On the FBI and the NBA "concluding" Tim Donaghy didn't fix games

Let me first say…I CAN’T BELIEVE WE ARE STILL HAVING THIS DISCUSSION (a full decade on, no less).

Listen to me.  I’m begging you.  Please listen to me: 

The FBI has never “concluded” Tim Donaghy didn’t fix games.  Neither has the NBA.

What prompts my tone and attitude about this are these passages in the recent ESPN the Magazine piece (emphases added):

For 11 years, the official plotline has been that Donaghy was a rogue, gambling-addicted ref who made some bets on his own games -- and nothing more. The NBA conducted its own investigation and concluded that Donaghy, in fact, did not fix games.

and

A few weeks later, four days after the Post story broke, David Stern gave his first news conference. His messaging was clear: Donaghy was a rogue. He'd acted alone. This was an episode of gambling, yes, but almost assuredly not match-fixing. "Indeed," Stern assured the assembled media, "as a matter of his on-court performance, he's in the top tier of accuracy."

Stern's conclusion that Donaghy did not fix games would be validated by the federal investigation. Donaghy, in August 2007, and Martino, in April 2008, would plead guilty to two charges: conspiracy to commit wire fraud and conspiracy to transmit gambling information. Battista would cut a deal, pleading guilty in April 2008 only to the charge of transmission of gambling information. Martino would receive a year and Donaghy and Battista 15 months each in federal prison. But while Donaghy would admit to betting on his own games in his plea agreement, he would not admit to fixing games.

This is only the latest (albeit a rather high profile and widely-disseminated) version of this simplistic ahistorical version of events, which began long ago with lazy reporting before being hyped in self-serving fashion by Donaghy (and the vicious cycle was complete when still more lazy reporting promoted Donaghy’s nonsensical and demonstrably-false claims).

Here, again, for clarity and before my comments, are the relevant statements on the matter (in chronological order of appearance):

Federal government court filings:

“Donaghy compromised his objectivity as a referee because of his personal financial interest in the outcome of NBA games." (Donaghy plea agreement, August 2007)

“There is no evidence that Donaghy ever intentionally made a particular ruling during a game in order to increase the likelihood that his gambling pick would be correct.” (Donaghy sentencing memo, May 2008)

Donaghy has acknowledged that he “compromised his objectivity as

a referee because of his personal financial interest in the outcome of NBA games, and that this personal interest might have subconsciously affected his on-court performance.” (Donaghy sentencing memo, May 2008, emphasis added)

The NBA’s “Pedowitz Report” (October 2008):

Donaghy has denied intentionally making calls designed to manipulate games, and the government has said that it found “no evidence that Donaghy ever intentionally made a particular ruling during a game in order to increase the likelihood that his gambling pick would be correct.” Based on our review, and with the information we have available, we are unable to contradict the government’s conclusion. 

and

We have no reason to doubt the thoroughness of the government’s investigation on which it based its conclusion. We believe that the government would have been naturally skeptical of Donaghy’s assertion that he did not go beyond exploiting “inside” information and did not intentionally make calls to influence the outcome of games. Before concluding that there was no evidence that Donaghy intentionally made incorrect calls, the government investigators doubtless questioned Donaghy carefully about the specific non-public information on which he based his picks, and his conduct while officiating those sixteen games. Because the NBA provided video of games that Donaghy officiated, the government also would have had the opportunity to review these games and to cross-examine Donaghy ― and assess the logic of his explanations and his demeanor. While we do not know what Donaghy told the government, he clearly convinced them that he had not manipulated these games.  (emphases added)

and

It seems plausible to us that Donaghy may not have manipulated games. He likely had concerns about being detected. Because there were two other referees on the floor, it was inherently risky for him to make an intentionally incorrect call or non-call without being questioned or overruled by his crewmates. (emphasis added)

Tim Donaghy, following his stint in federal prison, reflecting on his plea agreement’s tacitly-damning wording:

“To this day, I don’t understand what ‘subconsciously’ meant.” (December 2009)

Retired FBI SSA Scala:

“Watching the tapes, we could see that there was never something outlandish where you could see a foul or he omitted a foul because he wanted to see a certain team win.” (December 2009, emphasis added)

As quoted in Gaming the Game re federal authorities refusing to a plea deal with Donaghy during the summer of 2007 unless he admitted his bets necessarily impacted his officiating (February 2011):

…there was one considerable area of dissension between Donaghy and his federal handlers.  Included in the charging document was a line which read, “Donaghy also compromised his objectivity as a referee because of his personal financial interest in the outcome of NBA games.”  Donaghy had insisted to authorities that he knew so much “inside information” that he didn’t need to throw or manipulate games.  Phil Scala says he and his colleagues told Donaghy that even if this was true, “Once you bet on a game you’re officiating, your judgment is impaired.  When your judgment is impaired, your decision making is damaged.”  Donaghy did not want to concede this line of reasoning, says Scala.  “We went back and forth with that a hundred times.  He didn’t want to make that admission.  He would say, ‘You don’t know how easy it was, blah, blah, blah’.”

Thus, Scala’s comments in the recent ESPN piece are not all that new or remarkable:

…Scala, the FBI agent who pursued the case, has doubts. "Donaghy says he never threw a game," Scala told me. "But you know what? That never really flew with us." According to Scala, his and the FBI's position has always been that Donaghy's deals with Concannon and Battista irrevocably "tainted" his capacity for officiating, even if only subconsciously. (This notion even found its way into the Pedowitz report itself.) Scala recalls that he and Donaghy went around and around on the issue. "I said to him, 'Listen, don't tell me that you have some independent, decision-making ability in your mind's computer that's going to be unbiased, because that's not going to f---ing happen. All those gray-area decisions you have to make, Tim? Because you're betting on the game, your judgment is off -- and you threw the game.'"

As I explained in detail in Gaming the Game and elsewhere, there were several reasons FBI case agents Harris and Conrad – who for starters were: (1) based in New York; and (2) part of an organized crime squad now being tasked with repeatedly traveling to the suburbs of Philly to pursue a white-collar gambling case – soon (with Scala supervising) settled on not more seriously pursuing the matter of whether Donaghy fixed games.  Importantly, please first recall the FBI didn’t have access to the offshore betting records and didn’t research betting line activity.1  Also recall pro gambler Battista didn’t cooperate with the government and fellow co-conspirator Martino perjured himself before the grand jury and was thus a tainted source.  Then recall Donaghy, in addition to adamantly stating he didn’t fix games, claimed to not remember which games he bet nor which sides, etc.  So, just stop and consider all of that for a moment and ask yourself how FBI agents were supposed to assess whether Donaghy fixed games.  What games?  And, without betting info, even if you had specific games in mind, what would you assess without knowing on which side he bet?  Against what evidence would you compare your findings and/or his assertions? 

Please note I haven’t yet mentioned the problems of having FBI agents subjectively watching game tapes looking for dubious calls (also realize agents were looking for incorrect calls, not for technically-correct but relatively unusual ones called strategically – please revisit Scala’s comments above); you don’t have to get to that point to realize there was no way federal authorities could confidently believe much less conclude Donaghy was fixing games.  They knew this, too, and once Donaghy acquiesced to acknowledging his on-court performance may have been at least subconsciously affected by his bets, they were (in my view, properly) satisfied to close up shop on the Tim Donaghy/NBA betting scandal and get back to the real work in NYC of dealing with organized crime.  Donaghy would shrewdly go on to exploit the naivete and ignorance of the media (see, especially, the 60 Minutes disgrace) along with much of the public, using the ambiguous and tortured (however tacitly-damning) wording in the government filings to boldly and repeatedly proclaim some version of “The FBI did a thorough investigation and concluded I didn’t fix games/make calls in a game to advance my bets/fix games”.

As I was penning this post, the NBA issued a formal release in response to the ESPN the Magazine piece.  In it, incredibly (for reasons the public will find very interesting at some point), the NBA explicitly states:

Unfortunately, it is replete with errors, beginning with its statement that the Pedowitz Report “concluded that Donaghy, in fact, did not fix games.”  The Pedowitz Report made no such conclusion.  Rather, the investigation found no basis to disagree with the finding of the FBI and the U.S. Attorney’s Office that “[t]here is no evidence that Donaghy ever intentionally made a particular ruling during a game in order to increase the likelihood that his gambling pick would be correct.”  ESPN ignores this important distinction.2

The official statement resulted in headlines like this one from NBC Sports: “NBA Emphasizes Its Investigation Never Concluded Tim Donaghy Didn’t Fix Games”.

Reaction to the league's statement among many serious NBA betting scandal followers was some combination of shock and confusion. 

Folks like me have been banging this drum for a decade – indeed, I just made this point on VSIN with Gill Alexander days ago.   In this regard, here is a blog post I wrote on May 11, 2010.  You can sense by my sarcasm it was already a major source of frustration with me by then (the embedded links are to other dated posts of mine on the subject):

Another newsworthy appearance for former NBA referee Tim Donaghy.  He appeared on 95.5 The Game (Portland) on 5/10/10, where the hosts of the Morning Sports Page had the audacity to reference analysis and official records in their insightful interview.

Dozens of other sports radio hosts around the country are apparently not aware they are allowed to do a modicum of research and to ask follow-up questions.  Among other things, the MSP hosts properly pointed out that the FBI never "concluded" Donaghy didn't fix games, and that there is no supporting evidence for his claim that he won 70% to 80% of his bets.  Donaghy, himself, says he can't reproduce his betting propositions (sides, lines, outcomes), so how could the FBI "confirm" anything re: Donaghy's betting success rate?  The FBI doesn't even pretend to know how many games he bet much less what the propositions and their results were.

To my knowledge, however, and as always I welcome any information to the contrary, the 2/22/19 statement is the first time (publicly or privately) the NBA has officially taken this position.3  Indeed, from what I have reviewed off and on since 2011 (especially throughout the many hearings and depositions in the various legalization of sports gambling-related matters), the NBA stuck to their guns making far more definitive stances re Donaghy never fixing a game, etc.  At a minimum, the NBA was perfectly comfortable – for a decade – allowing the myths to persist of the FBI and the NBA each independently concluding Tim Donaghy didn’t fix games.

Having gone through the focus of the above, namely whether or not the FBI and/or NBA ever concluded Tim Donaghy didn’t fix games (one last reminder - they didn’t), I wish to end thusly:

Despite the tacitly-damning language in his plea deal and despite the repeated comments of former FBI SSA Scala and other federal officials who worked the case, Tim Donaghy insists he didn’t fix games. 

Well…

• his co-conspirators
• pro gamblers (including several who profited from the scheme)
• electronic betting records
• betting line data

all say otherwise.

spg

1 For those new to my work on the NBA betting scandal, please know perhaps my lone criticism of the FBI’s probe into whether games were fixed or not is that they never considered assessing betting line data.  These data are publicly available and easy to find (as opposed to electronic betting records, which would have required considerable investigation and search warrants).  Ideally, in my view, the agents should have first done an assessment of line movement on Donaghy’s games in the ’06-07 season and compared them to all other games (as is done in the Appendix of Gaming the Game).   The agents would have required only a modicum of sports gambling knowledge to easily see the absurd (and telling) betting patterns on Donaghy’s games.  Once in possession of these objective data, they could have then pressed Donaghy on his key assertions, namely that he (1) relied on inside information to win his bets (as opposed to manipulating game outcomes with his officiating), and that he thus (2) wagered on games officiated by others and was just as successful in those bets as he was in those he officiated.  Unfortunately, the FBI didn’t do this and, without any objective data and without gambler Battista’s cooperation or electronic betting records, had little to no means to vet these crucial Donaghy assertions.  Of note, it is true that when co-conspirator Tommy Martino decided to cooperate with the government he debunked these key Donaghy claims.  Problematically, Martino had perjured himself before the grand jury (which is partly why he flipped) and thus the FBI/USAO relying on his words on any matter of consequence would have been imprudent.

2 In its recent statement on the ESPN the Magazine article, the NBA continues to place great emphasis on its Pedowitz Report, noting the following in support of its findings (emphasis added):

The Tim Donaghy matter concluded over a decade ago with a full investigation by the federal government, Donaghy’s termination from the NBA, and his conviction for criminal acts.  At the same time, at the request of the NBA, former prosecutor Larry Pedowitz conducted an independent investigation of Donaghy’s misconduct and issued publicly a 133-page report.  This report was based on an extensive review of game data and video as well as approximately 200 interviews, thousands of pages of documents, and consultation with various gambling and data experts.

As I noted soon after the Pedowitz Report was released, the report was destined to be superficial for a few vital reasons.  Not included among the interview subjects were each of the scandal’s key figures – Donaghy and his co-conspirators; and the federal government refused to share non-public information with the Pedowitz team.  Interested parties should also see my “Some Suggested Research for the NBA” (an extended version of this appears in Gaming the Game).

3 This is why I viewed it as so noteworthy when, in 2016, former NBA Commissioner David Stern was quoted about the Pedowitz Report saying, “…our own analysis didn’t come to any particular conclusion.”

Speaking of Stern, please recall that while still in his position he was asked (at a press conference during the 2011 NBA All-Star Weekend) about the findings presented in Gaming the Game, resulting in this exchange:

Henry Abbott, then the host of the TrueHoop blog network for ESPN:

I don't know if you've seen this new book about the Donaghy scandal, but having read it myself, three of the four conspirators have said something on the record to somebody, and they are unanimous - the fourth, by the way, is Donaghy himself - and they are unanimous that he was really good at winning bets on games he officiated, really bad at winning bets on any other games, and he was gambling on games since 2003 until he left the league and the report that he looked at 16 games. How confident can we be that there are not fixed games in the NBA?

Stern’s answer (emphases added):

I have not read the new book or seen it yet, although I'm happy with each All-Star Weekend or Finals to present an opportunity for a convicted felon to issue yet another tome on his misdeeds.  So we'll see if there's anything new suggested, Mr. Pedowitz will be asked to continue to review it as we have with each one that has been published, because we want to make sure that we get to the bottom of it all. But right now, I don't have any more information other than I know you always confirm your sources; so I commend you to confirming the convicted felon's sources.

 After reading Stern’s dodge (and insult) of an answer, I posted the following:

As I have taken pains to point out explicitly in Gaming the Game, and others have already been quick to note (see, e.g., here), my new book would have been completed in the Spring of 2008 if the research simply entailed interviewing pro gambler Jimmy Battista (as my wife and kids will attest!).  Thus, I am glad Stern at least noted that he had not seen the book, because anyone who reads GTG will easily understand this project absolutely consumed me for almost 3 years such that little of the book rests solely on Battista's words.

Readers may wish to know that although Larry Pedowitz was gracious enough to humor my inquiries, the NBA and the National Basketball Referees Association (NBRA) each refused to entertain my correspondence on several occasions.  Given the correspondence and how much I was doing in this area of inquiry, it is difficult for me to believe the Commissioner didn't at least have a rough idea of what I had discovered in the course of interviewing federal law enforcement officials, pro gamblers (beyond Battista) and others, in addition to reviewing confidential FBI files, court documents, betting records and other objective betting data.

To my knowledge, as of February 2019 neither the NBA nor the NBRA has ever publicly discussed the book’s findings.

A synopsis of Gaming the Game, along with dozens of review comments, can be found here.

My years of extensive research on the NBA betting scandal, including and especially beyond what is detailed in Gaming the Game, are chronicled and archived here.

Legendary Investigative Reporter and Obit Writer Jim Nicholson Dies at 76

Anyone who has read any of my books on Philadelphia’s Black Mafia knows the name Jim Nicholson.  James D. Nicholson’s crucial roles investigating and exposing the murderous syndicate in the early to mid-1970s are always discussed, and my acknowledgment sections always highlight his invaluable assistance to my work.

When I first began my research into PBM in the early 1990s, I reached out to Nicholson in the hopes he could suggest leads and perhaps that he had old news clippings.  Little did I know the sort of person Jim was, which meant from the very beginning – when he had never heard of me, a young aspiring scholar – he couldn’t have been more helpful re sharing his files along with his street and law enforcement sources.  This quickly developed into a mentorship which soon, despite our age difference, became a friendship which lasted more than 20 years.  There wasn’t a thing I wrote of consequence that “Brother Nicholson” (as he half-jokingly liked to call himself) didn’t see first for his assessment, and there wasn’t a topic – personal of professional – about which I didn’t value his opinion.  He remained interested and interesting straight through the last time I spoke with him, and you couldn’t find someone who was more helpful or more supportive.

I’ve been humbled and fortunate over the years to address high school and college students about career advice and the like.  Each of those audiences heard the name Jim Nicholson, and those students will tell you they also heard me say I hope and try to be as thoughtful and giving as he was.  He set the standard as a mentor, as a colleague, and as a friend.

Rest in peace, Brother Nicholson.  And one last time: Thank you, Jim.

spg 

Cover of Nicholson's history-making feature on Philly's Black Mafia
in the Philadelphia Inquirer's TODAY section pullout, Summer 1973

Cover of Philadelphia Magazine November 1973 featuring Nicholson's latest work on the underworld 

More Nicholson in the Inquirer, late 1973

Sample Nicholson articles on the Black Mafia from his days at the Philadelphia Bulletin

For those new to Nicholson's path-breaking work on the Philly underworld, he was advised to arm himself by law enforcement, resulting in this (in Jim's words) vainglorious picture in the early to mid-1970s. 

Jim Nicholson, champion of the common-man obituary, dies at 76 (Washington Post obituary, 2/23/19)

James D. Nicholson, A Man Who Lived a Fascinating Life, Dead at the Age of 76 (Gloucester City News obituary, 2/23/19)

Jim Nicholson, 76, legendary Daily News obituary writer and military officer (Philadelphia Inquirer obituary, 2/24/19)

For those interested, here are links to Jim’s books:

Because No One Else Can: Inside the Military Intelligence Sausage Factory

Strengthening the Four Pillars: Evaluating Intelligence Architecture

The Dead Beat: Lost Souls, Lucky Stiffs, and the Perverse Pleasures of Obituaries by Marilyn Johnson (which includes a discussion of Jim’s award-winning obit work)

Jim is also featured throughout this documentary, "Philly's Black Mafia: 'Do for Self'"

Black Brothers, Inc. banned by NCDPS

As someone who has signed dozens (hundreds?) of books for inmates and corrections guards and officials over the years, I was fascinated to learn Black Brothers, Inc.: The Violent Rise and Fall of Philadelphia's Black Mafia (Milo 2005/07) appears on the January 23, 2018 list of books banned by the North Carolina Department of Public Safety.

I haven't tracked this at all, and during a recent search also discovered BBI was vetted and approved by the Washington State Department of Corrections despite being depicted, among other things, as advocating "violence against others and/or the overthrow of authority".  I suppose this was simply loose bureaucratic wording because the "Committee decision" of 8/27/17 correctly notes, "Historical account does not advocate violence".

December 2019 UPDATE:

I recently learned the Kansas Department of Corrections has BBI on its list of banned books (no reason is cited on this list).

Black Thought, Thomas Trotter, and Philadelphia's Black Mafia

Barry Michael Cooper has a featured interview with Tariq Trotter (aka Black Thought of The Roots) in The New York Times ("The Roots' Black Thought on Philadelphia Style.  And His Beard," 11/1/17).   The piece includes the following from Trotter/Black Thought:

My dad, Thomas Trotter, was murdered before I was a year old. From what my family members and those who knew him have told me, he was a good man, very kind to my mother and very chivalrous. Opening doors for women, very respectful. But he was also feared. My dad grew up in the Germantown section of Philadelphia and was associated with Mosque No. 12, which was also the birthplace of Black Brothers Inc., a.k.a., the Philadelphia Black Mafia. Years later, I discovered that my dad’s body was found near an alley in Germantown.

Readers of Black Brothers, Inc. The Violent Rise of Philadelphia's Black Mafia (Milo, 2005/07) are familiar with Thomas Trotter, and especially with the murderous syndicate and its ties to the Nation of Islam's infamous Mosque No. 12.

Notes section of Black Brothers, Inc. 2005 edition

Readers of the 2007 version of Black Brothers,Inc.: The Violent Rise and Fall of Philadelphia’s Black Mafia (Milo Books) see this commentary in the notes section (p. 301):

The first edition of Black Brothers, Inc. included 104 pages of endnotes.  This, as I suspected it might, became the source of considerable conversation – good and bad! Plenty of readers were enamored with the legwork behind, and the handiness of, the notes.  However, there were apparently more folks annoyed by their impact on the read, not to mention the added bulk.  As a result, I have included only those notes needed to appropriately credit sources explicitly quoted in the narrative.  This has only been done if the citation is an author or media outlet (i.e., not an interview, a court document, or a law enforcement document).  Other notes have been edited out entirely.  Thus, if readers are interested in the documents or other information left out of this edition’s notes, the 2005 version should be consulted.

I have long debated simply posting the notes section online for all to reference and download at their convenience.  Fearing this may invite considerable and often unreasonable requests for further information, I refrained.  However, for a host of reasons, I think the benefits of posting them now outweigh the potential costs.  Here, then, is the infamous Notes section (all 104 pages of them, in 8-pt single-spaced font, no less!):

BBI2005AuthorsNoteandAcknowledgments

[**The notes align with both versions (2005 and 2007) in that the chapter narratives are the same; of course the new, additional material offered in the 2007 edition has its own vast trove of source materials beyond what is offered here.**]

Assuming readers of this blog post have never read Black Brothers, Inc., here (2005, p. 340) is what I had to say about the challenge of writing a mainstream book which could appeal to a broad readership and yet maintain academic standards (and thus permit historians and sociologists to rely upon it when conducting research):

Much of the literature on organized crime in the United States falls into two all but mutually distinct camps.  One camp consists of very popular, especially readable, books whose credibility is all but impossible to assess because there is no effort made to provide the reader with the sources for the book’s claims.  Many of these books could aptly be labeled “based on a true story”, though they are not identified as such and the reader has no way of determining what is fact and what is fiction.  Often times, these tomes are based exclusively on the words of gangsters and/or law enforcement officials, who are each prone to self-aggrandizing and worse.  In the other camp of literature there resides a wealth of solid, if not sensational, academic books written in a far more technical style – bereft of the non-essentials such as quotes by actors, vivid depictions of historical events, etc.  For the investigative reporter, the historian, and other like-minded researchers, these books are invaluable because the reader can quite easily track down the sources of information used by the author.  Thus, these arbiters of accuracy can replicate the study by assessing the documents for themselves and so on.  Unfortunately, such books can make for dreadful reading, and audiences are therefore commonly left with a losing pair of options when picking an organized crime read: sensational but dubious vs. accurate but lumbering.  This brief discourse is presented to defend the endnoting throughout Black Brothers, Inc. (or Superbad to give this book its UK title).  While every effort has been made to strip the book of academic prose, I want the reader to have confidence in the veracity of this complex historical account.

New film "Gold" and the infamous Bre-X mining scandal

The first time I caught the trailer for the new Matthew McConaughey movie “Gold” it was wildly obvious to me it was based - however loosely - on one of the most compelling crimes or criminal conspiracies about which I have ever written.

I became very familiar with the Bre-X machinations when my friend and mentor Alan A. Block and I were vigorously researching the penny-stock fraud phenomenon which took off (again) in the 1980s and 1990s.  The scams were predominantly based in specific geographic regions within the U.S., and our focus was on Pennsylvania and especially on New Jersey, home to Robert E. Brennan’s First Jersey Securities.  In short, as to how Bre-X, a Canadian mining stock, factored considerably into our work, please consider:

In the United States the historical lineage of penny-stock dealers goes back to the nineteenth century gold and silver mines of the American west, in particular to the Colorado gold rush in the 1880s.1  Prospectors had little capital and turned to selling shares to finance their ventures.  Those unable to lure more substantial investments sold shares for as little as a penny.  Penny-stock mining frauds operated in other countries as well.  For instance, in 1888 a Welsh gold-mining firm swindled investors after a phony ore test in “the presence of certain notable personages.”2

                On the heels of the nineteenth century miners came the oil and gas promoters.  Oil, like precious metals, made people more than a little money crazy and by 1918 towns like Fort Worth, Texas, were home to motley armies of “lease sharks, grafters and grabbers, operators, speculators, and gamblers.”3  In the western mecca of Los Angeles, the Department of Justice figured that stock swindlers hawking oil securities of one kind or another, many for little more than $1, were making about $100,000 a week in 1923.4

                Up until the stock market crash in 1929 and the subsequent Depression, stock swindling in general was an American pastime, and there was nothing fundamentally different about penny-stock frauds than other security swindles.  

Sean Patrick Griffin and Alan A. Block, "PennyWise: Accounting for Fraud in the Penny-Stock Industry," in Henry N. Pontell and David Shichor (eds.) Contemporary Issues in Crime and Criminal Justice: Essays in Honor of Gilbert Geis (Upper Saddle River, NJ: Prentice-Hall, 2000), p. 99.          

Though Alan and I (together and independently) have written explicitly about Bre-X in various publications, none of that is particularly helpful here.  However, as a tidy primer to the unreal case study - which, like many “white-collar” crimes, did not begin as a criminal conspiracy, here is the formal entry written by Hongming Cheng for the complex scandal as it appears in the Encyclopedia of White-Collar and Corporate Crime (London: Sage, 2005, edited by Lawrence M. Salinger, pp. 109-110):

BRE-X MINERALS LTD. was a small Canadian gold exploration company that committed the world's biggest mineral stock fraud in history. Bre-X became the star of investors in the gold industry after it announced a major gold deposit discovery, perhaps the largest ever discovered, in properties it was mining in the Busang area on the island of Borneo in East Kalimantan, Indonesia. It was later dis- covered that little, if any, gold was actually found in these properties. Some people, including insiders, became quite wealthy from the stock-play. The Bre-X fraud has been the subject of at least six books published about the scandal.

The Bre-X tale began in 1993, when David Walsh, a veteran stock promoter, traveled to Indonesia and met John B. Felderhof, a well-known geologist, who convinced Walsh to bet his company on Busang. In August 1993, Bre-X began to explore in the Busang area, and was reporting favorable drill results.   By early 1997, it claimed to have proven the existence of 71 million ounces of gold, worth about $25 billion, and estimated that there was at least 200 million ounces present at Busang. As a result, the Bre-X stock rose so high that it qualified for inclusion in the TSE 300, which caused index funds and all portfolios tracking the index to purchase the stock. To produce such a huge deposit, the Indonesia government required that Bre-X share some of the fortunate excess with the people of Indonesia, and with Barrick, a firm tied to Indonesian leader Suharto's ambitious daughter Siti Rukmana.

NO DEAL

But Barrick could not negotiate a deal acceptable to all parties. With Suharto's close confidant Mohamad "Bob" Hasan stepping in with the deal, the American firm Freeport-McMoRan Copper & Gold was eventually selected as Bre-X's partner in the Busang project. Freeport first undertook its own due-diligence drilling and reported that its analyses of seven core samples "indicate insignificant amounts of gold." That news came one week after the announced death of Bre-X's chief geologist Michael de Guzman, who reportedly fell to his death from a helicopter while traveling to Busang to meet with Freeport's due diligence team to discuss Freeport's assay results. Forensic Investigative Associates conducted an independent investigation into the scam and concluded that the company had "improved" the samples from the time they were collected until they were turned over to a down-river lab for analysis. Forensic Associates believed Walsh (and the other Canadian employees) did not know about the samples. The next day, the $6 billion (Canadian) Bre-X stock lost almost all of its value.

                An independent company, Strathcona Mineral Consultants, was commissioned to conduct an independent study of the situation. After their study, Strathcona concluded that "an economic gold deposit has not been identified in the South East Zone of the Busang property, and is unlikely to be."

                Prior to the disclosure of the truth, Walsh and Felderhof sold large amounts of their personal stock in Bre-X, reaping millions of dollars for their own benefit and at the expense of Bre-X investors, who lost about $3 billion when the scam was revealed in the spring of 1997. This incident caused a massive shattering of investor confidence and tarnished the reputation of the securities industry.

Anyone wishing to research the scandal in earnest needs to start with the work of Diane Francis, author of Bre-X: The Inside Story [Note: I am aware of other efforts but they don’t measure up in my opinion].

Oh, one last (and trivial) thing – that research introduced me to one of my favorite lines, for which there are multiple variations:

“A gold mine is a hole in the ground with a liar at the top.”

Notes:

1. North American Securities Administrators Association, The NASAA Report on Fraud and Abuse in the Penny Stock Industry, submitted to the Subcommittee on Telecommunications and Finance, Committee on Energy and Commerce, U.S. House of Representatives, September 1989, p. 23.

2. Kenneth Gooding, “Lured to ruin by fool’s gold,” Financial Times, April 19/April 20 1997, p. 1.

3. Roger M. Olien and Diana Davids Olien, Easy Money: Oil Promoters and Investors in the Jazz Age (Chapel Hill: The University of North Carolina Press, 1990), p. 74.

4. Jules Tygiel, The Great Los Angeles Swindle: Oil, Stocks, and Scandal During the Roaring Twenties (New York: Oxford University Press, 1994), p. 36.

A couple of comments on David Stern's quotes re: the 2003-07 NBA Betting Scandal

The former NBA Commissioner is featured in an interview by Nathan Rush for Athlon Sports (published 12/20/16).

I am primarily interested in this exchange (emphases mine):

How did former referee Tim Donaghy’s conviction of illegally betting on games that he officiated influence your opinion on gambling in sports

Interestingly enough, I viewed the Donaghy thing as a black swan because the Las Vegas infrastructure didn’t pick it up, and even our post-event analysis didn’t come to any particular conclusion. But it did influence me in the context of coming to better understand what Las Vegas does, and how that might be amplified to help all sports leagues that are concerned about betting.

1. “…the Las Vegas infrastructure didn’t pick it up.”  This is only partly true at best.  For the 2003-04, 04-05, and 05-06 NBA seasons, it is likely the case most if not all Las Vegas sportsbooks were unaware of Donaghy’s on-court behavior which resulted in his off-court betting success on games he officiated.  However, by or during the 2006-07 season all sorts of sportsbooks – in Las Vegas and offshore – were aware of the action on games officiated by Donaghy.  As I detail in Gaming the Game: The Story Behind the NBA Betting Scandal and the Gambler Who Made It Happen (Barricade, 2011), the remarkable betting line movement alone on Donaghy-officiated games raised red flags among many parties including sportsbooks.

2. “…our post-event analysis didn’t come to any particular conclusion.”  This topic could consume hours and fill a small book.  For starters, the public has never been privy to what the NBA studied or learned.  The NBA’s much-publicized “Pedowitz Report” was fatally-flawed from the start (see, e.g., here and here), largely because they were denied access to all sorts of interview subjects and data.  There was also a confidential assessment conducted for the NBA the public has never seen.  Furthermore, many NBA betting scandal investigators have always maintained the league was never going to conduct - much less accept - a study which concluded the NBA knew or should have known about Donaghy’s on-court actions to further his bets.  They argue such a conclusion would have resulted in significant litigation by many injured parties (e.g., owners, teams’ shareholders, general managers, coaches and staffs, players, ticket-holders).

Some may recall David Stern was asked specifically about Gaming the Game while he was commissioner, and that situation is detailed here [Note: what I posted in February 2011 remains true today – the NBA and the NBRA have never spoken with me about my findings].