From SPAC Dreams to Riviera Mirage: How Lottery.com Imploded (1)

They partied like they’d just won the lottery.

Aboard the yacht docked at the 2023 Monaco Grand Prix were buckets of chilled bubbly, more than $6,000 worth of cigars, a live band, and bow-tied bartenders. UK pop star Robbie Williams dropped by to do a podcast interview.

If anyone knew how much it all cost, they weren’t telling the CEO, who suspected the total was in a second set of books no one would let him see.

Lottery.com Inc. couldn’t make payroll. It had no domestic lottery ticket sales. Its stock price had dived below $1. It was so far behind on regulatory filings that Nasdaq threatened to kick it off the exchange. The French Riviera fete was a blow-out by some board members, including the future CEO, to lure well-heeled investors into what was left—a sports website with huge aspirations but no content and little to do with lotteries.

PODCAST: Nicola M. White on how things went so wrong for Lottery.com.

Lottery.com had promised to do for lottery ticket sales what Uber did for getting a ride or DoorDash for getting a meal. No longer would you have to go into a convenience store to get your weekly fix of Powerball or Mega Millions; you could buy a ticket from anywhere on an app.

Instead, Lottery.com came to represent all the hubris and excesses of the special purpose acquisition company era: phantom revenues, multiple CEOs hired and fired, accusations of forged documents, an alleged check-kiting scheme, trails of stiffed investors and vendors—including a church— and finally, a promised rescue by a would-be Premier League team owner that turned into something else.

New executives are working to fend off lawsuits, raise money, and get operations going again. Prominent hedge fund Balyasny Asset Management bought a stake in Lottery.com last month. But its past looms large, with Securities and Exchange Commission and Department of Justice investigations underway. At least three company insiders say they’ve been interviewed by the US Attorney’s office for the Southern District of New York.

“This had almost every element of crookery you could imagine. And I was seeing it in real time,” said Mark Gustavson, who was CEO at the time of the party but was fired two months later, replaced by a board member who was on the yacht.

Bloomberg Tax pieced together the arc of the Lottery.com story by interviewing more than a dozen current and former employees, board members and vendors, some of whom spoke on condition of anonymity; obtaining audio recordings, internal communications and board documents; and examining press releases, lawsuits, and securities filings.

Buy By Phone

Tony DiMatteo sported a shaved head and a long auburn biker beard. He called himself a serial entrepreneur with a servant heart, aiming to raise funds for natural disasters and to end world hunger. He would do that by bringing mobile technology and blockchain to one of the last paper-based businesses: lottery tickets.

DiMatteo and fellow startup veteran Matthew Clemenson founded what they first called AutoLotto in 2015. Five years later, rebranded Lottery.com was operating in a dozen states when the special purpose acquisition, or SPAC, market exploded. Money poured into blank-check companies, which were created to find promising privately held businesses and give them a shortcut to a public listing.

The boom coincided with Covid. That meant the in-person handshake meetings critical to raising startup money weren’t possible. And Lottery.com needed cash.

It owed at least $10 million to the owners of a company that supplied Lottery.com with real-time, worldwide lottery results. It spent $11 million to acquire majority interests in two Mexican lottery businesses and, former officials say, was considering a stake in a sharia-compliant raffle enterprise in Dubai. In April 2021, it spent $6 million to acquire rights to the domain name Sports.com, which would later be at the center of the yacht party.

Trident Acquisitions Corp. was a SPAC searching for a company to acquire. Most SPACs have two years to find a target, and it was running out of time before it would have to return money to investors. Founded by Ilya Ponomarev, a former executive at the Russian oil company Yukos who as a member of the Russian parliament cast the only vote against Vladimir Putin’s annexation of Crimea, Trident originally targeted oil or gas companies, but those deals kept falling apart.

It pivoted to fintechs, and Lottery.com looked promising. DraftKings Inc. had gone public via SPAC in 2020 and gaming looked like a growth business, said Ponomarev, the former CEO, who’s now in exile in Ukraine and a leading voice against Putin’s government. In investor pitches and SEC filings, Lottery.com predicted an eight-fold surge in revenue by 2023.

The SPAC deal closed in October 2021, bringing in $63 million. Ponomarev resigned as the SPAC’s CEO before then, reasoning that gaming wasn’t in his professional wheelhouse. Trident’s current CEO, Marat Rosenberg, didn’t respond to requests for comment.

The way DiMatteo tells it, the pressure to close the deal and excitement of the SPAC market propelled the company to go public, ready or not.

“They were eager to get a deal done,” DiMatteo said. “We had no idea what this game was. They were the grownups in the room.”

The C-suite celebrated the Nasdaq debut with a Times Square photo of the leaders jumping in front of an electronic billboard emblazoned with the company’s ticker. Within days, Lottery.com was being valued at more than $800 million.

Cracks showed in a matter of weeks.

‘Check Kite’

The company’s first earnings report in November 2021 boasted $32.2 million in revenue, an almost 2,000% increase from the year before.

But nearly all of that, $30 million, was based on the sale of credits the company had amassed with media partners that turned out to be nontransferable, meaning they weren’t supposed to be sold, the company later said when it had to correct its financials to fix its mistakes. Beyond that, the company further erred by recognizing income from the transaction before it had been paid, according to its SEC filings.

The payment hadn’t come in because the buyer — a payments platform company — didn’t actually have the money on hand. So the company and the buyer struck a complex financing agreement in which Lottery.com pledged its own assets to secure a line of credit that the buyer would then use to pay up, the company would disclose to the SEC a year later.

Feeling pressure to make year-end revenue projections, company officials arranged for a courier to collect a check from the buyer two days before New Year’s Eve, according to people involved in the transaction and an audit committee memo reviewed by Bloomberg Tax. When the line of credit came through, the buyer covered the $30 million check and Lottery.com in turn wired the money right back—but continued to count the money as revenue on its books until it restated, or corrected, its financial reporting five months later.

Essentially, it was “a check kite,” a member of the company’s management team said a year later at a meeting explaining the transaction to an outside adviser. Bloomberg Tax reviewed a recording of that meeting. Asked about the deal, Lottery.com’s current leadership said the transaction is one of the subjects of SEC and DOJ scrutiny, and the company has been fully cooperating with authorities in their reviews.

A few months later, CFO Ryan Dickinson faced a substantial personal tax bill. The executive of the payments company that had been involved in the complex credit transaction suggested his Southern California church could help. The church had sold its only building, netting a few million dollars, and needed more money to buy a new property for its growing congregation.

A customer convinced church leaders, including its pastor Daniel Jones, that instead of borrowing money from a bank, they should offer the CFO a loan with a return which no normal investment would offer—$2.7 million for one week with $300,000 interest, according to people involved in the transaction and a lawsuit the church later filed. Even though it was a personal loan for the CFO, CEO DiMatteo and chief revenue officer Clemenson supplied the value of their shares in the company—worth about $40 million at the time —as proof the loan could be repaid.

Instead, according to a lawsuit filed in San Diego county, the church lost all the money.

“It’s been traumatic for them. They had all this money. They were going to buy this new church and renovate it,” attorney Craig Holiday said. “And all of a sudden they lost it.” Dickinson, who was fired within two months of the loan arrangement, didn’t respond to requests for comment.

‘Beyond Breathtaking’

Meanwhile, it became clear that Lottery.com’s core business had some serious flaws.

By mid-2022, customers in a dozen states could buy lottery tickets on their phones using the Lottery.com app. But tickets didn’t instantly pop into customers’ digital wallets; state lottery regulations are much more old school than that.

Like other online lottery sales companies, Lottery.com had to hire couriers in each state to go to convenience stores and gas stations to buy tickets and store them.

Couriers sometimes couldn’t be found when a customer ordered a ticket, however, according to an internal investigation initiated by the company’s chief legal officer, Katie Lever. When that happened with an order for a Powerball ticket from a customer in Pennsylvania, for example, the company directed that ticket to get printed in a backup hub in Texas, where the company was headquartered and had a state-licensed lottery retail outlet, the investigation revealed.

This technically made the purchase not a Pennsylvania lottery ticket, but a Texas lottery ticket. That deprived Pennsylvania of revenue from the sale and the tax revenue on any winnings. It’s also illegal, board members learned as the investigation progressed. What if someone in Pennsylvania won the Powerball with a ticket produced somewhere else?

The backup printing arrangements also turned out to be much more than a backup. In a seven-month period, Lottery.com printed out more than 500,000 tickets worth more than $1.1 million in Texas for out-of-state lottery players. The practice had been going on since before 2020, according to an internal memo reviewed by Bloomberg Tax.

Lottery.com had said in SEC filings that it had geolocation technology to confirm that web-based customers were in the state where they said they were located. But the internal investigation discovered that wasn’t true. Anybody using the web-based system, as opposed to the mobile app, could skirt any jurisdictional requirement for ticket purchases, according to the investigation report and interviews.

“We are breaking the law in 42 different ways,” one board member said at a June 2022 meeting, according to a transcript obtained by Bloomberg Tax.

“I am without words. The potential for Homeland Security, AML, and all the other things that come into play is beyond breathtaking,” the board member said, referring to anti-money laundering laws.

Board members told management to shut down the web-based application. In July, Lottery.com announced it was furloughing almost all employees and temporarily shutting down operations.

DiMatteo, who resigned as CEO later in July, declined to comment on either the $30 million transaction or the backup lottery ticket printing arrangement. Lever, the chief legal officer, didn’t return requests for comment.

The law firm that conducted the internal investigation never got paid, according to a lawsuit filed last month.

The company’s auditor quit in September, saying it could no longer rely on management’s word. That firm, Armanino LLP, made headlines two months later as the auditor of the US arm of collapsed crypto exchange FTX. Armanino quit auditing public companies altogether in 2023. The firm didn’t respond to requests for comment.

London Calling

The furloughs, the operations shutdown, and the fleeing auditor might have been it for the company, except for a last-ditch funding search by the original SPAC team.

Through old connections from Azerbaijan, an oil-rich former Soviet republic, they landed upon London-based Woodford Eurasia, a self-described specialist in turnaround situations and distressed assets. It was led by Nasib Piriyev, the son of an Azerbaijani millionaire who had tried to buy the West Ham soccer club of the English Premier League in 2021. The group’s non-executive director is Lord Simon Woolley of Woodford, a member of the British House of Lords. Woolley directed questions to the firm.

Piriyev promised a $2.5 million loan from the firm to start and up to $50 million as long as Woodford Eurasia got to install a new board and his own CEO. The leader he chose was Sohail Quraeshi, a securities lender who most recently had served as CEO of a cannabis company.

Quraeshi was intrigued by the company’s premise and Nasdaq listing. “It’s a shitshow, but it’s an interesting shitshow,” he remembers thinking at the time.

He flew to Austin to see what he was getting into. He wasn’t expecting much, given the company had paused operations and had stopped paying employees. But he was still disappointed by what he saw: a nondescript building on the side of a highway that contained three servers. “I said, this isn’t a corporate office; this is a failed 7-Eleven with three goddamn machines,’ he said.

Money from London barely trickled in. Not “a single penny of this promised investment has arrived,” former board member Richard Kivel wrote in a resignation letter, accusing a Piriyev-blessed board member, Matthew McGahan, of taking “complete control of the board.” In an SEC filing, the company said it “categorically and unequivocally refutes all statements made by Kivel as baseless” and that Kivel resigned to avoid being removed. Kivel declined to be interviewed for this story.

McGahan, who eventually became the company’s CEO, also declined interview requests.

Piriyev, in an interview, rejected the accusations of failing to fund the company or that he tried to take it over from overseas. Woodford and its subsidiaries poured in more than $3 million, sometimes sending payments directly to vendors instead of through the company, he said.

The company reported that about $991,000 came in. That wasn’t enough for Quraeshi. He filed a notice of default on the promises he said Woodford Eurasia had made. The board fired Quraeshi the next day, Feb. 1, 2023, and replaced him with another turnaround specialist, Gustavson.

Another Round

Gustavson had dabbled in over-the-counter tech companies in Silicon Valley and was up for a new challenge. He flew to London, expecting to be there a week. He stayed more than a month, holed up in Piriyev’s office to try to get the company’s financial records straight, make plans for re-launching ticket sales, and do a reverse stock split to boost the company’s stock price and stave off a Nasdaq de-listing.

But as 2023 progressed, Gustavson said he began to suspect the board was keeping a second set of books. When the company filed its first-quarter financial statement, it was a surprise to Gustavson, who said he never even saw the document. Gustavson’s electronic signature was on it, as required by law, but he said he didn’t authorize it. Current officials said the company “followed its customary consent protocol and policies prior to making this filing and did the same for all other filings made by the Company” and it keeps a single set of financial records.

More red flags emerged. The original founders of Lottery.com pledged some of their stock to Woodford Eurasia as an incentive to invest in the company and help turn it around. The catch: it only could be sold if the stock rebounded above $5, according to the terms of the funding arrangement. It never did.

Yet in May 2023, almost 5 million of DiMatteo’s shares—worth almost $2 million at the time — got sold in two different transactions, even though the stock was trading below 50 cents per share at the time, well under the $5 threshold.

He says he has no idea who did it or who got the proceeds, but he later wrote to the transfer agent requesting a freeze on any future sales, according to a letter reviewed by Bloomberg Tax. “I did not receive a dime of my shares that were sold,” DiMatteo said.

Regulatory filings reporting the stock sales bear the electronic signature of Alex Smotlak, who is a former director at Woodford Eurasia according to UK Companies House filings. Piriyev declined to comment, saying Woodford Eurasia and DiMatteo had confidential commercial agreements in place.

At the same time, the company was planning its Monaco yacht party as a vehicle to promote Sports.com, which the company was trying to launch as a fan engagement platform. Two days before the Monaco Grand Prix, the company announced Sports.com’s new president: Majed Al-Sorour, a director of the Premier League’s Newcastle club and former managing director of Saudi Arabia’s LIV golf tour.

With the company in dire straits financially, Woodford footed most of the bill for the party—around 400,000 euros, according to an invoice and emails reviewed by Bloomberg Tax. The yacht rental alone cost 175,000 euros, not counting damage from cigar burns on the furniture and blinds.

Gustavson said he was fired after raising questions about the quarterly filing he said he didn’t approve. His replacement: McGahan, the board member who another director had accused of trying to take over.

Gustavson said he had heard about the party being planned, didn’t want anything to do with it and didn’t attend.

Still Standing

The SEC and Department of Justice are investigating the company and some of its founders over the findings of the internal investigation and other matters including the credit sales transaction, according to company filings and an SEC subpoena reviewed by Bloomberg Tax. The SEC declined to comment, as did the DOJ.

Lottery.com’s near demise wiped out millions for shareholders and business partners. John Brier and Bin Tu, developers of the tech business that fuels the company’s lottery data feed sold their business to Lottery.com, but allege they are still owed $10 million in missed payments.

“We believe strongly the company itself has tremendous upside. Tremendous opportunity. It’s all there,” Brier said in an interview. “But not in the hands of these people.”

Lottery.com in November filed its own lawsuit against Brier and his partner, Tu, alleging they stole company secrets to start a competing business with Gustavson. Their attorney said any noncompete and nondisclosure agreements were void because they never got fully paid for their work. In February, a federal judge granted an injunction, meaning the business partners could proceed with their plans.

Meanwhile, Lottery.com hasn’t sold domestic lottery tickets since the spring of 2023. The app for buying mobile lottery tickets no longer exists.

DiMatteo said he believes the company is salvageable. He said he didn’t profit from its problems.

“I’ve even gotten some death threats online,” he said. “You go on Stocktwits, people believe I walked away with 2 million bucks, basically, and screwed everybody, which is completely untrue. It’s insane.”

McGahan, once picked by Woodford Eurasia to run the board, has become disconnected enough from Woodford that he changed the locks on his office door in London to keep Piriyev out, Woodford claimed in a lawsuit alleging the company breached its loan agreement and omitted the breach from its last proxy statement. Woodford dropped the suit in February but is considering other legal action, the firm said.

A skeleton crew of Lottery.com employees has stuck around, with the company tapping a loan from a London investment firm tied to McGahan. The stock still trades on Nasdaq, with a market cap 99 percent below its peak.

In late December, the stock price briefly quadrupled when it gave notice of a new investor for Lottery.com and Sports.com. In February, the company announced a stock-based deal to buy a sports content platform to beef up Sports.com’s offerings.

The company is working to resume lottery ticket sales in 2024, and the Monaco party led to partnerships that are materializing for the company, Chief Operating Officer Greg Potts said in an interview.

“So much of what has been holding the company back are things that we’re looking at in the rearview mirror,” Potts said. “You have a new group of dedicated leadership and board members who are making sacrifices in order to turn this company around.”

SPAC founder Ponomarev also remains a believer. “I think the technology there is great and I think that they will survive,” he said. “I do believe in them despite all the stupidity that was going on.”

Quraeshi, the first turnaround CEO, says he’s heard this before. “Is this the perfect fraud or the perfect stupidity,” he asked. “I don’t know.”

—with assistance from Lucca de Paoli of Bloomberg News

Update in 11th paragraph from the bottom includes detail status Lottery.com’s lawsuit against John Brier and business partners. An earlier update corrected a reference to an ownership stake in the company.