In another chapter in MLB’s simmering baseball kickback scandal, a Federal grand jury has indicted a former Chicago White Sox executive and two team scouts on charges that they took kickbacks totaling approximately $400,000 from signing bonuses and contract buyouts paid to secure 23 prospective players between December 2004 and February 2008. A seven-count indictment returned at the United States District Court in Chicago alleges that the White Sox baseball team was defrauded of money, as well as the honest services of the Defendants, who allegedly concealed the kickbacks from the team and its more senior officials.
This scandal first became public after White Sox executive David Wilder was discovered returning from the Dominican Republic in March 2008 with $40,000 in cash.
The facts, according to the indictment:
David Wilder was the White Sox farm system director from 2003 to 2006 and Director of Player Personnel until May 2008. He was responsible for overseeing the Sox scouts in Latin America, including Co-Defendants Jorge Oquendo Rivera and Victor Mateo. Rivera served as Latin American Scout and was directly responsible for overseeing Mateo.
The White Sox authorized scouts to conduct preliminary negotiations, and Wilder was authorized to permit a player’s signing if the payment was under $100,000. If it was more, he obtained authorization from the White Sox GM Kenny Williams. After the signings, MLB conducted background checks, a written contract was sent, and checks were drawn from the White Sox’s bank in Chicago. Checks were paid to the player (if Dominican) or to a Mexican team if the signing involved a contract purchase.
The Defendants’ written contracts with the team required them to serve “diligently and faithfully” and to provide services with “diligence and fidelity.” The White Sox relied on Defendants to recommend/approve recommendation of signings that were (i) commensurate with the player’s skill level; (ii) in an amount that was no greater than necessary to induce a player to sign with the team or to induce a Mexican team to release the player; and (iii) not artificially inflated by inclusion of kickback payments.
The Defendants allegedly misrepresented the amount necessary to sign certain players and omitted material information about the payments which caused the White Sox to pay artificially inflated signing bonuses and artificially inflated prices for players’ contract rights. Rivera and Mateo allegedly scouted players that they knew they could secure kickbacks from, and Rivera sought players already affiliated with Mexican teams. Rivera and Mateo directly and indirectly informed Wilder as to whether kickbacks could be obtained.
This indictment could be part of a much more expansive scheme of fraud with regard to MLB scouts in Latin America. Statistics provided by MLB show that signing bonuses of Latino players have gone up drastically in the last decade. The average signing bonus was approximately $29,000 in 2004, but had risen over $100,000 by 2008. ESPN’s Outside the Lines conducted a report in September of 2008 that described a “lawlessness” to baseball in the Dominican Republic. MLB claimed in the report that it was unaware of the problem of skimming.
The “White Sox Three” may be the first to be charged, but there are others, even bigger fish, that could face similar charges.
Jim Bowden, erstwhile GM of the Washington Nationals, stepped down in March 2009 amidst baseball’s investigation of his alleged skimming activity going as far back as his days as Reds GM in 1994. Bowden has denied any involvement. In August of 2008, the Yankees fired Carlos Rios, their director of Latin American scouting, and Ramon Valdivia, their Dominican Republic scouting director, for their alleged involvement in a kickback scheme. This came after the Boston Red Sox fired one of their own Dominican scouts, Pablo Lantigua, as a result of his alleged acceptance of a gift from a talent hunter, or a “buscone” who represented a Sox prospect that the team had signed. As this article details, the problem is not just a matter of MLB supervision, but also the fact that the system of buscones in the Dominican in deeply ingrained and is tied to the country’s crushing poverty.
Worth noting is the fact that the White Sox scandal was the first to break back in May 2008. It will be interesting to see whether this initial indictment is a prelude to further charges in Boston, New York or D.C.
At a time when MLB is still dealing with the lingering effects of the steroid era, this scandal is certainly unwelcome, but far from reaching a crisis level. The MLB-initiated investigation, carried out by the FBI and culminating in this week’s charges, demonstrates the League’s commitment to rooting out this problem. While the situation in the Dominican likely won’t change any time soon, the League and team officials can keep this type of scandal from escalating by more vigilantly monitoring how their scouts interact with players and player representatives.
The scandal has further elicited discussion about subjecting international players to MLB’s June draft for U.S. and Canadian players. Under the current system, the only restriction on a team’s acquisition of international players is that they be signed after their seventeenth birthday. But as Rick Karcher point out in this space a short while back, implementation of a draft would have to be collectively bargained and even then, the effect it could have on the entire player acquisition process is unclear.
Hat tip to law clerks, Luke LeSaffre and Brian Konkel, for their excellent work on this piece.
Update 11/20/10: White Sox scout, Rivera, entered a not guilty plea at his arraignment yesterday. His Co-Defendants, Wilder and Mateo, will be arraigned next month.
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