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This is true if you read the Grand Jury report. A young man's mother confronted Sandusky and reported it to police after her son came home with his hair wet and telling his mother he had showered with Sandusky. She notified police, after questioning Sandusk and it was investigated, but the prosecutor chose not to press charges. He resigned a year later as something just short of a folk hero, but people at PSU had to have known that an investigation into inappropriate behavior had occured.
Child protective services was apparently investigating the 1998 incident.