Holmes and Watson listen to Mr. Jabez Wilson tell his story of the Red-Headed League.  They both found the story to be fantastic and humorous.  However, Sherlock tells Mr. Wilson that his problem is “refreshingly unusual.”  It appears that the whole situation has been set up by the man’s assistant, known as Vincent Spaulding.   When Sherlock asks for a description of this assistant, Mr. Wilson tells him,

“Small, stout-built, very quick in his ways, no hair on his face, though he’s not short of thirty.  Has a white splash of acid upon his forehead.”  (pg 16)

This last piece of information gets Holmes excited, and he asks if this man also has his ears pierced.  When he receives an affirmative reply, Holmes knows who Vincent Spalding is.  He tells Watson,

“Smart fellow, that, ….. He is, in my judgment, the fourth smartest man in London, and for daring I am not sure that he has not a claim to be third.  I have known something of him before.” (pg 18)

Holmes has dealt with this man before.  The man is identified by Detective Jones of Scotland Yard as Mr. John Clay.

“His brain is as cunning as his fingers, and though we meet signs of him at every turn, we never know where to find the man himself.” (pg 22)

Sherlock admits, “I’ve had one or two little turns also with Mr. John Clay, and I agree with you that he is at the head of his profession. (pg. 22)

However, Holmes had never set eyes on John Clay. When Mr. Clay is captured, Sherlock compliments him on the Red-Headed League and his scheme to get Mr. Wilson out of his pawnbroker’s office.  Mr. Clay returns the compliment concerning his capture.  

“You seem to have done the thing very completely.” (pg 26)

My copy of the story is off the internet, so the pages may not coincide with your copy.  However, they should be close.