Amateur basketball league director Merl Code, left, former Adidas executive James Gatto, center, and business manager Christian Dawkins, right. Photo: AP/File

The U.S. Court of Appeals for the Second Circuit has upheld the convictions of three men found guilty in a pay-for-play scandal to funnel secret payments from Adidas to the families of top college-basketball recruits.

In a 58-page opinion on Jan. 15 that differentiated the case from New Jersey's infamous "Bridgegate" scandal, the panel ruled that Manhattan federal prosecutors had proved beyond a reasonable doubt that the defendants, James Gatto, Merl Code and Christian Dawkins, had "knowingly and intentionally" defrauded three Adidas-sponsored universities of property by hiding tens of thousands of dollars in payments to the players and their families.

The decision also rejected challenges to evidentiary rulings and instructions that a Manhattan federal judge put to the jury at trial.

A federal jury in 2018 convicted the men on wire fraud and conspiracy charges and sentenced them each to multiple months for their role in the scandal, which funneled the illicit payments through AAU basketball teams in violation of National Collegiate Athletic Association rules. Prosecutors had argued that the scheme had withheld information from the universities and stripped the schools of financial aid funds that could have gone to other students.

U.S. District Judge Lewis A. Kaplan of the Southern District of New York sentenced Gatto, the head of global sports marketing for Adidas, to nine months in federal prison. Code, a former Adidas consultant who worked for competitor Nike Inc. at the time, and Dawkins, an aspiring sports agent, each received six months in prison.

On appeal, attorneys for the three defendants argued that the government failed to prove that they had intended to defraud the three universities—North Carolina State, Kansas and Louisville.

Instead, they said, their clients meant to help the schools by bringing them highly sought-after recruits to bolster their winning basketball programs. They also argued that under-the-table payments like the ones they helped facilitate were widespread in college sports, and many college coaches actually endorsed the practice.

The panel on Jan. 15 acknowledged that men's basketball was a major source of revenue at some major universities, "but we need not be drawn into the debate over the extent to which college sports is a business."

"Instead, our task is to determine whether the government proved beyond a reasonable doubt that defendants knowingly and intentionally engaged in a scheme, through the use of wires, to defraud the universities of property, i.e., financial aid that they could have given to other students," Second Circuit Judge Denny Chin wrote in a majority opinion. "We conclude that the government did."

Chin noted that the case diverged in significant ways from the U.S. Supreme Court's unanimous ruling last year in the case Kelly v. United States, which overturned federal fraud convictions for two New Jersey officials who engineered a massive traffic gridlock on the George Washington Bridge in an act of political retribution aimed at a local mayor.

In the so-called "Bridgegate" case, Chin said, retaliation—not property—was the object of the alleged fraudulent scheme, and the governmental costs of sorting out the mess were merely an "incidental byproduct of the scheme."

"This case is different from Kelly," Chin wrote. "Here, the loss of property—the universities' funds set aside for financial aid—was at the heart of defendants' scheme."

For instance, the defendants had concealed the payments in order to get the schools to give the recruits financial aid, the opinion explained.

"Importantly, the scheme depended on the universities awarding ineligible student-athletes athletic-based aid; without the aid, the recruits would have gone elsewhere," Chin wrote. "And if the recruits' ineligibility had been discovered by the schools, the scheme would have failed."

The ruling came over the partial objection of Judge Gerard E. Lynch, who took issue with Kaplan's decision to present certain evidence to the jury. Lynch did, however, agree that the evidence was "sufficient to support the jury's verdict and that the jury was properly instructed as to the governing law."

U.S. District Judge Paul A. Engelmayer of the Southern District of New York, who sat by designation, joined Chin's majority ruling.

Attorneys for the defendants did not immediately respond to requests for comment.

A spokesman for the Manhattan U.S. Attorney's Office declined to comment.