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Breaking Down the Charges Michael Avenatti Faces in Nike, College Basketball Extortion Case
Prominent attorney Michael Avenatti faces federal charges for allegedly attempting to extort more than $20 million dollars from Nike.
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According to a complaint filed to U.S. Magistrate Judge Stewart Aaron on Sunday as a sealed document, Avenatti utilized an array of bullying phone calls, a hostile in-person meeting and terrorizing social media posts to threaten Nike with severe damage to the company’s brand. Between a hastily arranged meeting in New York City last Tuesday and a now-infamous tweet on Monday, Avenatti is accused of demanding that Nike pay Avenatti, an unnamed co-conspirator and an unnamed client—who is described as a California-based AAU coach—as much as $26.5 million.
The nature of Avenatti’s threatened disclosure became apparent at 12:16 pm ET on Monday. It was then when the 48-year-old attorney, seemingly unaware of the sealed complaint, tweeted to his approximately 860,000 followers that he planned to hold a press conference on Tuesday at 11 am ET. The tweet promised that Avenatti would “disclose a major high school/college basketball scandal perpetrated by @Nike that we have uncovered and that the supposed “criminal conduct” incriminates “the highest levels of Nike and involves some of the biggest names in college basketball.”
Obviously, the timing of a press conference—right in the heart of March Madness—would be designed to inflict heightened damage to Nike. The press conference would be held when many college basketball fans and sports consumers are especially interested in college basketball news. It is a particularly vulnerable time for Nike given the heightened prominence of its brand during March Madness.
The press conference presumably won’t be held, as the sealed complaint became unsealed and Avenatti was arrested.
The tweet nonetheless shook Nike’s stock price. It fell on the New York Stock Exchange from $82.62 at 12:30 p.m. to $81.26 at 12:55 pm. The price mostly rebounded as the afternoon progressed. At the close of Monday’s trading, Nike’s price stood at $82.33 (up 17 cents from the previous day’s close of $82.19). As of this writing, Avenatti’s controversial tweet remains on his timeline.
The Nike “shakedown” isn’t the only legal concern for Avenatti. Last Friday he was criminally charged in the U.S. District Court for the Central District of California on wire fraud and bank fraud. The matter appears to be an unrelated to Avenatti’s interactions with Nike.
Avenatti’s alleged shakedown of Nike
The complaint relies heavily on the sworn testimony of FBI special agent Christopher Harper. As told by Harper in an affidavit, Harper has been intricately involved in the investigation of Avenatti. Avenatti’s interactions with Nike drew the attention of the FBI and the U.S. Attorney’s Office for the Southern District of New York.
Nike first learned of Avenatti’s interest in speaking with the company about a “sensitive matter” on or about March 13. On March 15, an attorney for Nike spoke with Avenatti’s co-conspirator about Avenatti’s interest in an in-person meeting. Avenatti’s “co-conspirator” is unnamed in the complaint but is described as “an attorney licensed to practice in the state of California.” The co-conspirator is, like Avenatti, “known for representation of celebrity and public figure clients.” According to both the Wall Street Journal and the Associated Press, Mark Geragos is the co-conspirator. Geragos recently represented Nike-endorser Colin Kaepernick in his collusion grievance against the NFL and has litigated on behalf of Justin Smollett, Winona Ryder and Michael Jackson at different points over the last two decades.
On Tuesday March 19th, Avenatti and his co-conspirator met with Nike attorneys in New York City. The meeting occurred at the co-conspirator’s office.
At that time, Avenatti allegedly revealed his plot to Nike. He told the company’s attorneys that he represents an AAU coach. Nike had recently declined to renew the coach’s contract, which paid him about $72,000 a year. The coach, Avenatti asserted, had “evidence that one or more Nike employees had authorized and funded payments to the families of top high school basketball players and/or their families and attempted to conceal those payments.” Avenatti apparently named three specific former high school players. It’s unclear if those players are now in college basketball or the NBA, but they were presumably top recruits.
In other words, the AAU coach purportedly claims to have damning evidence for Nike. The evidence, Avenatti says, reveals Nike officials as engaging in the same type of criminal conduct that led to the recent conviction and prison sentencing of Adidas director of global marketing James Gatto, Adidas consultant and basketball organizer Merl Code and client recruiter (aka runner) Christian Dawkins.
Harper contends that Avenatti warned Nike’s attorneys that he planned to hold a press conference on the eve of the company’s quarterly earnings call and start of the NCAA tournament. During this press conference, Avenatti would “announce allegations of misconduct by employees of Nike.” Avenatti allegedly timed his threat to maximize the potential damage to Nike’s market value. As retold by Harper, Avenatti explained to Nike’s attorneys that he had decided to approach the company in March “because he knew that the annual NCAA tournament—an event of significance to Nike and its brand—was about to begin.”
Avenatti, Harper claims, promised Nike’s attorneys that he would cancel the press conference only if the apparel company did two things:
- Make a payment of $1.5 million to Avenatti’s client, the AAU coach. The money would supposedly resolve any legal claims the AAU coach may have against Nike for its decision not to renew the contract. It would also buy his silence and ensure he does not go public with his supposed evidence of Nike employees bribing recruits.
- Contractually “retain”—meaning hire—Avenatti and his co-conspirator to conduct an “internal investigation” for which they would be paid “between $15 million and $25 million.” The contract would also need to state that if Nike hired another internal investigator, “Nike would still be required to pay Avenatti and co-conspirator at least twice the fees of any other firm hired.” Alternatively, Nike could simply pay Avenatti and his co-conspirator $22.5 million. This payment would resolve any legal claims the AAU coach might have and “buy Avenatti’s silence.”
Hours after the March 19 meeting, a Nike attorney called and left a voicemail for Avenatti’s co-conspirator. The attorney stated that Nike needed more time to decide on how to respond to Avenatti’s demands. The co-conspirator called the Nike attorney back and said that Avenatti “had agreed to give Nike until Thursday (i.e. two days) to consider the demands before holding the threatened press conference.”
At that point, Nike officials contacted the U.S. Attorney’s Office for the Southern District of New York and alerted Justice Department officials of Avenatti’s “threats and extortionate demands.” The FBI and federal prosecutors then worked with Nike attorneys and encouraged them to set up a call with Avenatti and his co-conspirator. After a series of texts and calls between a Nike attorney and the co-conspirator, who claimed to be in Miami at the time, there was a three-way call between two Nike attorneys, the co-conspirator and Avenatti at 5:10 pm ET on Wednesday, March 20th. The call was monitored and recorded by law enforcement.
During the call, Avenatti allegedly:
- Reiterated that he expected to “get a million five” for the AAU coach and that Nike would need to hire him and his co-conspirator to conduct an (unwanted, from Nike’s perspective) internal investigation. Avenatti allegedly warned, “If you don’t wanna do that, we’re done here.”
- Avenatti allegedly warned Nike attorneys that his demand “was not simply to be retained by Nike.” He stressed that he needed “to be paid at least $10 million or more by Nike in return for not holding a press conference.”
- Avenatti is on the recording saying, “I’m not f------ around with this, and I’m not continuing to play games . . . 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. I’m just being really frank with you . . . I’m not f------ around with this thing anymore . . . I’ll go take ten billion dollars off your client’s market cap. But I’m not f------ around.”
On Thursday, March 21, Avenatti met with Nike attorneys at his co-conspirator’s office in New York City. The meeting was recorded on video and audio by Nike attorneys. New York is a “one-party” state for recordings, meaning so long as one party to a conversation consents to its recording, it is a lawful recording. Here, the Nike attorneys consented to the recording.
During the meeting, the Nike attorneys told Avenatti that his demand for an investigation fee was unreasonably excessive and would trigger alarm bells. Specifically, one of the attorneys told Avenatti that the attorney “had never received a $12 million retainer from Nike and had never done an investigation for Nike that ‘breaks $10 million.” Avenatti responded by asking if the attorney “had ever held the balls of the client in your hand where you could take five to six billion dollars market cap off of them?”
Avenatti is also heard on the recording saying that all aspects of the agreement had to be in writing by Monday, March 25 or he would go forward and hold the press conference. “If this is not papered on Monday,” Avenatti warned, “we are done.” He further admonished Nike’s attorneys that they ought not to invent excuses as a way of delaying the issue to after March Madness. “I don’t want to hear about somebody on a bike trip. I don’t want to hear that somebody’s grandmother passed away or . . . the dog ate my homework. I don’t want to hear—none of it is going to go anywhere unless somebody was killed in a plane crash.”
Clearly perturbed by the lack of progress, Avenatti sent his tweet on Monday. He then faced the wrath of law enforcement, who had been monitoring his actions.
Very serious charges that could lead to Avenatti being sent to prison and losing his law license
Avenatti has been charged with four crimes. A conviction on any could lead to a prison sentence of years.
First, Avenatti has been charged with conspiracy to transmit interstate communications with intent to extort. This charge reflects Avenatti and his co-conspirator allegedly conspiring to “unlawfully, willfully and knowingly” try to extort from Nike at least $20 million. The pair also used interstate communications to carry out the plot, which included multiple threats to damage Nike’s publicly traded price in such a way to cause the company billions of dollars in lost value. Second, Avenatti is accused of conspiring with his co-conspirator to commit extortion. Third, he allegedly transmitted interstate communications with the intent to extort. Such communications include an interstate phone call. Fourth, Avenatti is accused of the crime of extortion. His threats, described above, show that he attempted to include a payment of money on unlawful grounds.
Although as a “first-time offender” Avenatti would not be sentenced to the maximum prison term, he could theoretically face as many as 47 years in prison if he were convicted on all four counts and if the sentencing judge ran the maximum sentences consecutively (one after the next) rather than concurrently (at the same time). In reality, Avenatti would likely be sentenced to a far shorter term, perhaps a handful of years depending on a host of factors (including the judge’s preference and recommendations in the pre-sentence report). Still, any term in prison would be gravely worrisome. In addition, Avenatti faces bank and wire fraud charges in California that threaten him with additional years in prison.
Less disturbing than a potential prison sentence but nonetheless meaningful to Avenatti, any conviction could lead to him losing license to practice law. This would be true in California and in any other jurisdictions where he’s admitted.
A difficult path for Avenatti to defend himself
If the digital trail connecting Avenatti to an attempted shakedown of Nike is as compelling as the complaint contends, he will be hard-pressed to wage an effective defense. Avenatti appears to have been caught on tape engaging in extortive acts. Also, if Avenatti’s co-conspirator and client agreed to testify against him in exchange for cutting their own plea deals, he would find himself in an even less enviable spot.
The mere fact that Avenatti faces federal charges is also devastating. Federal charges usually lead to plea deals or convictions. Indeed, approximately 90% of defendants in federal prosecutions plead guilty rather than go to trial. The defendants who instead roll the dice in a trial usually regret it: federal prosecutors secure convictions somewhere between 85% and 95% of the time. Criminal defense attorneys will often say that it’s “game over” once someone is charged with a federal crime. Often the only viable strategy is to negotiate a favorable plea deal.
Even more dispiriting for Avenatti, he has been charged in perhaps the worst federal jurisdiction for accused criminals: The Southern District of New York. Federal prosecutors from this particular U.S. Attorney’s Office are regarded as among the most talented in the land. Gatto, Code and Dawkins are all too well aware of that point. While many in the legal community (including Jay Bilas and me) were skeptical that paying a college athlete to attend a particular college amounted to a criminal act, a jury convicted the defendants of wire fraud and conspiracy.
Still, Avenatti is uniquely well-positioned to pursue a defense. While he is politically controversial partly due to him representing pornographic film actress Stormy Daniels in her unsuccessful lawsuit against President Donald Trump, Avenatti has scored a number of victories as an attorney. In fact, Avenatti claims to be responsible “for over $1 billion in verdicts and settlements” over the course of a legal career that began with him graduating first in his class from George Washington University School of Law in 1999. Avenatti, whose practice focuses on civil cases, will no doubt hire skilled criminal defense attorneys to represent him. Expect Avenatti to play an active role in his own defense. It is perhaps notable that he has not (as of now) taken down his controversial Nike tweet. Perhaps that signals he intends to claim he has done nothing wrong.
One possible defense for Avenatti would be to argue that bullying remarks and bombastic verbiage should not be taken as literal attempts to extort. To that end, he might stress that his comments were made not to Nike officials, but rather to fellow attorneys. He might portray those comments as merely constituting the tugs and pulls of settlement negotiations between lawyers. Likewise, Avenatti could maintain that his hardnosed methods reflected his fiduciary duty to maximize a return for a client.
An obvious defect with a “just lawyering” defense would be Avenatti’s tweet on Monday: the tweet was clearly not a “lawyer to lawyer” conversation. Instead, it was seen by millions of people. It’s also likely that the tweet caused Nike financial harm, given the (temporary) drop in Nike’s stock price. In addition, most of Avenatti’s financial demand contemplated payment ot him and his co-conspirator, rather than payment to his client.
Alternatively, Avenatti might assert that he is the victim of entrapment. He could insist that Nike attorneys and federal agents had colluded into duping him. The possible trick: leading him on to believe that the multibillion-dollar apparel company would actually pay him. Such collusion, Avenatti might insist, made him more likely to publish the now infamous tweet on Monday. He’d contend that anyone in his position would have also fallen prey.
Entrapment seems like a very hard sell. Avenatti is a sophisticated and seasoned attorney. He’s also a skilled user of social media. Stated bluntly, he knows what he is doing or at least should by this point in his career. He would probably struggle to claim that he was tricked by fellow attorneys. It’s also possible that he has used such negotiation tactics in previous legal disputes, meaning he should have been aware of the risk.
As yet another potential defense, Avenatti could insist that all of the incriminating evidence is inadmissible. Such a defense is unlikely prevail. According to the complaint, the March 20 phone call in which Avenatti participated was “consensually recorded.” Also, the March 21 meeting in person with Avenatti was lawfully recorded under New York’s one-party consent law for recordings (discussed above).
For now, Nike seems like the victor—but what if Avenatti cuts a deal with prosecutors?
Nike has won the current news cycle as it relates to Avenatti. The apparel company exposed Avenatti’s alleged scheme and, by working with law enforcement, prevented him from publicly accusing the company of involvement in a plot to pay high school basketball recruits.
The win might not prove lasting. Avenatti, as noted above, would likely be convicted if he goes to trial and could then be sentenced to prison. In lieu of that “worst-case” outcome, Avenatti could negotiate a plea deal with prosecutors—the same prosecutors who have prosecuted Adidas officials. In any plea deal, prosecutors would require that Avenatti turn over evidence and perhaps implicate other persons.
Could Avenatti hand over to federal agents texts, emails and other implicating records? Would those records reputationally harm Nike the same way that Adidas has been reputationally harmed by the college basketball corruption probe? Could he “name names” that are well known in basketball—be they Nike officials, college coaches or NBA players—who would then become the target of FBI agents?
Sure. Those are possibilities. But there are at least a couple of caveats to consider.
First, some of those records may protected by attorney-client privilege. Along those lines, it’s not clear if Avenatti or the AAU coach he represents are in possession of the relevant materials.
Second, Avenatti is not the most credible accuser. Last October, Senate Judiciary Chairman Chuck Grassley referred Avenatti and one of his clients, Julie Swetnick, for review by Justice Department officials. The referral related to alleged contradictions and possible false testimony connected to the nomination of Judge (now Justice) Brett Kavanaugh to the U.S. Supreme Court. Avenatti has been involved in other controversial representations. Critics regard him as purposefully exaggerative and prone to hyperbole.
SI will keep you posted on the Avenatti-Nike story.
Michael McCann is SI’s legal analyst. He is also Associate Dean of the University of New Hampshire School of Law and editor and co-author of The Oxford Handbook of American Sports Law and Court Justice: The Inside Story of My Battle Against the NCAA.
