Avenatti arrested as U.S. alleges Nike extortion, embezzlement
California lawyer Michael Avenatti was arrested and charged by federal prosecutors on both coasts, accused in New York of trying to extort millions of dollars from Nike Inc. and in Los Angeles of embezzling money from a client and defrauding a bank.
The charges depict a lawyer desperate for cash and willing to exploit his own clients. In California, prosecutors say he stole a client's $1.6 million settlement and used it to cover expenses. In New York, he's accused of telling Nike he'd cancel a press conference critical of the company if it paid an unidentified client $1.5 million and gave him and another attorney as much as $25 million to conduct an internal investigation.
Nike didn't meet his demands -- and instead went to prosecutors.
"I'll go take ten billion dollars off your client's market cap. But I'm not f---ing around," Avenatti told attorneys for Nike in a March 20 phone call, according to a complaint unsealed Monday.
Before news of his charges, Avenatti, 48, posted a tweet Monday saying he would be holding a press conference tomorrow to disclose a "major high school/college basketball scandal" perpetrated by Nike that he claimed to have uncovered. "This criminal conduct reaches the highest levels of Nike and involves some of the biggest names in college basketball," Avenatti said in the tweet.
Nike pared a decline that followed Avenatti's announcement of a planned press conference, and the stock was trading down 0.9 percent at 2 p.m. in New York.
Avenatti gained public notoriety by representing the porn actress Stormy Daniels in a lawsuit against President Donald Trump, with whom she claimed to have had an affair. He capitalized on his raised profile by styling himself as a Trump critic and even floated a possible presidential run.
Minutes after the arrest, Donald Trump Jr. celebrated the announcement in a tweet that said: "Good news for my friend @MichaelAvenatti, if you plead fast enough, you might just get to share a cell with Michael Cohen!"
Nike didn't immediately return a call seeking comment. Avenatti faces a maximum 50 years in prison in the California case, although would likely get much less if convicted.
"Avenatti was not acting as an attorney,'' U.S. Attorney Geoffrey Berman said at a news conference in New York. "At its core, this was an old-fashioned shakedown.''
In the New York case, Avenatti is alleged to have told Nike beginning on March 19 that he and a co-conspirator had evidence from a client that Nike employees had made illegal payments to the families of top high school basketball players and sought to hide that. According to prosecutors, he claimed he was working with an amateur basketball coach whose team had once had a contract with company.
Avenatti allegedly told Nike's lawyers he would hold a press conference the next day to announce the alleged misconduct, saying he had approached Nike because he knew the annual NCAA basketball tournament was about to begin and that the company had a quarterly earnings call set for March 21, according to the complaint. Then he added that he would hold off on the press conference if payments were made, prosecutors said.
Avenatti was scheduled to meet with Nike's lawyers on Monday, prosecutors said. Those same lawyers, prosecutors said, recorded two of their conversations with him.
In the California case, Avenatti allegedly defrauded a bank in Mississippi, submitting false tax returns to get three loans for over $4 million in 2014 for his law firm and a company he owns, Global Baristas US LLC. He also misappropriated a $1.6 million settlement agreement he'd arranged for a client and spent the money on expenses for the coffee company, which operates as Tully's Coffee in California and Washington State, they said.
Avenatti is accused of wire fraud and bank fraud. He was arrested Monday in New York, where he will appear in court, prosecutors said.
Federal prosecutors in New York have spent the last two years probing illegal bribery and kickbacks involving college coaches, amateur coaches and officials from Adidas AG. Former Adidas executive James Gatto, agent Christian Dawkins and consultant Merl Code were convicted in October of funneling illicit payments to relatives of prospects and concealing them.
Avenatti's former law firm filed for bankruptcy on March 7 on the eve of legal proceedings against him in a financial dispute with a former law partner, Jason Frank. The Trial Group LLP, formerly known as Eagan Avenatti LLP, sought protection under Chapter 11 and listed debts of between $10 million and $50 million and assets in the same range. Frank accused him of trying to get out of appearing in court the next morning, and that Avenatti didn't have authority to file the bankruptcy petition.
This isn't the first time Avenatti's foray into the coffee industry led to allegations of wrongdoing. His former business partner in the coffee-chain deal, the actor Patrick Dempsey, sued Avenatti in 2013 for allegedly keeping him in the dark about an "exorbitant" $2 million loan he took out that was backed by all of the company's assets and future revenue.
Meanwhile, Daniels, whose real name is Stephanie Clifford, tweeted on March 12 that she had hired another lawyer "to review all legal matters involving me." Daniels and Avenatti had previously exchanged tense tweets regarding how he'd used money that he raised online on her behalf as part of her legal defense.
"I am saddened but not shocked by news reports that he has been criminally charged today," Daniels said in a tweet.