FBI Charges Based on Bribes Could Forecast a New Enforcement Priority for Universities

FBI Charges Based on Bribes Could Forecast a New Enforcement Priority for Universities

October 13, 2017

​On September 26, the United States Attorney for the Southern District of New York announced criminal charges against ten individuals relating to a complicated system of bribe payments to the families of basketball recruits who went on to play for NCAA teams. The charges may forecast a new area of enforcement against universities by the government or by whistleblowers. The government alleged that an athletic shoe company provided funds to recruits’ families through a web of “financial advisors” and university basketball coaches. In exchange for the payments, the players allegedly agreed to play for those universities involved and to hire those financial advisors when they turned pro. The government also alleges a separate scheme in which advisors allegedly bribed coaches at certain universities to steer players to hire those advisors when they left school.

The government alleges that this scheme violated federal law because the payments made the players ineligible and the defendants allegedly conspired to conceal the fact of the payments from the universities. The concealment led the universities to give scholarships to athletes who were not eligible for them. In this sense, the allegations paint the universities as victims. But the government also alleges that a number of coaches at different schools were directly involved in procuring and transferring funds to the recruits’ families.

In the three complaints that were unsealed last week (available here, here, and here), the government charged the defendants with conspiracy, wire fraud, money laundering, honest services fraud, violations of the federal bribery act, and violations of the federal travel act (which prohibits crossing state lines to perform an act prohibited by state law). There are indications that these charges are part of a larger investigation that is still developing. For instance, only one athletic shoe company is named, but there are multiple large companies that have similar sponsorships of schools, coaches, and professional athletes.

None of these statutes at play provide for payments to whistleblowers, and there is not yet any indication that a voluntary whistleblower brought the scheme to the attention of the government. But the investigation has used tactics that are often employed in whistleblower cases. The government bases its case in part upon information it gathered through a cooperating witness (referred to as CW-1 in the filings) who agreed to cooperate with the investigation after settling civil charges that the Securities and Exchange Commission had filed against him. The filings indicate that he cooperated as a requirement of the settlement. The government also used wiretaps as part of its investigation.

An additional consideration from a whistleblower perspective is that most universities are participants in federal student aid programs administered under Title IV of the Higher Education Act. Participation in those programs requires universities to apply, renew, and certify compliance with the statutes and regulations required under the Act and accompanying regulations. Universities must also make representations to accrediting agencies as authorized by the Secretary of Education as a precondition to the receipt of federal funds under Title IV. To the extent that university personnel knew that scholarship athletes were ineligible due to a payment scheme, the university may be vulnerable to whistleblower claims based on false certifications of compliance with Title IV requirements. In one example of a Title IV False Claims Act case, relators and the government have pursued claims against for-profit institutions like Education Management Corporation that used recruiting practices that violated the Higher Education Act’s incentive compensation ban, but then certified that they were in compliance with Title IV. If university employees involved in a bribery scheme derived a benefit for directing students to that university, then a similar approach exposes the university to liability. University compliance personnel should take steps to ensure their institutions’ compliance with all applicable requirements.

As the investigation continues to develop, we will follow it here.

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