D.C. lottery contract is subject of federal probe for possible corruption

August 10, 2012

Federal authorities are investigating possible corruption in the awarding of the District’s $228 million lottery contract and have interviewed several people with knowledge of the contentious process dating back more than four years.

Four people told The Washington Post that they had spoken with investigators from the FBI, the U.S. attorney’s office or both. Two of the four said they were asked to possibly testify before a grand jury now empaneled in the District.

Those interviewed include Kenneth V. Cummins, a private investigator in the District, and Eric W. Payne, who was fired as contracting director by the D.C. chief financial officer and is suing his former employer for wrongful termination and defamation.

Two others for the first time also described lengthy questioning by authorities that probed wide-ranging aspects of the lottery procurement, starting with the initial bid in 2008, its disapproval by the D.C. Council, and the subsequent rebidding in 2009. They said the authorities also asked about “iGaming” — the Internet gambling proposal included in the 2009 contract that became a political flash point last year.

“My sense was, they were looking at everything,” said Cummins, who had no direct role in the lottery bidding but is familiar with the players. “They were interested in, ‘Who benefited from the council’s actions on this?’ ”

A person who was involved in the bidding process and who was interviewed by the investigators agreed that the scope is sweeping.

“They have a detailed sense of all the meetings and actions that were taken,” said the person, who spoke on the condition of anonymity to avoid impeding the investigation.

William Miller, a spokesman for U.S. Attorney Ronald C. Machen Jr., declined to comment on the office’s interest in the lottery deal. As with any investigation, the inquiries might not result in criminal charges.

The attention on the lottery dealings underscores the unprecedented focus by prosecutors on the workings of city government. Since January, Machen’s office has obtained guilty pleas to felony charges from two D.C. Council members and three associates of Mayor Vincent C. Gray (D) who were involved in his 2010 campaign.

But scrutiny of the lottery contract opens a new front in Machen’s war on political corruption in the city. The controversy dates to 2008, when the Office of the Chief Financial Officer awarded the contract to a joint venture of multinational lottery firm Intralot and a local partner.

The award encountered resistance from the D.C. Council — which retains the power to reject large city contracts — based on the checkered history of one of the local partners and his ties to then-Mayor Adrian M. Fenty (D). After months of wrangling, the council rejected the deal, and Chief Financial Officer Natwar M. Gandhi moved to rebid the contract in 2009.

It was again awarded to Intralot, this time bidding alone, but eyebrows were raised when the firm subsequently agreed to subcontract much of it to a local firm once the contract went to the council for approval.

Investigators’ questions have focused on the local partners: Warren Williams, whose W2 Tech originally partnered with Intralot, and Emmanuel Bailey, whose Veterans Services Corp. now maintains the city’s networked lottery system under a contract with Intralot.

Williams said he had not been contacted by the federal authorities. “I’d be willing and able to go down and verify what they need to verify,” he said. Bailey did not respond to phone calls and an e-mail requesting comment.

Byron Boothe, an Intralot executive, declined to say whether he or his company had been contacted by authorities, but he pledged to “assist any governing authority in an effort to resolve any questions of Intralot, its subcontracting partners or its former partners that may arise.”

The authorities have also asked specifically about the process through which contractors sought preference points in the bidding process. Firms that are small, based in the city, or are owned by city residents or members of “disadvantaged” groups can apply to become “certified business enterprises” entitled to extra points during bidding.

An inspector general’s report released in January raised questions about the certification process, including why the city denied certification to one of Intralot’s competitors ahead of the 2009 rebidding, but later granted certification to Bailey’s company despite questions about its legitimacy as a local business.

Payne said the authorities “appear to be very interested in the Three G’s and my experiences with each” — a reference to Gandhi, Gray and D.C. Council member Jim Graham (D-Ward 1), who was among the most outspoken critics of the original contract award.

Graham said Thursday that he has not been contacted by investigators.

His role in a land deal said to be entangled with the lottery contract is being probed by an independent investigator hired by the Metro board, on which Graham served at the time. Graham has vehemently denied any wrongdoing, and the inspector general’s report concluded that there was not “sufficient evidence to support or conclude that the council member had acted improperly.”

Gandhi, in a June interview, said investigators had asked for documents but had not requested interviews. Natalie Wilson, a spokeswoman for Gandhi’s office, declined to update matters Thursday. “It’s not our policy to comment on ongoing investigations,” she said. The inspector general’s report faulted contracting procedures in Gandhi’s office but did not note any criminal wrongdoing.

Gray was council chairman during most of the contract wrangling and publicly objected to the first award. But he has repeatedly denied intervening to steer the contract.

The federal interest in the CFO’s office, and Payne’s cooperation with authorities, was first revealed during a June 1 court hearing in his wrongful-termination case, when his attorney said the FBI had subpoenaed documents related to the lottery contract .

The Washington Examiner disclosed the existence of grand jury subpoenas related to the case last month. None of those who spoke to The Post said they had been before a grand jury. Two said they have been told that they might be called to testify.

Del Quentin Wilber contributed to this report.

Mike DeBonis covers local politics and government for The Washington Post. He also writes a blog and a political analysis column that runs on Fridays.
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