(3/25/19) Attorney Michael Avenatti was charged in coast-to-coast indictments Monday of trying to extort more than $20 million from Nike and embezzling a client’s settlement money to pay expenses for his faltering coffee business.
Avenatti, 48, was taken into custody about 12:30 p.m. in Manhattan after federal prosecutors in New York and California charged him with an array of crimes — including conspiracy to commit extortion, bank fraud and wire fraud.
A judge later agreed to his release on a $300,000 bond and the condition that he forfeit both his U.S. and Italian passports and restrict his travel to parts of New York and California.
He cannot travel anywhere else in the country without approval and may not transfer $5,000 or more from any account he controls without pretrial services.
Prosecutors in the New York case say Avenatti’s alleged extortion scheme unfolded in less than a week.
Avenatti met with Nike representatives on March 19 claiming to represent a youth basketball coach who had information that Nike employees made illicit payments to the families of high school athletes.
Avenatti and an unnamed co-conspirator threatened to hold a news conference to ruin Nike’s reputation and crater its stock price unless it agreed to pay him and his client millions of dollars, the court papers said.
The next day, the FBI captured him on a recorded call hurling expletives as he pressured Nike reps to pay up, court papers said.
“I’m not f—ing around with this, and I’m not continuing to play games,” Avenatti told Nike reps, according to court papers. “You guys know enough now to know you’ve got a serious problem. And it’s worth more in exposure to me to just blow the lid on this thing. A few million dollars doesn’t move the needle for me.”
Avenatti moved forward with his threat, tweeting Monday morning that he had scheduled a press conference tomorrow to “disclose a major high school/college basketball scandal perpetrated by @Nike.”
Roughly 15 minutes later, Avenatti was arrested by federal agents. Prosecutors say he demanded that Nike pay his client $1.5 million and compensate him and his co-conspirator $15 million to $25 million to conduct an “internal investigation” for the company.
“A suit and tie doesn’t mask the fact that, at its core, this was an old-fashioned shakedown,” said Geoffrey Berman, the U.S. attorney for the Southern District of New York.
Avenatti shot to prominence last year as the hard-charging attorney for porn star Stormy Daniels, who claimed she was paid hush money to stay silent about an affair with Donald Trump in 2006.
Daniels, who retained Avenatti until earlier this month, said in a tweet that she was “saddened but not shocked” by Avenatti’s arrest.
“I made the decision more than a month ago to terminate Michael’s services after discovering that he had dealt with me extremely dishonestly and there will be more announcements to come,” she wrote.
Avenatti did not return requests for comment. It was not immediately clear if he had a lawyer.
Avenatti’s co-conspirator in the scheme was Mark Geragos, one of the most high-profile criminal defense attorneys in the country, according to two sources familiar with the matter.
Geragos is representing actor Jussie Smollett, who is being prosecuted by Chicago authorities on charges of lying to police about an alleged racial attack. Geragos, a CNN contributor, also represented quarterback Colin Kaepernick in his fight against the NFL.
Shortly after Geragos was named in published reports, CNN announced that it was severing ties.
Geragos’ attorney, Benjamin Brafman, said in a statement that his client “has not been charged with any criminal conduct whatsoever.”
Nike said it has been cooperating with investigations into college basketball for more than a year and reported Avenatti when it learned of his alleged extortion attempt. “Nike will not be extorted or hide information that is relevant to a government investigation,” the company said in a statement.
In a separate case out of California, Avenatti was charged with negotiating a settlement for a client and then using the funds to pay expenses for his company, Global Barista US LLC, which operated Tully’s Coffee stores in California and Washington state, court papers say.
The settlement called for a $1.6 million payment to be made on Jan. 10, 2018, but Avenatti handed his client bogus paperwork with a false payment date of March 10, 2018, court papers say.
Avenatti received an initial payment of $1.6 million but didn’t alert his client, court papers say. When the client asked him where the money was, federal prosecutors say, Avenatti continued to conceal that the payment had been received.
The high-profile lawyer is also accused of defrauding a bank by submitting false tax returns to obtain three loans totaling $4.1 million for his coffee business in 2014. Avenatti claimed he paid $1.6 million in estimated tax payments to the Internal Revenue Service in 2012 and $1.25 million in 2013, but he in fact never filed returns from 2011 to 2013, according to federal prosecutors.
Avenatti owed the IRS $850,438 in unpaid taxes, plus interest and penalties, prosecutors said.
Avenatti faces up to 97 years in prison if convicted of all charges in both indictments.
“Lawyers have a sworn duty to obey the law and protect their clients,” Nicola T. Hannah, the U.S Attorney for the Central District of California, said at a Monday press conference. “Our system of justice depends on it. Mr Avenatti has breached that duty and violated the principles of honesty and fairness that he claims to uphold.”
Avenatti purchased the Tully’s coffee chain in 2013 after it went into bankruptcy. He operated it for five years, failing to pay payroll taxes for two years but pulling $750,000 out of the company to cover International Motor Sports Association sponsorship related to his race car team, prosecutors said.
The company was kicked out of its Seattle office space in November 2017 and closed its last store in March 2018 before declaring bankruptcy, according to court papers.
During this period, Avenatti enjoyed a lavish lifestyle that included two private jets worth $4.5 million each, a GT Spider Ferrari valued at $410,000, and about four Patek Philippe watches worth up to $75,000 a piece, according to an affidavit in the court papers that referenced his divorce proceedings.
From 2011 to 2018, Avenatti used his company to pay his ex-wife roughly $980,000 for “either child support or alimony, or both,” the court papers say.