Attorney General Schwalb Secures $6.5 Million from Lottery and Sports Betting Contractor and Subcontractor for Defrauding the District

OAG Investigation Revealed that Intralot and VSC Conspired to Win and Profit from District’s Lottery and Sports Betting Contract by Deceiving Officials About Compliance with Small Business Contracting Laws Attorney General Brian L. Schwalb today announced that Intralot, Inc. (Intralot) and its small business subcontractor, Veterans Services Corporation (VSC), will pay the District a combined $6.5 million for deceiving city officials to win and then obtain payments under the District’s multimillion dollar, multiyear lottery and sports betting contract. An investigation by the Office of the Attorney General (OAG) revealed that, in 2019, Intralot and VSC conspired to secure the DC Council’s approval of the lucrative contract on a sole-source basis, without requiring a competitive bidding process, by promising that VSC would perform 51% of the work—all with its own resources—and receive an equivalent percentage of the revenue, with other small businesses receiving a minor additional share. That promise was false: Intralot and VSC secretly agreed that, in exchange for return payments from VSC to Intralot, an Intralot subsidiary—not VSC—would provide most of the resources for the sole-source contract. After securing the contract, Intralot and VSC teamed up under this covert agreement to obtain millions of dollars from the District under false pretenses, misrepresenting that VSC performed work that Intralot’s subsidiary actually did and that VSC received a majority of the compensation despite funneling much of it back to Intralot. “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,” said Attorney General Schwalb. “Intralot and VSC’s sports betting deal 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. My office will continue to enforce the False Claims Act to root out contracting fraud, hold accountable anyone who tries to get over on the District and its taxpayers, and level the playing field for law-abiding companies seeking to do business with District government.” The DC Council passed the Small, Local, and Disadvantaged Business Enterprise Development and Assistance Act (SBE Act) to create new opportunities for District small businesses. The SBE Act requires at least 35% of large government contracts to be subcontracted to small District-based businesses, called certified business enterprises (CBEs). In 2019, Intralot and VSC sought to persuade District agencies and the Council to award them the multimillion dollar, multiyear contract to administer the District’s lottery and new sports betting platform on a sole-source basis, without competition from other bidders, by representing that work done and money paid under the contract would benefit VSC and other CBEs, in accordance with the SBE Act. However, Intralot and VSC concealed the fact that, contrary to their representations, VSC would perform its subcontract using resources provided by an Intralot subsidiary, while funneling back to Intralot much of the contract money Intralot had promised to spend subcontracting with VSC. The legislative record shows that the Council approved the contract—and did so on a sole-source basis—because of Intralot’s false promise that VSC and other small businesses would perform a majority of the work and receive a majority of the contract payments. In implementing their scheme once they won the contract, Intralot and VSC falsely inflated the amount of money Intralot spent subcontracting with VSC and other CBEs, and Intralot paid VSC’s owner, Emmanuel Bailey, hundreds of thousands of dollars per year for his participation. Both companies also submitted false and misleading documentation to District agencies and the DC Council, including the subcontracting plan originally used to obtain the Council’s approval of the sole-source contract, verification forms that inaccurately documented the amount of work VSC performed, and quarterly reports that misrepresented how much Intralot spent subcontracting with VSC and other CBEs. When District regulators discovered the companies’ misconduct, the companies claimed they would cease and, in 2021, Intralot restated its previous reports and disclosed approximately $4.3 million in previously undisclosed payments that it received from VSC. Yet on multiple occasions, Intralot’s subsidiary continued to provide resources to VSC, and VSC continued to return payments to Intralot. By the time they said they reformed their arrangement in 2021, Intralot and VSC had submitted over 100 fraudulent invoices—invoices that sought payment under a contract induced by deception and that falsely implied compliance with District law. Under the terms of the settlements: Intralot will pay $5 million to the District. VSC will pay $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. A copy of the settlement with Intralot is available here and with VSC here. This matter was handled by Assistant Attorneys General Charlie Sinks, Christian Whitmer, and Norman Anderson, Workers’ Rights and Antifraud Section Assistant Chief Dennis Corkery, and Workers’ Rights and Antifraud Section Chief Graham Lake.