In September, acting U.S. attorney for the Southern District of New York, Joon H. Kim, left, and FBI assistant director William Sweeney, Jr., announced the results of their ongoing investigation. (Bebeto Matthews/Associated Press)

One morning late last August, Miami men’s basketball Coach Jim Larranaga was about to board a flight to North Carolina for a recruiting trip when he got a phone call from his wife.

Two FBI agents were at the house, Liz Larranaga told her husband. She then handed the phone to one of the agents, who asked Jim to remain at the airport until they reached him.

One month later, at a news conference in New York City, a federal prosecutor and a top FBI official touted the results of an ongoing investigation into the black market surrounding college basketball.

A “high-level” Adidas executive had arranged six-figure payments for the families of high school recruits, prosecutors alleged, at the behest of coaches at Miami and Louisville. Assistant coaches at Auburn, Oklahoma State, Arizona and Southern California had all taken money from a financial adviser and an aspiring NBA agent, according to criminal complaints, and agreed to steer college stars their way.

Ten teams of FBI agents made arrests in 10 states that week, according to court records and people familiar with the investigation, while an 11th group of agents raided the New Jersey office of prominent NBA agent Andy Miller.

“All of those charged today contributed to a pay-to-play culture that has no business in college basketball,” said Bill Sweeney, assistant director in charge of the FBI’s New York field office. “Today’s arrests should serve as a warning to others. . . . We have your playbook.”

Rick Pitino will leave the University of Louisville in the wake of a wide-ranging federal investigation into corruption in college basketball. (Thomas Johnson/The Washington Post)

Five months later, with the NCAA’s premier event and moneymaker — the men’s basketball tournament — about to tip off, the sport remains in turmoil. The FBI probe continues, threatening to tarnish legacies, end careers and send coaches and shoe company officials to prison.

But what that menacing cloud will amount to remains unclear. So far, the three-plus-year federal inquiry has resulted in the arrests of mostly low-level figures in the college sports black market, and the criminal charges they face stem from NCAA rules many economists deem quaint and outmoded, if not exploitative.

While criminal complaints allege coaches at Louisville and Miami later identified as Rick Pitino and Larranaga arranged bribes for recruits, neither has been charged with a crime. Nor has Miller, the NBA agent whose office was raided.

The Adidas executive the investigation ensnared — Jim Gatto, director of global sports marketing — occupies a more modest station in life than prosecutors have suggested, according to Gatto’s lawyers. Gatto, 47, made $139,000 last year and lives in a home outside Portland, Ore., valued at about $500,000, with two children and his wife, who works as a sales associate at an Ann Taylor retail outlet.

“This is like Enron, except if they only charged the secretaries,” said Steve Haney, attorney for defendant Christian Dawkins, a former assistant to Miller.

The charges at the core of these cases are based on an unusual legal theory that casts universities — who stood to benefit from recruits playing for wildly profitable basketball teams — as victims of fraud. What prosecutors call bribes, legal experts note, would be considered signing bonuses and referral fees in other industries. The payments are illicit only because the NCAA prohibits amateur athletes from making money from their talents and bars coaches from facilitating, and profiting from, meetings between agents and athletes.

“If you take away the NCAA rules, there’s no criminal case here,” said Randall Eliason, a former federal prosecutor and law professor at George Washington University. “There are some legitimate questions about whether this was a wise use of resources.”

Pitino, fired by Louisville in October, adamantly maintains he has never arranged payments for recruits. So has Larranaga, who spoke with FBI agents for several hours last August and has turned over reams of emails and phone records, along with those of his assistants, in an effort to clear his name, according to his attorney, Stuart Z. Grossman.

“We’re baffled,” said Grossman, who provided the account of the coach’s experience last August. “They won’t charge him, and they won’t tell us what it is they have or what it is they think they have.”

A spokesman for the U.S. Attorney’s Office of the Southern District of New York declined to comment, as did a spokeswoman for the FBI’s New York office. NCAA President Mark Emmert in statements has deplored allegations described in criminal complaints, and he created a committee, chaired by former secretary of state Condoleezza Rice, to explore changes to rules governing college basketball.

Unless that committee recommends changes to the NCAA’s core tenet of amateurism, however, economists believe the black market will remain.

“The real sin here are the NCAA rules that encourage people to engage in conduct that the FBI has decided is criminal,” said Andy Schwarz, an economist who has consulted for athletes who have sued the NCAA. “This case is the weight and resources of the federal government coming in and bolstering NCAA rules. . . . People should be scandalized by that.”

‘We’re all working together’

Late last July, Adidas’s three-striped logo blanketed Las Vegas, appearing on banners hung from local gym rafters and on jerseys, shoes and gear worn by hundreds of teens in town for the annual summer championships of the company’s grass-roots basketball leagues.

Christian Dawkins was there, too, trying to make connections with high school stars.

A 24-year-old Saginaw, Mich., native, Dawkins grew up around the game. His father, Lou, won two state titles as the high school coach of future Michigan State and Golden State Warriors star Draymond Green before moving to the collegiate ranks. His younger brother, Dorian, was considered one of the more promising 14-year-old players in the state when he collapsed during a game in 2009. Dorian had suffered a heart attack, caused by a rare birth defect. Both Green and Michigan State Coach Tom Izzo, a family friend, visited the hospital where Dorian died.

Christian Dawkins was trying to carve out a living on the game’s business side. He had worked for years as a runner, an entry-level job that involves helping sports agents build relationships with professional prospects in high school and college, when NCAA rules bar basketball players from contact with agents.

Dawkins recently had decided to strike out on his own, and was in Las Vegas trying to land future clients for a sports agency he was starting, with the help of an investor from Pittsburgh. The sports agent industry is difficult to crack, and Dawkins faced challenges establishing credibility. He had no formal education after high school, and he’d just lost his job as a runner for agent Miller after he’d been caught charging thousands of dollars in Uber rides to a client’s credit card.

As Dawkins walked into a suite in a Las Vegas hotel for a business meeting, however, he was unaware of a more serious threat to his aspirations: He was the target of an FBI investigation. His phone had been under wiretapped surveillance for months, and the suite was wired with recording devices and video cameras. The Pittsburgh man posing as an investor — financial adviser Marty Blazer — was actually an informant, helping the FBI to avoid criminal charges of his own, including identity theft and fraud, court records show.

Also in the room, according to an FBI agent’s account in a criminal complaint: an assistant coach for Louisville and the program director of a Florida travel basketball team who had a player the coach wanted.

As FBI agents listened, Dawkins explained his plan: With financial assistance from Adidas, Dawkins would pay the Florida team director, who would get money to the player’s mother. The player would commit to Louisville, helping one of Adidas’s premier college basketball teams win, and if the player went pro as they expected, he would hire Dawkins as an agent.

“We’re all working together to get this kid to Louisville. . . . And, in turn, the kid will come back to us,” Dawkins said, a complaint alleges.

Later in the meeting, according to the FBI agent, Dawkins discussed a similar deal he had brokered months before, involving Brian Bowen, a five-star recruit, also from Saginaw.

A bidding war had broken out between Adidas and a “rival athletic apparel company,” Dawkins told those in the room, and he had implored Pitino to make a call to Gatto, the Adidas executive, to seal the deal. Gatto ultimately agreed to pay $100,000 to get Bowen to Louisville, prosecutors allege.

Merl Code Jr. exits the Federal Courthouse in Manhattan on Oct. 10, 2017. (Stephanie Keith/Getty Images)
Shoe money, sham invoices

Last August, according to an FBI agent who listened to the conversation, an Adidas consultant named Merl Code called Gatto. The men discussed a request from a Miami coach, later identified as Larranaga, that Adidas pay $150,000 to ensure a recruit signed with the Hurricanes.

Gatto expressed concern about the price, the FBI agent wrote, and asked Code if he could get it down to $100,000. Code, who previously worked at Nike, said another school, sponsored by a rival apparel company, was offering $150,000 but he’d try to see if the recruit’s family would take $125,000.

These figures may seem exorbitant for the services of a teenage basketball player, but according to one economist, they’re likely bargains. For his 2016 paper, “Paying NCAA Athletes,” David Berri, a professor at Southern Utah University, analyzed the finances of the 2014-15 Duke team that won the national championship and speculated about how much money the players would have earned if, like in the NBA, they shared about 50 percent of the team’s revenue. That Duke team generated $33.7 million, according to data the school filed with the Department of Education. If Duke had been forced to pay its players half of that, the average player would have made $1.4 million, Berri calculated.

“And that’s just average. The top players in college basketball are worth well over $2 million or $3 million per year,” Berri said. “If you’re paying $100,000 to get one of these players on campus, that’s a good deal.”

However, in this case, the players were receiving money from Adidas, not the schools, according to allegations outlined in complaints. Gatto and Code discussed disguising payments through sham invoices, prosecutors allege, so it remains unclear if others at Adidas were involved.

Shoe company money started flowing into college basketball in the late 1970s, thanks largely to Sonny Vaccaro, then a marketing executive for Nike, who came up with the idea of spreading the company’s brand by sponsoring college coaches, who in exchange would ensure their teams wore the swoosh.

By the time Nike fired Vaccaro in 1991, the company dominated the college marketplace. When Vaccaro landed with Adidas, he had the idea to go younger and endorse coaches for high school teams, to build connections with teenage stars before they got to college.

Over the course of Vaccaro’s career, the rising amounts of shoe company money, joined by television money, turned college basketball into a multibillion-dollar industry, prompting criticism from economists that NCAA rules regarding amateurism diverted money that should rightfully go to the athletes and instead sent it to coaches and school coffers.

In the late 1970s, one of the first coaches Vaccaro signed was Pitino, still in his 20s, then at Boston University. Pitino made about $30,000 in base salary, Vaccaro estimated, and Nike paid him $5,000 to $10,000; combining for about $160,000, when adjusted for inflation to present-day dollars.

In the 2016-17 season, his last, Pitino made a combined $7.76 million, including base pay from Louisville and $2.25 million from Adidas.

In retirement, Vaccaro has become something of an evangelist, advocating to abolish NCAA rules that prohibit paying athletes.

“I would’ve paid the athletes if it was allowed,” Vaccaro said. “They wouldn’t let me, so I paid the coaches.”

The American basketball shoe market is about a $950 million per year industry, according to analyst Matt Powell, and it’s still dominated by Nike.

“When there’s lot of money involved, you’ll have people moving around the edges,” said Powell, a senior adviser for market research firm NPD. “There are lot of crosscurrents in terms of what’s driving the problems you’re seeing in this case. First of all, that the athletes are not paid.”

Former shoe company executive Sonny Vaccaro said, ‘I would’ve paid the athletes if it was allowed. They wouldn’t let me, so I paid the coaches.” (Noah Berger/PBS)
‘University was deceived?’

Just after 6 a.m. Sept. 26, about a dozen armed officers in bulletproof vests assembled outside the Greer, S.C., home that Code, the Adidas consultant who had never before been charged with a crime, shares with his wife and their 6-year-old son.

Adidas executive Gatto, who encountered a similar display of force outside his home in Oregon that day, also had a clean criminal record before this case. So did Dawkins, who was arrested during another sting operation, in New York, by an undercover agent posing as another potential investor in his sports agency.

The three men are scheduled, together, for the first trial to spin out of this investigation, in October. They each face one count of conspiracy to commit wire fraud, which carries a potential prison sentence of up to 20 years.

The prosecution’s theory of the case has raised eyebrows in legal circles. Gatto, Code and Dawkins defrauded Louisville and Miami, prosecutors argue, by conspiring to pay families of top recruits to ensure they attended the schools, despite knowing this would break NCAA rules. Their scheme “created a risk of tangible economic harm,” the indictment states, because if these payments came to light, the NCAA could have penalized Louisville and Miami, potentially depriving the schools of revenue disbursements from the lucrative men’s basketball tournament.

Perhaps the most notable criticism of this theory has come from Eliason, former assistant U.S. attorney in D.C. who specialized in white collar crime and ran his district’s public corruption unit for two years.

The typical fraud case, Eliason explained in a phone interview, includes a few hallmarks: an intent to harm the victim, deception and a benefit at the victim’s expense.

“Those are all absent here. These guys didn’t want to harm the universities; they wanted to help them . . . and according to the prosecutors, they were working with top representatives of these universities’ basketball programs,” Eliason said. “How can you say the university was deceived?”

According to Haney, the lawyer for Dawkins, this theory is particularly dubious with regards to Louisville, which just became the first school in the history of the NCAA to be stripped of a men’s basketball title, over an earlier scandal in which a basketball assistant hired prostitutes to entertain teenage recruits.

“They were documented to be entertaining recruits with strippers and prostitutes, and now this same school has somehow been victimized by my client?” Haney said. “They got what they wanted: a five-star recruit. . . . They’ve made millions of dollars off of five-star recruits, and they’ve cheated to get them.”

The four assistant coaches arrested, accused of taking bribes to steer recruits to Dawkins, a business manager and specialty suitmaker, are scheduled for separate trials in the early 2019. Those cases involve a longer list of criminal counts — including conspiracy to commit bribery and solicitation of bribes — but NCAA rules again are central to the cases. The victims of these bribery schemes, the indictments state, are not the athletes these coaches agreed to influence but the schools, under the same legal theory that the coaches’ actions exposed Auburn, Oklahoma State, Arizona and Southern California to potential NCAA penalties.

“The criminality of all of these cases rest upon these NCAA rules,” Eliason said. “Maybe the NCAA needs to clean house . . . but should it really be the subject of this massive federal criminal investigation, when nobody was harmed?”

In the meantime, officials at schools across the country wonder if the Justice Department’s investigation has reached a standstill or if it will expand beyond the six schools implicated.

Of the 75 schools in the six wealthiest collegiate conferences, six were named in the criminal complaints, and North Carolina State and South Carolina also have been contacted, via grand jury subpoenas. Of the remaining 67, 62 said they had not been contacted as part of the investigation, according to responses by school officials to inquiries this week. Five others — Kansas, Creighton, Wake Forest, Clemson and Northwestern — either declined to comment or did not respond to questions about the investigation.

Late last month, Yahoo reported documents it obtained from the investigation, taken during the FBI raid of the agent Miller’s office, show that Dawkins and another agent filed expense reports for payments and cash advances ranging from about $400 to $43,500 to 17 current and former NCAA players and their families.

“These allegations, if true, point to systematic failures that must be fixed and fixed now if we want college sports in America,” said Emmert, the NCAA president, in a statement. “Simply put, people who engage in this kind of behavior have no place in college sports.”

To economists such as Schwarz, the behavior Emmert is referring to is a consequence of amateurism, which they argue creates a yawning gap between the amount of money college athletes could command in an open market from schools and companies vying for their skills and endorsement rights, and what they currently can earn to play college sports.

As long as that gap remains, Schwarz believes, so will the black market.

“Economic forces are a lot like water and gravity,” Schwarz said. “Water wants to get to the ocean. You can build a dam, but unless you can build the perfect dam, that water’s still going to get to the ocean . . . it’s just going to flood some small town on its way.”

An Adidas spokeswoman declined an interview request about the case. Shortly after the arrests last September, Adidas placed Gatto on leave and terminated its contract with Code, according to a company statement.

Last November, Adidas chief executive Kasper Rorsted addressed the investigation, briefly, in a conference call with investors. Adidas was cooperating with federal authorities, said Rorsted, who reminded investors the American basketball market was just a tiny sliver of the company’s $20-plus billion in annual revenue.

“We do not expect the situation to have any short- or long-term impact on our business,” Rorsted said.

Julie Tate contributed to this report.