On Tuesday, September 26, the U.S. Attorney’s Office for the Southern District of New York announced with great fanfare that the office had filed charges against ten individuals in a fraud and corruption case involving college basketball. Acting U.S. Attorney Joon H. Kim outlined the charges against four NCAA Division I coaches, a senior executive at Adidas, and five others. A chart in the press release noted that each defendant faces a maximum of between 80 and 200 years in prison.

The charges are the result of a two-year investigation that involved wiretaps, a confidential cooperating witness, and FBI undercover agents. The three criminal complaints outline two different corruption schemes. Although the complaints name several universities as the victims of these schemes, there is no allegation that any university actually lost any money or property. There are no claims that any of the student athletes or their families were financially harmed. The public was not harmed in any way.

But the defendants did violate NCAA rules. Those rules require that student athletes be amateurs and prohibit them from receiving any outside compensation. The rules also prohibit coaches from facilitating any contacts between athletes and outside agents and from receiving any outside compensation for acts related to their athletes. These rules violations (which were, of course, created by the undercover investigation itself) exposed the universities to potential financial penalties and sanctions from the NCAA. That exposure is what’s at the heart of the prosecution. The government’s case effectively takes the rules of the NCAA, a private non-profit corporation, and leverages violations of those rules into federal felony charges.

There’s no doubt the behavior of the defendants was deplorable. But are criminal sanctions exposing them to decades in prison the proper remedy? I’m not saying the charges are legally flawed – not all of them, anyway. But I do question whether this case represents a good use of two years of the time and resources of the agents and prosecutors involved. And I question whether bringing multiple felony charges on these facts is a sound exercise of prosecutorial discretion.

At the U.S. Attorney’s press conference, the very first question was from a reporter who asked (I’m paraphrasing), “It seems like everyone involved was actually benefitting financially. Who’s the victim here?” (19:40)

It’s a good question.

The Complaints

The Coach Bribery Scheme

The coach bribery scheme is charged in two separate criminal complaints. The first complaint charges three coaches: Lamont Evans, an assistant coach at Oklahoma State and former assistant coach at South Carolina; Emanuel Richardson, an assistant coach at Arizona; and Anthony Bland, an associate head coach at University of Southern California. It also charges Christian Dawkins, an employee of a sports management company that represents NBA basketball players, and Munish Sood, a financial advisor.

The complaint alleges that the three coaches accepted cash bribes from Dawkins and Sood. The total amount of the bribes ranged from about $13,000 to about $22,000. In return, the coaches agreed to introduce student athletes to Dawkins and Sood and to encourage the athletes to hire Dawkins and Sood once the athletes left college and began playing in the NBA. The deals were brokered by another former financial advisor, Marty Blazer. Blazer, who was facing securities fraud charges of his own, was cooperating with the FBI and recording many of the meetings and phone calls. The complaint also charges that the defendants made improper payments to student athletes and concealed those payments from their universities.

The second complaint related to the coach bribery scheme charges only one coach: Chuck Person, an associate head coach at Auburn. It also charges Rashan Michel, the owner of a clothing store in Atlanta that specializes in making custom suits for athletes. The basic nature of the scheme is the same: Person allegedly accepted more than $90,000 in bribes from Blazer (the cooperating witness) and Michel. In exchange, Person agreed to introduce student athletes to Blazer and Michel and to encourage the athletes to retain them once they left college. Once again, the complaint also charges that the defendants made improper, undisclosed payments to current student athletes.

The charges in the coach bribery scheme include multiple counts of honest services fraud, bribery, honest services fraud conspiracy, bribery conspiracy, wire fraud conspiracy, and travel act conspiracy.

The High School Players Scheme

The scheme set forth in a third complaint involves a conspiracy to pay high school basketball players and their families. The defendants are James Gatto, the global marketing director for basketball at Adidas; Merl Code, an individual identified as affiliated with Adidas and its high school basketball programs; and Jonathan Augustine, program director for an amateur high school basketball program sponsored by Adidas. Also charged in this complaint are Christian Dawkins and Munish Sood, the same sports manager and financial adviser charged in the first complaint of the coach bribery scheme.

The complaint alleges that these defendants conspired to make secret payments to three different high school athletes and their families. In exchange, the families agreed the student would attend particular universities sponsored by Adidas, and that the student would sign deals with Adidas and use the services of Dawkins and Sood after joining the NBA.

The defendants allegedly agreed to pay $100,000 to the family of a top high school graduate from the class of 2017, although apparently only the first installment of $25,000 was actually paid. In return, the student allegedly agreed to attend University of Louisville. They also allegedly conspired to funnel $150,000 to the family of another high school student graduating in 2018, this time to induce that student to attend what appears to be University of Miami. Unnamed coaches at the two universities also were allegedly involved in the schemes.

The charges in the high school players scheme include wire fraud, conspiracy to commit wire fraud, and money laundering.

Analyzing the Criminal Charges

Bribery and Bribery Conspiracy

The coach bribery scheme complaints charge bribery and bribery conspiracy using three different theories: 18 U.S.C. § 666, federal program bribery (applies because the universities receive more than $10,000 a year in federal funds); 18 U.S.C. § 1343 and 1346, honest services wire fraud (applies to an employee who takes bribes or kickbacks in breach of a duty owed the employer); and 18 U.S.C. § 1952, the travel act (applies to interstate travel to further violations of state bribery law).

Under each statute the bribery theory is basically the same: the outside advisors (or undercover agents posing as outside advisors) paid the coaches to induce them to violate their duties to their university employers by violating NCAA rules, thereby exposing the universities to potential sanctions.

The bribery charges highlight the centrality of the NCAA rules to these complaints. There is no direct harm to the universities, financial or otherwise. This isn’t a case where an employee took bribes to disclose trade secrets to a competitor or to award a contract to an unqualified contractor, or took some other step that directly harmed the employer. There is only potential harm, and only because of possible sanctions by the NCAA for violating its rules.

Wire Fraud and Wire Fraud Conspiracy

The wire fraud and wire fraud conspiracy allegations (18 U.S.C. § 1343) charge that the defendants defrauded the universities by causing them to pay scholarship money to athletes who were actually ineligible due to the secret payments that were made to them. The high school players scheme also charges that the universities were defrauded of their right to control their limited scholarship assets and how they would be disbursed. Again, any potential harm results only from the possible violations of NCAA rules and penalties that might result. Paying the scholarships didn’t harm the universities, because they received the services of the players they wanted in return. The only potential harm would come if the improper payments were later discovered and the schools were sanctioned.

Money Laundering

Money laundering charges (18 U.S.C. § 1956) appear only in the high school players scheme. The complaint alleges that Gatto and the other defendants tried to conceal the payments going from Adidas to the families by running them through other entities and bank accounts controlled by the defendants and by creating fictitious invoices to cover their tracks.

I think the money laundering charges may be flawed. Money laundering requires that the charged financial transaction involve the “proceeds” of a crime – money generated by a completed unlawful activity. If the parents had received the money and then done something with it to disguise where it came from, that might be a laundering transaction involving the proceeds of the bribery scheme. But here the charged transactions appear to involve the money used to pay the bribes themselves. That money is not yet proceeds of the bribe for money laundering purposes. It only becomes proceeds once the bribes have been paid and the money is in the hands of the families.

There are plenty of cases throwing out convictions where prosecutors charged money laundering when in fact the financial transactions did not involve proceeds of a completed crime but represented the underlying criminal activity itself. This requires a more detailed discussion that I will probably return to in a future post. But unless there are more facts out there that don’t appear on the face of the complaint, I believe it’s likely the money laundering charges will not survive.

Criminalizing the NCAA Rules

Review of the charges makes it clear that the entire criminal case hinges on violations of the NCAA rules. The only harm to the alleged victims – the universities – stems from any sanctions that might potentially result from the violation of those rules. Take away the NCAA rules, and there is no criminal case.

As the complaints note, the NCAA rules provide that schools violating the rules may suffer penalties including limitations on post-season play, fines, and limitations on the ability to grant scholarships or recruit athletes. But the rules do not suggest that those who violate them may be subject to federal criminal prosecution.

The defendants could be forgiven for thinking that if they got caught violating the rules, the worst that would happen is they would be fired. Maybe the university would come after them to try to recoup any financial penalties. Their careers would certainly be over. But they likely didn’t believe that violating the internal rules of a private athletic organization would potentially subject them to decades in federal prison.

Prosecution seems even more questionable when you consider that virtually all of the conduct here likely would be legal if it related to professional athletes. The payments would be called finder’s fees or product endorsement deals. The purported criminality stems only from the NCAA’s insistence on maintaining the fiction that these athletes are amateurs and that high-level college basketball is actually about college, rather than about big business and providing farm teams for the NBA.

There’s a lot of behavior that can be squeezed into white collar violations but where criminal sanctions aren’t required. That’s where the exercise of prosecutorial discretion comes in. This case is really about the violation of NCAA rules. NCAA sanctions against the offending schools and individuals would be the more appropriate remedy.

The players weren’t harmed. Their families weren’t harmed. The teams weren’t harmed. The public wasn’t harmed. The coaches were still coaching, and the games were not affected. The universities were only potentially harmed — and only because of the rules of a private organization they voluntarily joined in support of athletics programs that earn them millions of dollars.

And this is where the Department of Justice chooses to devote its resources? Look, I love DOJ, but I can hear the critics now: “You can crash the entire financial system and no one gets prosecuted. But don’t you dare mess with college basketball!”

This year it appears the madness didn’t wait until March.

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