It doesn't even make sense. In what context would the General Counsel tell the AD not to hire him? Unless he's a known terrorist or a CCP spy, what legal liability is there? Even if he had been charged in relation to that wiretap story, it's not like Lyke is going to jail for associating with Miller.
The only way it makes any sense is that Pitt was unwilling to extend a binding contract to a guy who was likely to be implicated and sanctioned by the NCAA. Surely they could have written a contract with proper exit clauses if they cared enough to hire him. I don't see what "due diligence" a lawyer at Pitt could've done that would've been anything more than wild speculation given it has taken three years for his own school to take action, and the NCAA still has done nothing to him.
This is just another crazy conspiracy theory about how Pitt "isn't serious about winning" even though it is just obvious business sense. It was probably just a lazy excuse from the Athletic Department to shut up some nosy boosters.