Los Angeles Clippers Under Federal Investigation for Salary Cap Violations

Federal prosecutors have opened a criminal investigation into whether the Los Angeles Clippers illegally worked around the NBA’s salary cap to compensate Kawhi Leonard, according to a report by The New York Times.

The probe, led by the U.S. Attorney's Office in Brooklyn, is in its earliest stages but represents a sharp escalation of a scandal that has already rocked the franchise and the league office. At least one subpoena has been issued, The Times reported.

Officials from the U.S. Attorney's Office, the Clippers and the NBA did not respond to requests for comment from ESPN.

The federal inquiry comes on the heels of a sweeping, nearly yearlong NBA investigation conducted by the law firm Wachtell, Lipton, Rosen & Katz. That probe concluded the Clippers engaged in “a pattern of misconduct and multiple significant rules violations,” labeling the franchise a repeat offender of the league’s salary-cap circumvention rules.

The league’s response was brutal.

The NBA stripped the Clippers of five future first-round draft picks, fined the organization $30 million and suspended owner Steve Ballmer for one year. Leonard was also punished and ordered to pay the NBA $700,000.

Now, the case has moved beyond league discipline and into the realm of federal scrutiny.

The Clippers’ dealings with Leonard had already drawn attention from another government body. On Sept. 2, the same day the NBA announced its findings and sanctions against the team and its star forward, an executive from Daktronics said on a quarterly earnings call that the scoreboard company had been contacted by the Securities and Exchange Commission regarding its business with Leonard. The executive said Daktronics was cooperating and declined to elaborate.

The heart of the controversy lies in a blockbuster scoreboard contract tied to the Intuit Dome, the Clippers’ new arena. According to the Sept. 2 report from Wachtell Lipton, league investigators concluded the Clippers arranged for a kickback from that contract to reach Leonard in the form of an endorsement deal, with team officials allegedly setting the terms of a multiyear agreement worth millions of dollars.

What began as a salary-cap case inside the NBA has now drawn the attention of federal prosecutors and securities regulators. For the Clippers and Leonard, the question is no longer just what the league will do, but what the government might decide comes next.