Lottery Director Bishop Woosley said the theft by Remmele Mazyck, 34, started in 2009 when the lottery launched. It wasn't discovered until October 2012, when a clerk at a Jonesboro retailer raised questions about lottery tickets Mazyck tried to cash that were registered to a store no longer in business.
Mazyck, whose title was deputy security director, pleaded guilty to wire fraud and money laundering charges Friday in federal court. He will be sentenced later.
The lottery said Mazyck cashed 22,710 tickets worth about $478,000. Mazyck's lawyer, John Wesley Hall Jr., disputed that amount.
"The total amount of the scheme is $477,893. He reserves the right to litigate whether or not or what the actual loss ... is for the (Arkansas Lottery) Commission," Hall said.
Woosley questioned Mazyck on Oct. 26, and fired him three weeks later.
"His reaction was calm, denial," Woosley said.
Mazyck, who earned $76,500 last year, followed original lottery director Ernie Passailaigue from South Carolina to help launch the lottery. Woosley said he contacted the current South Carolina lottery director, who told him there was no indication that Mazyck was tied to any theft during his tenure.
Officials allege Mazyck used his own security clearance to code tickets from the lottery's warehouse as promotional giveaways. He allegedly scratched the tickets to see if they were winners, cashing those worth less than $500. Prizes of $500 or more have to be cashed at a lottery office, which would have blown the scheme, Woosley said.
"It took a lot of time," Woosley said, noting that weak internal procedures allowed the theft to continue for three years.
The original lottery law banned any employees from playing, but Woosley said the law was changed in 2011 to allow workers to collect prizes of less than $500.
As soon as Mazyck's theft was discovered, the lottery stopped issuing promotional scratch tickets, Woosley said, though other promotions are continuing.
He said the lottery is reviewing its security procedures and added that he was prohibited from publicly discussing the theft because authorities were investigating.
Losses by lottery players are used to fund college scholarships. Woosley said the lottery is insured and the ticket theft won't affect scholarships.
Woosley said he's concerned that lottery players question the integrity of the games but said they have not been compromised.
"This is a simple theft of lottery tickets," he said.
The maximum penalty for wire fraud is 20 years in prison and a $250,000 fine. Money laundering carries up to 10 years in prison and also a $250,000 fine.
Hall said Mazyck, who was present at a Friday plea hearing, was released on his own recognizance. Hall said his client has moved back to South Carolina.