Attorney General Peter Nickles, speaking for the Fenty administration, said that the fine reinforces the administration's contention that the council should approve a change of lottery vendors. Nickles called LTE's performance "outrageous" and said the fine was "a conservative amount."
He added that if LTE refuses to pay the fine, he might consider terminating the city's contract with the firm.
David A Nakamura
September 18, 2008; 12:00 PM ET
Categories: City Finances
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