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Fraud Facts: Racing breeds fraud: Scammers get too greedy

Gina Bliss

One of my favorite authors is Dick Francis. He died on Valentine’s Day in 2010, but he was a prolific writer. He wrote more than 40 international best sellers, all set in the world of horse racing.

Last summer I had my first personal experience with horse racing. I went to Batavia Downs and watched harness racing with some friends. It was interesting, but I quickly learned that it’s a lot more exciting if you have some money on the race. The betting changed me from an objective observer to someone emotionally invested.

It’s the betting that attracts fraud to horse racing. The methods for cheating the betting public are varied and some go back centuries. Recently, there have been innovations to keep up with technology, both for fraudsters and for those who fight fraud.

One of the oldest forms of fraud in horse racing is using a ringer to win a race. A ringer is a talented horse that closely resembles a horse that would be a long shot to win. The talented horse is substituted for the long shot, and those participating in the fraud benefit by betting on the horse at long odds.

Bookmakers will usually catch the deviation in bets on a long shot, and if the horse wins there will be an investigation before the bets are paid out.

Racehorse owners and trainers have been known to dope racehorses to enhance performance during a race. Performance enhancing drugs affect race results for horses just as they do for athletes. Blood tests detect the doping, and will certainly be done if a horse has an unexpected win.

The most difficult fraud to detect is when a jockey fixes a race. Jockeys are obligated to ride their racehorses to the best finish they can achieve. They are subject to bans and possible charges if they conspire with others to fix the results of a race by underperforming.

About a decade ago the horse racing industry found it was vulnerable to fraud perpetrated through its computerized wagering system.

Chris Harn, a young programmer with Autotote, a company that handled most U.S. horse racing bets, discovered an internal control problem. He found lists of betting tickets that were uncashed in the company computer system. Those uncashed winning tickets represented unclaimed money.

So he recruited a former college fraternity brother, Glen DaSilva, and found a way to print them and cash them at tracks. They scammed about $6,000 a month this way with very little risk of detection.

Then, they got greedy. They decided to hit a “Pick Six,” a bet where the bettor picks the winners of six races. As a test, they tried it at Belmont Park. Harn used DaSilva’s off-track betting account to choose six winners.

After the fourth race, Harn used his computer access to change the bet to the winners of those races and then he “bet the wheel” for the last two races. “Betting the wheel” is selecting every horse to win so that you can’t lose.

They won more than $100,000 and no questions were asked.

Harn went behind DaSilva’s back to do it again. He recruited another fraternity brother, Derrick Davis, and they chose the Breeders’ Cup race. The Breeders’ Cup, the season-ending championship race, is the biggest race of the year. One of the races that year was won by a little known horse with odds of 43-1.

Derrick Davis had the only winning ticket, worth $3.1 million. Then, an OTB official noticed the wagering pattern between the Breeders’ Cup Pick Six and the Pick Six at Belmont Park.

The rest is history. All three men served time in federal prison on fraud charges. The electronic betting industry spent millions shoring up security.

Greed is a terrible thing. Harn and DaSilva could have continued cashing in unclaimed winnings for years without getting caught if they hadn’t gotten greedy.

Their greed did a great favor for horse racing and the betting public. It clearly pointed out the vulnerability and forced industry officials to make reforms similar to those in the banking and credit card industries.

Last week I was reading one of Dick Francis’ novels. One character, the Jockey Club Senior Steward says, “Racing breeds fraud.” I guess it does.

Gina Bliss, CPA, CFE, is a senior manager at EFP Rotenberg LLP, Certified Public Accountants and Business Consultants, who specializes in internal audit, fraud audit and forensic accounting. She may be reached at (585) 295-0536 or by email at gbliss@efprotenberg.com

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