This is a rush transcript from "On the Record," December 10, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: All right, who's telling the truth, the NBA or former referee Tim Donaghy? Donaghy just got out of prison after admitting that he bet on NBA games. The betting scandal is huge, but it could be just the tip of a massive iceberg. In his new book, "Personal Foul," Donaghy levels the NBA with stunning allegations that, if true, would turn the sports world upside-down. He went "On the Record."

(BEGIN VIDEOTAPE)

VAN SUSTEREN: Tim, nice to see you.

TIM DONAGHY, FORMER NBA REFEREE: Thanks for having me.

VAN SUSTEREN: And of course, what a better -- there is no better place to do an interview with you then in a basketball court.

DONAGHY: Yes.

VAN SUSTEREN: Brand-new book, "Personal Foul." Believe it or not, I find the book inspirational.

DONAGHY: I appreciate that.

VAN SUSTEREN: You know, it's, like, you took -- you've taken the biggest fall, unbelievable fall. You did some really bad things. But you're trying to climb your way out?

DONAGHY: Certainly am. I have a lot of people that are counting on me to get back on my feet.

VAN SUSTEREN: What happened? I mean, you had a great career. It was exciting. Take me back. Tell me why this happened.

DONAGHY: I think it was a situation where I just certainly enjoyed gambling. And it just existed everywhere I went, and it became a full-blown addiction, with me betting on basically everything I came in contact with.

VAN SUSTEREN: When did that first start? And tell me the circumstances.

DONAGHY: It started around the year 2003 to where I was betting on everything from golf games to card games to casinos, hockey and baseball. It just got to a point, for reasons that are difficult to understand for a lot of people, where I crossed that line and started betting on basketball.

VAN SUSTEREN: Did the NBA permit you to gamble or bet on the other sports? I realize you were not supposed to do it on basketball, but what about the other sports. Any problem with that?

DONAGHY: No, it was in the contract that we were not supposed to bet on anything.

VAN SUSTEREN: So before you even got to betting on basketball you were violating you contract.

DONAGHY: Exactly.

VAN SUSTEREN: You talk about the NBA, and you said that there is a culture of favoritism and manipulation existed in the NBA, a culture that often affected the outcome of games.

That is separate and apart from your betting, which is wrong and illegal, but it almost seems to me that this whole idea in the NBA that the fix is in going into the game was separate from you.

DONAGHY: I don't like the use of the "fix." I can just tell you that things were manipulated. They were predictable for me based on a lot of relationships that I became aware of between referees and coaches or referees and players or even referees and owners which there were a lot of factors. But that was the main factor I used in being able to place winning bets on these NBA games.

VAN SUSTEREN: You are talking about discussions you have beforehand, where refs would say they didn't like a particular player or a particular team, and that sort of factored in to whether you thought that the ref would maybe call something or no call something.

DONAGHY: Right. I think there was a situation where certain referees, in my mind, and obviously if proved successful to change the point spread in an NBA game based on the relationships of four or five points.

And when you talk about adding four or five point on any line in Vegas, that is like sitting at a blackjack table knowing your first card is in Ace every time the dealer starts to deal.

VAN SUSTEREN: That actually shocked me much more in your book than your own conduct, because as a fan or a viewer, I thought this was all done so street. And then I find out the referees are talking trash about players and team owners, and that has an impact on some of the calls. It took away the honesty in the game for me.

DONAGHY: Right. And I think NBA fans are very knowledgeable. And over the last 10 or 15 years, they know that a lot of unusual things have taken place.

VAN SUSTEREN: What is the most egregious, what game to you, or what player, or what team, or what owner has been the victim of the most egregious thing?

DONAGHY: The example that everyone is touching on is Allen Iverson. There is a situation where he threatened the referee and we all felt that he should have been suspended and not only fined $25,000 like he was but suspended. And the league did not suspend him.

A lot of us came together as a group and decided to invoke a little justice of our own and strictly enforce palming or let marginal plays go to the basket that he may normally get in the course of the game.

VAN SUSTEREN: That sounds horrible to me, absolutely horrible.

DONAGHY: I can tell you that it is horrible. And again, it is a poor decision that I made to be part of it.

VAN SUSTEREN: Did Iverson ever turn to you and say I wasn't palming or that was a bad call, or anything?

DONAGHY: No, he did not say anything like that, but towards the end of the game he came up to me in an almost apologetic way knowing what I was going on and asked me how long he would be punished for the Javee situation.

Another player that referees targeted on a continuous basis was Rasheed Wallace.

VAN SUSTEREN: Why?

DONAGHY: He was he was one of those guys who just seemed to constantly would go out of his way to embarrass referees. And when you do that to the referee staff, at times you would come together and basically try to put him in his place or try to get him in a position where he would stop doing what he was doing.

VAN SUSTEREN: So there are NBA players get the harsher treatment deliberately. Are there any players who were particularly well-liked or favored so they got a pass, or maybe they fouled somebody and everybody said let's let him go?

DONAGHY: There are situations, and the referees are trained in the fact that obviously you do not want to be throwing the stars out of the game or you don't want to be giving a star a foul that you could given to somebody else in that area.

VAN SUSTEREN: You deliberately pick who you give the foul to? If there is a collusion of players you pick who you want to give the foul to?

DONAGHY: Sure.

VAN SUSTEREN: So there is someone who might be near the limit on the fouls and who might be a star might not get it, but you might give it to somebody else?

DONAGHY: Absolutely,

VAN SUSTEREN: Deliberately?

DONAGHY: Deliberately.

VAN SUSTEREN: And was that discussed beforehand and afterwards, like we will do this if a situation arises, and then afterwards, good job if you did that?

DONAGHY: It is the way you were trained. You do not want to give Kobe Bryant or a Shaquille O'Neal or a LeBron James a foul that may be his second or third foul in the first quarter to where he is going to go to the bench. It was openly discussed in meetings that people pay big dollars to see the stars on the floor.

So if there is a situation where you can have two people to pick from, you certainly will not pick one of them. You will pick somebody who is the six, seventh, or eighth man on the team.

VAN SUSTEREN: And it is expressly said that that is what you should do.

DONAGHY: Absolute it is.

VAN SUSTEREN: Was that said by other referees or by someone higher up the corporate chain in the NBA?

DONAGHY: It is not only said by other refs, it is discussed by group supervisors and supervisors.

VAN SUSTEREN: Who is the highest person in the NBA organization you have ever heard who is in on this or knows about this?

DONAGHY: It goes all the way up the ladder.

VAN SUSTEREN: To home?

DONAGHY: To Stu Jackson in the league office. It's a situation where the stars are the game. So if there is a situation where you can give a foul to somebody else in that area and not call a marginal play on them, you're directed not to do it.

(END VIDEOTAPE)

VAN SUSTEREN: Up next, the disgraced NBA ref takes you behind the scenes to a chilly December night when his entire life crumbled around him. The inside story on the betting scandal and how he got caught, next.

(COMMERCIAL BREAK)

(NEWS BREAK)

VAN SUSTEREN: Former NBA referee Tim Donaghy recently got out of prison after admitting he bet on NBA games. How did he get taken down? Here is the inside story.

(BEGIN VIDEOTAPE)

VAN SUSTEREN: Now you. I think it was December 2006 when things started to really unravel for you. You flew into Philadelphia. What happened?

DONAGHY: I go into Philadelphia for a game, and a high school friend of mine told me that he wanted to pick me up for dinner. This is something we had done in the past.

And when he came down to pick me up for dinner he had another individual in the car with him who was associated in organized crime.

VAN SUSTEREN: And you know that. It was someone you knew from high school.

DONAGHY: Right. I knew he was a professional gambler. There were rumblings that he was associated with organized crime and he was actually in the car when I went to get into the car to go out to dinner.

VAN SUSTEREN: When you write about it in the book, you describe how when you saw him you knew this was real trouble. You had already been betting on the NBA, but you knew this was a turning point.

DONAGHY: Yes. I'll never forget it. It was a chilly night in December, and as soon as got in the car and the conversation turned to gambling, and I said, I don't know what you're talking about. He said, we have been getting the information. We know what you have been doing. I could feel the sweat coming down my face.

VAN SUSTEREN: Until this point, everything was fine -- married, lovely children, everything was OK. But this was the night when...

DONAGHY: That was the night when everything crumbled. They basically told me that, you know, they did not want to expose me to the NBA. They certainly did not want to send somebody down to Florida to visit my wife and kids.

VAN SUSTEREN: What happened that night?

DONAGHY: He basically sets up a plan of what we're going to do and how we are going to do it. And I will be paid $2,000 for every correct pick and I will transfer the information from the guy that was actually a friend of mine.

VAN SUSTEREN: So what did you think?

DONAGHY: What did I think? I thought, hopefully, that I could continue to get away with it, give them the information, and at the end of the NBA season, hopefully it would be all over and I could somehow retain my job as an NBA basketball referee.

VAN SUSTEREN: So between December and the end of the season, sometime in June...

DONAGHY: December to March, it lasted, March 18 before one of them had to go into rehab, which ended it.

VAN SUSTEREN: One of them meaning what?

DONAGHY: One of the individuals I was giving the information to who was placing the bets.

VAN SUSTEREN: So what happened in March? How did that change things?

DONAGHY: He is in rehab for a couple of months and it was over because he was not able to place the bets.

VAN SUSTEREN: So was that the end of you betting, then.

DONAGHY: That was the end of the betting. The last bet was March 18 of 2007.

VAN SUSTEREN: You are on the golf course. You say there is an emergency. You have to go. You called your lawyer. Did you fess up right away?

DONAGHY: I kind of gave him bits and pieces of it so that I do not want anybody to know what I did in case there is a way of getting out of it. So I gave him bits and pieces and he contacted the U.S. attorney's office. They basically tell him, we know what Tim Donaghy did.

VAN SUSTEREN: When did you tell your wife? And how did you tell her?

DONAGHY: I told her probably about two weeks after the initial phone call. We were actually out at a dinner party. I had lost probably 15 pounds in two weeks. And she knew something was wrong, but she wasn't sure what.

And when we got back from that dinner party it was late that night that I sat her down and told her that I certainly made some terrible choices, and because of that I was in a lot of trouble.

VAN SUSTEREN: So going back to your plea of guilty, you were then sentenced to 15 months in prison.

DONAGHY: Yes.

VAN SUSTEREN: Part of your deal was you cooperated, right, with the prosecution. How much time did actually you serve?

DONAGHY: I served 13 months.

VAN SUSTEREN: Where did you serve it?

DONAGHY: At Pensacola and also a Hillsborough County jail.

VAN SUSTEREN: When you write about it in your book, it is a pretty demeaning experience when you check into prison.

DONAGHY: Awful. Awful.

VAN SUSTEREN: The first is the physical exam, and you write about that. But then after you get through, walk me through to your cell. Tell me what happened.

DONAGHY: Obviously my situation was highly publicized. And they knew I was coming. All the inmates knew I was coming. When I show up, all eyes are on me.

When you talk about cooperating with the government, it was highly publicized that I made that choice. And when you enter the jail system, there are a lot of people who went to jail for a long time because somebody cooperated. So it is a situation where you are not looked well upon.

VAN SUSTEREN: So it's not a very nice experience, is it?

DONAGHY: Terrible.

VAN SUSTEREN: Enough to deter you from doing anything again?

DONAGHY: Absolutely.

VAN SUSTEREN: There are different levels of prisons. What kind was yours? Describe it to me.

DONAGHY: The original prison was a low-level prison. The last month I actually served in a maximum-security prison.

VAN SUSTEREN: In the first prison, how many to a cell?

DONAGHY: Originally, it was 12 to a cell.

VAN SUSTEREN: Did they accept you?

DONAGHY: At first, I think they were very hostile because here I am coming in as a cooperator, as somebody who basically gave information to the government.

VAN SUSTEREN: Usually they try to put the cooperators together. They did not do that?

DONAGHY: No.

VAN SUSTEREN: So everybody knew you were a rat or a snitch for lack of a better word when you first got there.

DONAGHY: Those were the words that were used.

VAN SUSTEREN: "Rat" and "snitch"?

DONAGHY: Yes.

VAN SUSTEREN: I think you write in the book that you were called somebody's bitch as well in the book your first day.

DONAGHY: Yes.

VAN SUSTEREN: What was the first night like?

DONAGHY: Very sleepless. I can't believe I'm going to spend the next 15 months in this place.

VAN SUSTEREN: You might find this odd, but I found your book very inspirational, and I hate to use the word a great read, and I certainly do not mean to enjoy all the unhappiness you have brought upon yourself, but you see someone who has totally hit the skids, and at least it appears you came clean, and now you're trying to put the pieces back together.

And I know it is extraordinarily difficult, but there is something that is refreshing about seeing someone trying to redeem himself and make it work.

DONAGHY: I have four children that are basically counting on me, so I'm going to do what I can to put those pieces back together.

VAN SUSTEREN: Like I said, I think it is a great read. And I think people will enjoy reading this book.

DONAGHY: I appreciate it.

VAN SUSTEREN: Not from the NBA, though. The people in the NBA will not be happy with you. But I wish you the best of luck. And you certainly have made a little bit of a mess of yourself, but I hope you can make this one go right.

DONAGHY: I will, thank you.

(END VIDEOTAPE)

VAN SUSTEREN: We contacted the NBA for a comment and they referred us to this statement, saying they had nothing to add.

It reads in part, "In an interview aired on "60 minutes," Tim Donaghy repeated his allegations against his former colleagues, NBA referees, as well as the NBA.

Those allegations have been fully investigated by the FBI and the U.S. attorney's office and the government and has completed its investigation, finding that the only criminal conduct was that of Mr. Donaghy."

The entire statement from the NBA is now posted on GretaWire.com where you can read it in its entirety. We also have much more with Tim Donaghy that's coming soon.

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