Second Circuit Upholds Convictions in Recruiting Fraud Case

business handshake at basketball court - recruiting fraud concept

In the January 2021 decision of United States v. Gatto, the Second Circuit Court of Appeals upheld the convictions of three men who were found guilty of fraud for funneling secret payments from Adidas to the families of top college basketball recruits. Two of the men were sentenced to six months in federal prison, while a third was sentenced to nine months in prison.

The defendants appealed, arguing that the prosecution failed to prove they had intended to commit fraud and that they were instead trying to recruit sought-after players to the schools’ basketball programs. In upholding the convictions, the court distinguished defendants’ conduct from that in United States v. Kelly, the infamous Bridgegate case, noting that here, the object of the scheme was to defraud the universities of money.

Defendants Arrange Payments to Families of Top Basketball Recruits

In 2018, defendants James Gatto, Merl Code, and Christian Dawkins were convicted in federal court on charges of wire fraud and conspiracy. They were each sentenced to months in prison for their role in funneling illegal payments through Amateur Athletic Union (AAU) basketball teams in violation of National Collegiate Athletic Association (NCAA) rules.

The men were accused of conspiring to pay the families of top-tier high-school basketball recruits to entice the players to enroll at specific universities whose basketball programs were sponsored by Adidas.

Specifically, the trio conspired to pay $100,000 from Adidas to Brian “Tugs” Bowen’s father to influence him to play for Louisville in the summer of 2017, to pay $90,000 to former Kansas prospect Billy Preston’s mother, and to pay $20,000 to former-Kansas player Silvio De Sousa’s legal guardian. Gatto also approved payment of $40,000 by a North Carolina State assistant coach to secure the commitment of Dennis Smith. Jr.

The payments violated NCAA rules and, if discovered, would mean that the players would not be permitted to play in games and that the universities would be subject to penalties. As a result, the defendants concealed the payments by falsifying Adidas invoices to make it appear as though the payments were going to youth basketball teams affiliated with the AAU, a non-profit organization that facilitates youth basketball tournaments.

Defendants Appeal Claiming They Did Not Intend to Commit Fraud

On appeal, the defendants argued that the prosecution failed to prove that they had intended to defraud the universities. They argued instead that they were trying to help the schools by bringing sought-after recruits to winning basketball programs, and that the under-the-table payments were widespread in college sports and actually endorsed by many college basketball coaches.

Specifically, the defendants argued that they did not know about the alleged fraud because they did not know that false representations were being made to the universities. Further, they claimed that even if such a scheme did exist, the prosecution failed to prove that the athletic-based financial aid was the object of the scheme.

Second Circuit Court of Appeals Rejects Defendants’ Arguments

In rejecting the defendants’ arguments, the Second Circuit Court of Appeals noted that the defendants were all sophisticated actors who were “involved in all aspects of top-tier basketball in America, including the amateur grassroots leagues, college basketball programs, and the NBA.” Two of the defendants worked for Adidas and Nike, two of the top sports apparel companies in the world, while a third worked for a sports agency recruiting NBA prospects.

The court also noted that the defendants went to great lengths to prevent both Adidas and the universities from discovering their activities. They disguised their funneling of tens of thousands of dollars to the recruits' families in an effort to induce the players to enroll at Adidas-sponsored schools.

The way the defendants concealed the payments from Adidas to the families of the recruits, coupled with their sophisticated knowledge of NCAA recruiting rules, was enough for a reasonable jury to infer that the defendants knew their conduct was illegal. The defendants knew that the players needed to deceive the universities about the receipt of the funds in order to remain eligible to play and that if the universities learned of the payments the players would have been declared ineligible and could have lost their scholarships.

Distinguishing Bridgegate: Loss of Property Was “at the Heart” of the Scheme

The defendants tried to rely on Kelly v. United States, the “Bridgegate” case, which overturned the convictions of two New Jersey officials who were charged with engineering a politically motivated scheme to limit access to the George Washington Bridge.

The Second Circuit distinguished the defendants’ conduct from that in Bridgegate, noting that in Kelly the object of the scheme was retaliation, and that the cost of sorting out the mess was an incidental byproduct. But “[h]ere, the loss of property—the universities’ funds set aside for financial aid—was at the heart of the defendants’ scheme…[and that] the scheme depended on the universities awarding ineligible student-athletes athletic-based aid; without the aid, the recruits would have gone elsewhere...And if the recruits’ ineligibility had been discovered by the schools, the scheme would have failed.”

Hope Lefeber: Your Defense Against Federal Criminal Charges

Charges of conspiracy and wire fraud are common in federal white-collar criminal cases. By charging someone with conspiracy, the government can hold one person accountable for the actions of another. Wire fraud is another common charge that federal prosecutors use anytime someone uses the mail deposits a check, makes a phone call, sends anything through UPS or FedEx, or sends an email, fax, or text message.

If you are under investigation or have been charged with conspiracy, wire fraud, or another federal white-collar crime, it is critical that you contact an experienced and tenacious federal criminal defense attorney as quickly as possible.

New York City federal criminal defense lawyer Hope Lefeber has been representing people accused of crimes in federal court for more than 30 years. She is a fierce defender of her clients’ constitutional rights who has earned a reputation as an aggressive litigator whose clients are her first priority. Ms. Lefeber is highly respected by her colleagues in the federal bar, and by federal prosecutors, federal judges, and her clients for her meticulous preparation and extraordinary attention to detail.

If you or someone you care about is facing federal criminal charges, Hope Lefeber should be your first call. She is passionately committed to opposing government overreaching and overcharging by federal prosecutors and vehemently defends her clients with skill, passion, and experience.

Learn more about Hope Lefeber and her federal criminal defense practice, then contact Ms. Lefeber today to schedule a confidential consultation to discuss your case.