State lotteries catch a lot of flak, labeled by turns a tax on the poor, a tax on the stupid and a fiscal cop-out that ignores local governments' root budget problems.

But every so often, someone figures out a way to beat the game — and the state ends up benefiting anyway.

On Friday, the Massachusetts Inspector General issued a report detailing how not one but three "syndicates" cracked the state's Cash WinFall lottery game.

The break was first reported last fall by the Boston Globe.

Cash WinFall involved buying a $2 ticket and picking six numbers between 1 and 46.

Unlike most other lotteries, the jackpot was capped at $2 million.

If that figure was reached and no one matched all six numbers, the money in the jackpot was distributed among the lower tier prizes for that drawing — otherwise known as a "roll-down."

The odds of hitting the jackpot were one in 9,366,819.

But if you were smart, patient and had the means — as the three betting groups were — there was a loophole in the system big enough to drive a truck through.

"The odds of matching five of the six numbers was about 39,000 to one, according to the odds published on the Lottery’s website during the game," the OIG writes. "That’s still a long shot on a single $2 ticket but within reach if you’re able to buy in bulk."

For instance, on Feb. 8, 2010 no one won the jackpot but $2,970,119 was paid out in lower tier prizes. So someone who spent $400,000 to buy 200,000 Cash WinFall tickets for the Feb. 8 drawing could reasonably expect to have cash winnings of $425,640, based on statistical probabilities. The actual outcome could be quite different, but statistically this person has a 50 percent chance of winning $425,640 or more in cash prizes from this drawing.

If a "roll-down" payout could be triggered, buying enough lottery tickets proved highly lucrative.

Here's what the odds would look like:

In January 2005, MIT senior James M. Harvey was looking for a senior independent study project, and came across Cash WinFall. According to the report, it took him "only a few days" to realize the potential contained within Cash WinFall's loophole.

Harvey organized a group that bought 500 $2 tickets at nearby retailers. He called his operation Random Strategies LLC, after the MIT dorm where the scheme was hatched.

One of those tickets matched four of the six winning numbers, paying $2,364. Along with a few other three-out-of-six matches, the group turned $1,000 into about $3,000, the report found.

For the next seven years or so, schooling Cash WinFall became a full-time occupation for Harvey and several other MIT grads. While it required tedious work filling out individual slips and tax forms, it appears to have paid off.

The report found the MIT group wagered between $17 million and $18 million on Cash WinFall. While Harvey declined to disclose his profits, the OIG estimates his group made at least $3.5 million before taxes, assuming that it had profits before taxes of a minimum of 20 percent during its seven year participation in the game.

That leads to the best part of the report:

"The rewards of [Harvey's] participation in Cash WinFall have not dramatically changed Mr. Harvey’s lifestyle. Mr. Harvey said that when he began playing Cash WinFall, his car was a 1995 Chevrolet Corsica which he had purchased for $500 at a government auction. As the MIT group became successful at Cash WinFall, he upgraded his ride to a high-mileage 1999 Nissan Altima."

The OIG goes on to detail how a retired store owner from Michigan named Gerry Selbee and his wife also exploited the game, the concept of which had actually originated in the Wolverine State. Mr. and Mrs. Selbee would drive to Massachusetts to find stores where they could buy Cash WinFall tickets in large numbers, eventually including store clerks into their winnings.

Two Boston-based biomedical researchers also cracked the game, though it took months to fill in the individual tickets, the report found. It did not say how much this or Selbee's group made from their system.

Although Cash WinFall has since been phased out, the game proved a win-win for everyone involved:

"Based on the documents reviewed by the OIG and the interviews described above, I have concluded that Cash WinFall was a financial success for the Lottery. It generated about $300 million in ticket sales, with nearly $120 million of that going to Lottery operations and the pool of funds distributed to cities and towns. The high-volume bettors were a financial boon to the Lottery, collectively buying roughly $2 million in tickets for a typical roll-down drawing – 40 percent of which the Lottery would keep to redistribute to cities and towns."

Click here to read the full report from the OIG >

