The story of Jerry and Marge Selbee shows that not all frauds are illegal or unethical. This retired couple in their 80s operated a small convenience store in Evart, Michigan until they sold it and retired about 15 years ago. In 2003, Jerry saw a new state lottery game called Winfall and realized it had a mathematical flaw that favored the player. He shared it with Marge and they formed a corporation called GS Investment Strategies, investing tens of millions of dollars into Winfall and other similar games, legally earning over $26 million in profits from 2003-2011. Their investment strategies exploited the rules and payout structure of certain lottery games to guarantee profits.
Identifying a favorable lottery game and flaws in its design was the cornerstone investment strategy
The key to the Selbees’ success was spotting a flaw in the design of the Winfall lottery game. The game paid out prize money whenever the jackpot reached $5 million, distributing it to players matching all 6 winning numbers as well as those matching 5, 4 or 3. As Jerry realized, this created a positive expected return for the player if one bought enough tickets when the jackpot was large. The Selbees would track jackpot sizes and invest tens of thousands into Winfall tickets whenever a rolldown was close to occurring, exploiting the predictable payout structure to guarantee profits.
Diversification into similar lottery games in other states provided more opportunities
When the Winfall lottery ended in Michigan, the Selbees diversified into a nearly identical game offered in Massachusetts called Cash WinFall. From 2005-2011, they would drive 14 hours from Michigan to Massachusetts whenever a rolldown was approaching, buying tickets from just 2 convenience stores. This allowed them to continue exploiting the same favorable investment strategies. In total, their profits exceeded $26 million across 8 years of investing in these state lottery games.
Anonymity and legal shell entities were key to avoiding attention
The Selbees were careful to avoid attracting attention by remaining anonymous and using shell companies for their lottery claims. When Massachusetts authorities started investigating Cash WinFall and found two groups were winning very frequently, the Selbees avoided trouble by having a Texas friend claim their 2005 Colorado ticket through an anonymous LLC. From 2005-2011, their lottery tickets were held under the name Hexham Investments, a Belize-based trust. Staying anonymous allowed them to keep investing and earning profits without legal issues.
Sound financial management funded college accounts and investments for future generations
The Selbees invested their lottery earnings wisely as well. After renovating their home, they set up college funds for their 6 children, 14 grandchildren and 10 great-grandchildren. By selling the film rights to their story, more funds will soon flow to the Selbees too. Their neighborhood likely sees them as an average elderly couple, but by exploiting mathematical flaws in state lottery games, the Selbees built a small fortune through shrewd yet legal investment strategies.
The Selbees earned over $26 million in profits from 2003-2011 by spotting design flaws in certain state lottery games, tracking jackpot sizes, investing heavily when payouts were predictable, remaining anonymous via shell companies, and wisely managing their lottery earnings.