The case began when the investigation of an automobile accident during Mateen Cleaves' 1996 recruiting trip revealed a curious relationship between Martin and the Wolverine basketball program dating back to the 1980s. Several Michigan basketball players were implicated over the next few years and by 1999 some were called before a federal grand jury. Four eventual professional basketball players—Chris Webber, Maurice Taylor, Robert Traylor and Louis Bullock—were discovered to have borrowed a total of $616,000 from Martin. During the investigation, Webber claimed not to have had any financial relationship with Martin, but eventually confessed to taking loans from Martin. He was both fined in the legal system and briefly suspended by National Basketball Association after performing public service.
In 1997, coach Steve Fisher was fired for his involvement in violations relating to the scandal. By the fall of 2002, it was obvious that the four players were in fact guilty of taking money from Martin, and had thus compromised their amateur status. In response, Michigan placed the basketball program on two years' probation. It also withdrew from postseason consideration for the 2002–03 season, vacated all or part of five past seasons and removed the players' names and achievements from its record book. A few months later, the NCAA accepted these punishments, doubled both the probation period and the post-season ineligibility, penalized the school one scholarship for four seasons, and ordered Michigan to disassociate from the four guilty players until 2012. The punishment cost the 2002–2003 team its post-season eligibility, cost past teams the 1997 National Invitation Tournament and the 1998 Big Ten Tournament championships as well as appearances in the 1992 and 1993 NCAA Men's Division I Basketball Tournament Final Fours. It cost Chris Webber his All-American 1993 honors, Traylor his MVP awards in the 1997 NIT and 1998 Big Ten Tournament, as well as Bullock's standing as the school's third all-time leading scorer and all-time leader in 3-point field goals. The additional year of post-season ineligibility was overturned on appeal.
The NCAA uses a statute of limitations of four years. Thus, at any time the NCAA can open or re-open an investigation for an infraction occurring within the last four years. However, NCAA convention is to date violations based on when they learned about the infraction. Thus, events that had occurred far more than four years prior to the investigation came under its purview. The initial accident reports revealed several inconsistencies and violations that induced expanded investigation.
Michigan admitted to the secondary NCAA violation of transporting a recruit more than from campus. Questions were immediately raised about whether Taylor actually owned the expensive sport utility vehicle. The NCAA asked for leasing documentation of Taylor's vehicle and Michigan investigated the registrations of its players' vehicles. The University soon required that all the vehicles driven by its players be part of a special vehicle registration program.
After Frieder left Michigan in 1989, Martin immediately formed an equally close relationship with his successor, Fisher. Martin gave Fisher's family gifts. The March 1997 Big Ten report showed that official University phone records documented that the coaching staff called Martin's home 39 times. Between the 1991–92 and the 1993–94 seasons, records showed that Martin received 97 tickets to Michigan basketball games either for free or under his special arrangement to have tickets made available for purchase. Watson joined the Michigan basketball coaching staff in 1991. The October 1997 investigation revealed that Fisher had provided Martin with passes for sixteen complimentary tickets from 1994 to 1997, and that his secretary and other clerical workers made out ten more such passes. In addition, six passes where signed with the PW initials of departed coach Watson. Watson denied making such passes available and a handwriting analysis matched five of the six to Fisher. Fisher was fired following this investigation became public on October 10, 1997, which was just a week before the start of basketball practices.
In June 1997, the Detroit Free Press revealed sources that claimed both Chris Webber and Taylor had received at least $100,000 from Martin, but that Webber had repaid the money after turning pro. A pattern of Martin befriending young basketball stars eventually became clear. Martin paid $280,000 to Webber from 1988 (when he was a ninth-grader at Detroit Country Day School) to 1993 (his sophomore year at Michigan, after which he turned pro). Martin also befriended Traylor as a freshman in high school. Martin was at Traylor's home when Fisher made a recruiting visit. Between 1994 (his senior year at Murray-Wright High School in Detroit) and 1998 (his junior year at Michigan, after which he turned pro), Martin gave Traylor about $160,000. Martin befriended Taylor when he was in high school. Between 1995 and 1998 (during his time at Michigan), Martin gave Taylor about $105,000. Since Bullock went to high school in Maryland, he did not know Martin before coming to Michigan. Martin gave Bullock about $71,000 during his four years at Michigan which ended in 1999.
Roberson also learned that during the 1992 Final Four, Fisher made two of the limited supply of team rooms available to Martin. Martin gave one hotel room paid for by Michigan to Webber's father—a violation of NCAA rules. For his part, Martin denied any wrongdoing when questioned by an NCAA enforcement representative. However, he later refused to cooperate with the University or the NCAA, forcing Michigan to ban him from any contact with the athletic program in March 1997.
Former Michigan basektball player, Albert White was implicated in early investigations for having accepted US$37,000, but he was not named in later indictments. It was not clear how much of the money White received directly and how much was given to his friends and family to influence his decision to attend Michigan. Although White was one of several players captured on federal wiretaps and interviewed by both the FBI and IRS, he cooperated fully and did not need to hire a lawyer. Although he was not implicated, he transferred from Michigan to play for the Missouri Tigers men's basketball team after clashing with Steve Fisher.
Less than a week after Martin backed out of his plea agreement, several former players were subpoenaed to testify before grand juries. In August 2000, Traylor and Bullock, by this time professional basketball players in the NBA and Italy respectively, were confirmed to have taken payments from Martin. Many of the payments came after the 1997 banning of Martin from contact with the team and the firing of Steve Fisher. The two players cooperated with federal authorities and admitted to receiving money. Traylor, Bullock, Webber, Rose and Taylor all testified before the grand jury. Fisher, the current San Diego State University coach, testified before a federal grand jury investigating Martin. Also testifying were former Michigan assistants Perry Watson, Brian Dutcher and Scott Perry. Martin and Watson had been close friends when Watson was head coach at Detroit Southwestern High School, with Martin often sitting on the bench along with assistant coaches. Perry, who had arranged Cleaves' recruiting trip, had known Martin since 1977 and coached under Fisher from 1993–1997. Many players and observers believed Martin was Watson's uncle, leading to Martin's schoolyard nickname of "Uncle Ed." Martin and Watson had a falling-out in the early 1990s, shortly after Watson joined the Michigan staff. Webber's father also gave sealed testimony before the grand jury.
On March 21, 2002—after almost three years of testimony—the grand jury returned an eight-count indictment charging Martin, his wife Hilda and their friend Clarence Malvo with running an illegal gambling business at the Ford River Rouge plant, money laundering and conspiracy to launder money. According to the indictment, Martin made illicit loans totalling $616,000 to Webber, Taylor, Bullock and Traylor to launder money from an illegal numbers game at Detroit–area auto plants. The loans were made with the understanding that they would be repaid once the players turned pro. Martin was indicted for having paid Webber a total of $280,000 between 1988–1993, which included time from Webber's freshman year at Detroit Country Day School in to his sophomore year at Michigan.
Martin, his wife, Hilda, and Clarence Malvo were under federal indictment for conspiracy to engage in illegal gambling and could have faced up to five years in prison and a $250,000 fine if convicted. Mr. Martin had also been charged with seven additional counts: having an illegal gambling business, conspiracy to launder money, three counts of laundering money and two counts of using money from illegal activities. The charge against Hilda Martin was dropped as part of a plea agreement. On April 8, 2002, Malvo pleaded guilty to grand jury perjury for testifying that he did not work for Martin. On May 28, 2002 Martin pleaded guilty to one count of conspiracy to launder money. He agreed to cooperate with investigations by the government, Michigan and the NCAA. The other seven charges against Martin were dropped in addition to those against Hilda. Furthermore, Martin was barred from associating with the team by a ban, which made any continuing financial relationship with him in violation of NCAA rules and to be considered a new violation.
Martin plead guilty to running an illegal lottery at the Ford Motors plant he worked at to provide proceeds for the players. Martin testified that he paid Webber $280,000 in cash and gifts, but as of January 2003 Webber denied receipt of money from Martin and maintained that he had testified truthfully to a grand jury in 2000 on such matters. Martin stated that there was always an understanding that the money would be repaid after the players became professionals. In the 2000 grand jury investigation, Webber had been asked about whether his off-campus apartment rent had been paid by Martin and whether he had received spending money, jewelry, clothing or a stereo. Webber generally responded by saying either that he could not recall or that he did not think he had received such gifts. However, prosecutors say that Webber, after turning professional, gave Martin ''a significant sum of money, in cash, as a partial repayment.'' In December 2002, Webber's father admitted he had accepted gifts and a small loan from Martin, which contradicted earlier statements. Prosecutors also accused Webber's aunt of lying about a meeting she had with Martin in the updated filing.
Chris Webber, his father, Mayce Webber, and aunt, Charlene Johnson, were also been indicted on charges of having lied to a federal grand jury regarding dealings with Martin. The University had attempted three previous investigations and was not successful at gathering enough evidence to proceed further until the federal government got involved. In January 2003, the federal prosecutors filed more detailed indictments against Webber and his relatives for obstruction of justice and perjury.
Ed Martin died of a suspected pulmonary embolism on February 14, 2003. He was awaiting sentencing at the time of his death. Mr. Malvo, who confessed to taking bets and paying off winning wagers for Mr. Martin, pleaded guilty April 8, 2002 to lying before a federal grand jury. He admitted to telling a grand jury in October 1999 that he bet money but did not work for Mr. Martin. He was sentenced in August 2002 to two years' probation.
Martin's death largely took the air out of the federal perjury case against Webber. In July 2003, on the day before jury selection in the case was due to begin, Webber plead guilty to the reduced charge of criminal contempt in order to avoid a possible jail sentence. He admitted to having received and repaid $38,200. The deal was subject to a discretionary fine and possible classification of the infraction as a felony by the United States District Court Judge Nancy Edmunds who would rule in September 2003. In exchange for the plea all other charges were dropped against him as were all charges against his father. The charges against Webber's aunt had been dropped after Martin's death.
Coleman described what happened as "wrong, plain and simple." She also said, "I am determined that nothing like this will ever happen again at Michigan."
At 8:00 A.M. that same day, the four banners were removed from the rafters. Four days later, the athletic department officially deleted all mention of Webber, Taylor, Traylor and Bullock from the school's athletic records. These included Traylor's MVP awards in the 1997 NIT and 1998 Big Ten Tournament, as well as Bullock's standing as the school's third all-time leading scorer and all-time leader in 3-point field goals. The deletions came because the payments may have compromised their amateur status.
Michigan finished the 2002–2003 seasonseason with a 17–13 record, but sat out both that year's NCAA and NIT tournaments due to the self-imposed postseason ban.
During the 2003-2004 NBA season, Webber was on the disabled list until February. When he returned, the NBA suspended him for three games for his guilty plea. In September 2005, Judge Edmunds ruled that the conviction should be treated as a misdemeanor and that Webber should pay the maximum fine for such an offense which was $100,000. This ruling came after Webber served 330 hours of public service and accumulated $78,000 of related out of pocket expenses.
The Michigan High School Athletic Association (MHSAA), following the release of court testimony, requested Webber's high school, Detroit Country Day (DCD), to forfeit the three state titles won with Webber in the lineup (1989–91). DCD conducted its own investigation, then called a press conference on March 2, 2004, to announce there was no "credible evidence" Webber's amateur status had been violated. When the MHSAA gave them the option of forfeiting games Webber played they decided not to. Traylor's alma mater, Murray-Wright High, forfeited its entire 1994–95 season—Traylor's senior year.