United States v. Gatto
Citation not provided in text (2021)
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Rule of Law:
A scheme to deprive universities of property in the form of athletic scholarships by making secret payments to recruits that render them ineligible under NCAA rules, and thereby causing them to submit false eligibility certifications, constitutes wire fraud under 18 U.S.C. § 1343.
Facts:
- James Gatto, an Adidas marketing executive, worked with consultant Merl Code and aspiring agent Christian Dawkins to funnel money to the families of elite high school basketball recruits.
- The purpose of the payments was to induce the recruits—including Dennis Smith Jr., Billy Preston, and Brian Bowen Jr.—to attend universities sponsored by Adidas, specifically N.C. State, the University of Kansas, and the University of Louisville.
- These payments violated National Collegiate Athletic Association (NCAA) rules, which require student-athletes to be amateurs to be eligible to compete and receive athletic-based financial aid.
- To secure Dennis Smith Jr. for N.C. State, an Adidas consultant gave his family $40,000 in Fall 2015, with Gatto facilitating reimbursement through false invoices.
- To secure Billy Preston for Kansas, an Adidas consultant paid his family approximately $50,000 to prevent them from taking money from others, which would also have jeopardized his eligibility.
- To secure Brian Bowen Jr. for Louisville, his family agreed to accept $100,000 from Adidas, receiving a first installment of $25,000 in July 2017.
- All three recruits subsequently signed university and NCAA forms falsely certifying that they were in compliance with NCAA amateurism rules in order to receive their athletic scholarships.
- The defendants actively concealed the payments by falsifying Adidas invoices, funneling money through youth basketball programs, and using unregistered phones for communication.
Procedural Posture:
- James Gatto, Merl Code, and Christian Dawkins (Defendants) were charged in a superseding indictment in the U.S. District Court for the Southern District of New York with wire fraud and conspiracy to commit wire fraud.
- Following a jury trial, the defendants were found guilty on all counts on October 24, 2018.
- The district court sentenced the defendants to terms of imprisonment and ordered restitution.
- The defendants (Appellants) appealed their convictions to the United States Court of Appeals for the Second Circuit, challenging the sufficiency of the evidence, evidentiary rulings, and jury instructions.
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Issue:
Does a scheme to make secret payments to student-athlete recruits, which renders them ineligible for athletic scholarships under NCAA rules and causes them to falsely certify their eligibility to their universities, constitute a scheme to commit wire fraud by depriving the universities of property in the form of financial aid?
Opinions:
Majority - Chin, J.
Yes. A scheme to make secret payments to recruits that renders them ineligible for athletic scholarships and causes them to falsely certify their eligibility constitutes wire fraud because its object is to deprive the universities of their property—financial aid—by denying them the economically valuable information needed to control their assets. The government presented sufficient circumstantial evidence for a jury to find fraudulent intent, given the defendants' sophistication, extensive efforts at concealment, and conversations acknowledging their actions violated NCAA rules. The universities' financial aid was a central object of the scheme, not an incidental byproduct as in Kelly v. United States, because the scheme depended on the universities awarding aid to these ineligible players. The district court did not abuse its discretion in its evidentiary rulings or err in its jury instructions, which correctly stated the law on conscious avoidance, the definition of 'obtain' in the wire fraud statute, the 'right to control' theory of property, and apparent authority.
Dissenting in part - Lynch, J.
Yes, the evidence was sufficient to support the verdict and the jury instructions were proper. However, the district court abused its discretion by erroneously excluding certain wiretapped phone calls between the defendants and university coaches. These calls were highly probative of the defendants' claim that they lacked fraudulent intent because they genuinely believed the universities tacitly approved of their actions to maintain 'plausible deniability.' This error was not harmless as to defendant Gatto's conviction related to the University of Kansas (count 3) or defendant Dawkins's convictions for wire fraud and conspiracy (counts 1 and 2), as the excluded evidence was critical to their defense on the issue of scienter. Therefore, those specific convictions should be reversed and remanded for a new trial.
Analysis:
This case affirms the application of the federal wire fraud statute to corruption in college sports recruiting, solidifying the 'right to control' theory of property. The court's decision establishes that athletic scholarships are a cognizable property interest and that depriving a university of the ability to make an informed decision about awarding that property constitutes fraud. By distinguishing the scholarships as a central 'object' of the scheme rather than an 'incidental byproduct' as in Kelly v. United States (the 'Bridgegate' case), the ruling provides a clear path for federal prosecution of similar pay-for-play schemes. This precedent significantly raises the legal stakes for apparel companies, agents, and others involved in violating NCAA amateurism rules where university property is fraudulently obtained.
