Federal prosecutors in New York are investigating USA Swimming, including allegations that the organization stifled athlete sexual abuse claims, concealed its assets and improperly reaped hundreds of thousands of dollars in rebates from its in-house insurance company, people familiar with the matter said.

Over the past year, a federal grand jury in Manhattan has heard evidence in the investigation, which is being led by the Manhattan U.S. Attorney’s Office and the Federal Bureau of Investigation.

Agents and prosecutors are particularly interested in what some people described as “the money trail” between USA Swimming — which oversees amateur swimming across the country, from thousands of youth pool clubs to the selection of the U.S. Olympic team — and the organization’s insurance company and its affiliated foundation.

A spokeswoman for USA Swimming said the organization “supports any government investigation that goes toward protecting athletes.” She added that the organization was confident in the integrity of its finances and tax filings, including for the foundation and the insurance company, which is now defunct.

A person familiar with the investigation said USA Swimming hadn’t been contacted by federal authorities in New York.

The investigation is one of several to arise from sexual abuse scandals that have erupted across the U.S. Olympic system in the past three years.

The U.S. Justice Department and the IRS are pursuing a multipronged investigation into alleged sexual abuse, business misconduct and possible tax violations in Olympic sports organizations, The Wall Street Journal reported in September, citing people familiar with the matter.

USA Swimming is also under scrutiny in that investigation, which involves prosecutors from the Justice Department’s money-laundering and child-exploitation units, as well as the U.S. attorney’s office in Washington, D.C., said people familiar with both investigations.

Prosecutors have asked whether swimmers and other athletes felt pressured to perform sex acts on coaches in exchange for favorable spots in competition.

USA Swimming is an Olympics juggernaut, hauling in dozens of medals and attracting millions in sponsorships. The Manhattan investigation is focused on two separate alleged business practices within the Colorado-based nonprofit organization, which recorded net assets of $36.3 million at the end of 2017, the latest period for which tax filings are available.

Witnesses have described to federal investigators an extrajudicial system within USA Swimming that for years stifled the reporting of abuse allegations, while protecting the organization’s bottom line and reputation, people familiar with the investigation said.

Here’s how the system worked, according to civil court filings, disciplinary records and people familiar with the investigation: Accusers were required to submit formal complaints — including the victim’s name — to the organization, after which a USA Swimming executive would determine whether there was sufficient evidence to consider official disciplinary action. The organization would hire an outside investigator to conduct interviews, according to the people and records.

The matter might be referred to USA Swimming’s National Board of Review, a body appointed by USA Swimming executives that determined disciplinary actions against coaches. Before the board held a hearing, these people said, a lawyer would reach out to the accuser to discuss the allegations. The lawyer was held out as being impartial, but the lawyer in fact represented USA Swimming and during the hearing might use knowledge of the accuser’s case against the person.

“The system is designed to stop you from wanting to report,” a person briefed on the investigation said.

The system is no longer in place: In response to the sexual abuse scandals that emerged in 2016 and 2017, federal law now requires all allegations of child abuse to be immediately reported to law enforcement and, in the case of Olympic organizations, to the U.S. Center for SafeSport.

For USA Swimming, fewer reported assaults also meant fewer financial settlements and insurance claims. And here, people familiar with the investigation say, is where the handling of sexual abuse allegations connects with possible financial wrongdoing.

In 1988, USA Swimming set up a single-parent captive insurance company in Barbados. The company, the United States Sports Insurance, was fully owned by USA Swimming, and provided reinsurance for carriers that sold policies on behalf of USA Swimming to local swim clubs throughout the U.S. Its board was composed almost entirely of current and former USA Swimming executives, court filings show.

Federal prosecutors are scrutinizing the relationship with the insurance company as a potential avenue for self-dealing by USA Swimming, as well as for possible misstatements in tax filings, people familiar with the matter said.

As USA Swimming sought to minimize its legal and financial liabilities, accusers and their lawyers have alleged, the organization’s insurance company took pains to avoid paying claims. In the event of litigation, lawyers for accusers say, USA Swimming’s legal bills likely would exhaust the insurance policies.

Any money not spent by the insurance company was returned to USA Swimming in the form of “safety rebates,” dividends that amounted to as much as $750,000, twice a year, according to sworn declarations in federal lawsuits.

It isn’t unusual for single-parent captive insurers to pay dividends to parent organizations. Tax filings show that USA Swimming also made capital contributions to the insurer over the years. The USA Swimming spokeswoman said the rebates were used to support athlete programming.

In 2014, the insurer was reincorporated as a limited liability company in Washington, D.C., and stopped providing coverage as it ran down its millions of dollars in assets, according to tax filings. USA Swimming says it now buys insurance on the open market.

The USA Swimming Foundation, formed in 2004 as the sports organization’s philanthropic arm, is also of interest to investigators, people familiar with the matter said. The foundation helps support the National Swim Team and funds a national drowning-prevention program.

Prosecutors are interested in whether USA Swimming improperly moved cash to the foundation to conceal its assets, potentially to shield itself from litigation, people familiar with the investigation said.

The USA Swimming spokeswoman said the foundation’s endowments “are professionally managed and invested with distributions that support the organization’s mission” through the U.S. National Team and its drowning awareness program.

Tim Hinchey

J. Scott Applewhite/