Watson finds Holmes speaking to Jabez Wilson, an elderly red-headed pawnbroker. He asks that Holmes find what has become of the "Red-Headed League", an organization which has, for about two months, employed him in copying out entries from the Encylopaedia Britannica, for a sum of four pounds a week, funded by a bequest from a wealthy red-headed American, "for the propagation and spread of the red-heads as well as for their maintenance". For four pounds a week, Wilson is happy to accept the odd situation. That morning, however, he went to begin work, only to find the door locked and the League apparently vanished as though it had never existed. Inquiring with the landlord, he is directed to a new address, which turns out to be a manufactory of artificial knee-caps. It's clear that some scam has been perpetrated.
It turns out that Wilson's place of business is adjacent to a bank, and the encyclopedia-copying job was just to get him out of the way so that his assistant could dig a tunnel into the bank's vault to steal thirty thousand pounds worth of gold.