Intralot, VSC To Pay $6.5 Million In D.C. Sports Betting App Contract Fraud

Intralot, Inc. and its subcontractor, Veterans Services Corporation (VSC), will pay D.C. $6.5 million after reaching a settlement regarding their multiyear lottery and sports betting contract.

Attorney General Brian L. Schwalb has announced that Intralot will pay the District $5 million, and VSC will pay $1.5 million.

False promises led to the award of contract

An investigation undertaken by the Office of the Attorney General revealed that in 2019, Intralot and VSC made false promises to obtain the multimillion-dollar contract on a sole-source basis without the need for a competitive bidding process.

The two parties promised that VSC would perform 51% of the agreed work with all of its resources and, as such, receive an equivalent percentage of the revenue – with other small businesses only receiving a minor additional share.

The Office of the Attorney General’s investigation found that Intralot and VSC secretly agreed that an Intralot subsidiary would provide most of the resources for the sole-source contract in return for payments from VSC. As a result, Intralot and VSC received significant remuneration from the District under false pretenses. Intralot’s subsidiary did most of the work, and VSC funneled the bulk of compensation back to the company.

Attorney General Schwalb commented in an official statement: “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.”

He continued: “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.”

Further detail suggests Intralot and VSC falsely inflated the amount of money Intralot spent subcontracting with VSC and other small businesses, and Intralot remunerated VSC’s owner, Emmanuel Bailey, hundreds of thousands of dollars per annum for his part in the scheme.

Hundreds of fraudulent invoices filed

Upon the regulator’s discovery of the wrongdoing, both companies claimed they would cease, and Intralot disclosed approximately $4.3 million in previously undisclosed payments that it received from VSC. However, after claiming they would stop, Intralot’s subsidiary continued to provide resources to VSC, and VSC reimbursed Intralot. By the time it was discovered in 2021, over 100 fraudulent invoices had been submitted.

Both companies have agreed to report contract and subcontract information accurately in future bids. Further, Intralot agrees not to use any entity to provide resources to a D.C. business with which it has a subcontracting relationship.

The Intralot operation was far from triumphant. From 2019-2022, fiscal year revenue postings were a loss of $1 million. Initial company projections suggested more than $20 million in revenue generation annually.

Since the end of the contract, state regulators have changed rules and regulations, and now there’s capacity for seven online operators. With ESPN BET entering the fray yesterday, there will soon be six online operators live in the state.