NKE Nike Inc

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 30, 2020).

By Rebecca Davis O'Brien 

Michael Avenatti's arrest in March 2019 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 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 the adult-film actress, whose real name is Stephanie Clifford. 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. Clifford $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. Clifford 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. Clifford.

In February 2019, Ms. Clifford 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. Clifford'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 30, 2020 02:47 ET (07:47 GMT)

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