By Rebecca Davis O'Brien
Michael Avenatti's arrest last March on charges that he had
tried to extort more than $20 million from Nike Inc. marked a turn
of fortune for the celebrity lawyer, who made his name representing
adult-film actress Stormy Daniels in her battles with President
Trump.
On Wednesday, the Nike case went to trial in federal court, the
first of three sets of criminal charges that illustrate the depth
of his legal woes.
Once a fixture on cable news, Mr. Avenatti is behind bars in a
Manhattan jail. Prosecutors say he is millions of dollars in debt,
some of which he disputes, and he faces federal indictments related
to alleged misconduct in his businesses, his divorces, his personal
income taxes and his legal practice -- including allegations that
he embezzled money from Ms. Daniels. Two weeks ago, federal
authorities in California arrested Mr. Avenatti for alleged
violations of his pretrial release.
Mr. Avenatti has denied wrongdoing and pleaded not guilty to all
charges against him.
In opening arguments in the Nike trial, prosecutors alleged Mr.
Avenatti demanded tens of millions of dollars in payments for
himself from Nike by threatening to disclose confidential
information provided to him by a client about alleged corruption in
Nike-sponsored amateur basketball programs. He faces three counts
at trial, one count each of honest services wire fraud, extortion
and transmitting interstate communications with intent to
extort.
Assistant U.S. Attorney Robert Sobelman said the case was "about
a shakedown" of Nike and Mr. Avenatti's betrayal of his client, a
youth basketball coach, for his own financial interests. "He wasn't
trying to help his client, he was trying to take advantage of his
client," Mr. Sobelman said.
Both the prosecution and the defense said Wednesday that the
coach had sought out Mr. Avenatti because of his reputation for
standing up to major companies and public figures. But while
prosecutors described Mr. Avenatti's alleged actions as
self-serving, Mr. Avenatti's lawyer, Howard Srebnick, said Mr.
Avenatti dealt aggressively with Nike because that was "what his
client wanted at the time."
"That's not extortion," Mr. Srebnick said. "That's not fraud.
That was litigation."
Up until the eve of his Manhattan trial, Mr. Avenatti was in the
crosshairs of California authorities, who alleged earlier this
month he was living a life of luxury while dodging creditors.
Investigative records unsealed since his Jan. 15 arrest show Mr.
Avenatti lived in a Los Angeles condominium that cost $11,000 a
month in rent. A personal driver chauffeured him in a Mercedes-Benz
S550 -- a car Mr. Avenatti's ex-wife bought last year, in a
transaction cited by federal investigators in California as an
example of his alleged efforts to defraud creditors by concealing
his assets.
H. Dean Steward, a lawyer representing Mr. Avenatti in his
California case, told a California court Monday that he would
appeal Mr. Avenatti's detention, saying "horrid conditions" have
made it impossible for Mr. Avenatti to defend himself. "Mr.
Avenatti has acquired debts in the last few years," Mr. Steward
said in an email. "That's not a reason to jail him now."
Mr. Avenatti rose to fame in early 2018, after The Wall Street
Journal revealed that Mr. Trump's then-lawyer Michael Cohen had
paid Ms. Daniels $130,000 on the eve of the 2016 election to
silence her story of an alleged sexual encounter with Mr. Trump.
Mr. Avenatti served as a lawyer for Ms. Daniels as the payment
became a central piece of a federal investigation into Mr. Cohen,
who pleaded guilty in 2018 to campaign-finance charges and other
counts. Mr. Cohen is serving a three-year prison sentence.
Even as Mr. Avenatti built his profile as a Trump critic, he
faced financial and legal pressures. By the end of 2018, a
monthslong probe by the Internal Revenue Service in California had
given way to a full-blown criminal investigation.
Federal prosecutors say Mr. Avenatti owes at least $2.5 million
in child and spousal support, $1.5 million in unpaid Washington
state taxes, and more than $15 million in judgments in California
civil suits.
Mr. Avenatti has said he doesn't owe some of this money.
Manhattan federal prosecutors are expected to point to these
financial pressures as a motivating force behind his alleged
dealings last year with Nike, court filings show.
On March 19, 2019, Messrs. Avenatti and Los Angeles attorney
Mark Geragos met in New York with two of Nike's outside lawyers
from law firm Boies Schiller Flexner. According to prosecutors, Mr.
Avenatti said he was representing a youth basketball coach, whose
elite team had once been sponsored by Nike. The coach had evidence,
Mr. Avenatti said, that Nike employees had funneled and concealed
payments to the families of top high-school basketball players,
according to prosecutors.
At the meeting, Mr. Avenatti said he would expose the alleged
Nike payments in a news conference the next day unless Nike paid
his client a $1.5 million settlement and hired Messrs. Avenatti and
Geragos to conduct an internal investigation, according to
prosecutors.
Nike's lawyers contacted the Manhattan U.S. attorney's office.
Nike had been cooperating with the office in its investigation into
alleged corruption in college basketball, which centered in part on
youth amateur leagues as conduits for payments between shoe
companies and star players.
In the following days, at the direction of law enforcement,
Boies Schiller lawyers recorded conversations with Mr. Avenatti, in
which he repeated his alleged threats and proposed a minimum $12
million retainer or a confidential $22.5 million settlement to make
the matter disappear, according to the indictment.
Those recordings are expected to be played at trial. On
Wednesday afternoon, Scott Wilson, a former Boies Schiller partner
who played a central role in the discussions with Mr. Avenatti,
began his testimony as the government's first witness. Mr. Wilson,
who is now at another firm but still represents Nike, described
being alarmed by Mr. Avenatti's initial outreach. "I thought we had
a full-blown corporate communications crisis brewing."
On March 25, Mr. Avenatti tweeted that he planned to hold a news
conference the following day to disclose "criminal conduct" at the
"highest levels of Nike." Shortly thereafter, the Federal Bureau of
Investigation arrested Mr. Avenatti on his way into Boies
Schiller's Manhattan offices.
Mr. Geragos hasn't been charged in the matter. Last week, the
federal judge overseeing the case blocked Mr. Avenatti's bid to
call Mr. Geragos as a defense witness. Lawyers for Mr. Geragos said
in a court filing earlier this month that Mr. Geragos "vigorously
disputes" Mr. Avenatti's attempt to characterize him as an
accomplice.
Mr. Avenatti's arrest last March prompted federal authorities in
California to unseal charges stemming from their sweeping
investigation into Mr. Avenatti's taxes and business practices.
That case, now a 36-count indictment including charges of tax and
bank fraud, is expected to go to trial in May -- after Mr. Avenatti
faces a second federal trial in New York City in April, on charges
that he embezzled funds owed to Ms. Daniels.
In February 2019, Ms. Daniels testified before a Manhattan grand
jury against Mr. Avenatti, her attorney, Clark Brewster, said. In
May, the Manhattan U.S. attorney's office charged Mr. Avenatti with
counts of wire fraud and aggravated identity theft, saying he had
forged Ms. Daniels's signature to direct nearly $300,000 in
payments from her book publisher to his own bank account.
Mr. Avenatti pleaded not guilty and said at the time he was
entitled to "any monies retained," per an agreement with his
client.
Write to Rebecca Davis O'Brien at Rebecca.OBrien@wsj.com
(END) Dow Jones Newswires
January 29, 2020 18:06 ET (23:06 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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