Celebrity lawyer Michael Avenatti was arrested Monday in New York City on charges of trying to extort up to $25 million from Nike by threatening to reveal claims that company employees authorized payments to the families of top high school basketball players.
Avenatti also was separately charged in a second federal case in Los Angeles with embezzling a client's money "in order to pay his own expenses and debts" and those of his law firm and coffee company, and of "defrauding a bank in Mississippi," prosecutors said.
The famously aggressive litigator gained widespread notoriety in the past year for representing porn star Stormy Daniels in lawsuits against President Donald Trump and his former lawyer Michael Cohen related to a nondisclosure agreement she signed on the eve of the 2016 presidential election to keep quiet about her alleged affair with Trump in exchange for a $130,000 payment. Last year, Avenatti announced that he was considering running for president.
Daniels replaced Avenatti as her lawyer earlier this month after a fallout with him.
Daniels, in a statement released by her new lawyer Clark Brewster, told CNBC that, "Knowing what I know now about Michael, I'm saddened but not shocked regarding his arrest."
"I made the decision weeks ago to terminate Michael's services after discovering that he had dealt with me extremely dishonestly, and I will have my own announcement coming soon," Daniels said.
Avenatti, 48, was arrested in Midtown Manhattan at the law offices of Boies Schiller Flexner at 12:30 p.m. ET by FBI agents, about 15 minutes after he tweeted that he would be disclosing a big high school and college basketball scandal "perpetrated by" Nike that he supposedly had uncovered.
Boies Schiller lawyers were representing Nike and were scheduled to meet with at their office with Avenatti and his unidentified co-conspirator to discuss Avenatti's demands, according to the company and prosecutors.
Nike stock initially nose dived on the news, but later recovered much of the losses.
According to a criminal complaint, Avenatti had offered to not hold that press conference "only if Nike made a payment of $1.5 million to a client of Avenatti's in possession of information damaging to Nike ... and agreed to 'retain' Avenatti and [a co-conspirator] to conduct an 'internal investigation' — an investigation that Nike did not request — for which Avenatti and [the co-conspirator] demanded to be paid, at a minimum, between $15 [million] and $25 million."
The co-conspirator is "an attorney licensed to practice in the state of California, and similarly know for representation of celebrity and public figure clients," the complaint said.
The client of Avenatti's is "a coach of an amateur athletic union ... men's basketball program based in California," who for a number of years had a sponsorship agreement with Nike, the complaint said.
The complaint says that on Wednesday, Avenatti and a cooperating witness spoke by phone with lawyers for Nike "during which Avenatti stated, with respect to his demands for payment of millions of dollars, that if those demands were not met 'I'll go take ten billion dollars off your client's market cap ... I'm not f---ing around.'"
U.S. Attorney Geoffrey Berman, speaking at a press conference in Manhattan, said, "By engaging in the conduct alleged in the complaint, Avenatti was not acting as an attorney. "
"A suit and tie does not mask the fact that at its core, this was an old-fashioned shake down," Berman said. The prosecutor said the investigation is continuing.
Avenatti is due in Manhattan federal court on Monday on charges of conspiracy, extortion and transmitting interstate communications with intent to extort. That is the same court where Trump's ex-lawyer Cohen pleaded guilty last year to crimes that included campaign finance law violations related to the hush-money payments to Daniels.
Avenatti is charged in the Los Angeles case with two criminal counts, wire fraud and bank fraud.
In a statement, Nike said, "Nike will not be extorted or hide information that is relevant to a government investigation."
"Nike has been cooperating with the government's investigation into NCAA basketball for over a year," the company said. "When Nike became aware of this matter, Nike immediately reported it to federal prosecutors. When Mr. Avenatti attempted to extort Nike over this matter, Nike with the assistance of outside counsel at Boies Schiller Flexner, aided the investigation."
"Nike firmly believes in ethical and fair play, both in business and sports, and will continue to assist the prosecutors," the company said.
Avenatti's law firm in Los Angeles had no immediate comment. The White House did not immediately comment.
But Trump's re-election campaign manager Brad Parscale tweeted a reference to Avenatti's arrest and to the release of a summary of the investigation by special counsel Robert Mueller that did not end in criminal allegations against the president.
In the Los Angeles federal case, Avenatti is accused in a 197-page complaint of negotiating a $1.6 million settlement for a client in a civil case, but then giving the client "a bogus settlement agreement with a false payment date of March 10, 2018."
The U.S. Attorney's Office in Los Angeles said "Avenatti misappropriated his client's settlement money and used it to pay expenses for his coffee business, Global Baristas US LLC, which operated Tully's Coffee stores in California and Washington state, as well as for his own expenses."
"When the fake March 2018 deadline passed and the client asked where the money was, Avenatti continued to conceal that the payment had already been received," according to prosecutors.
"Mr. Avenatti is facing serious criminal charges alleging he misappropriated client trust funds for his personal use and he defrauded a bank by submitting phony tax returns in order to obtain millions of dollars in loans," U.S. Attorney Nick Hanna said.
Hanna's office said Avenatti also allegedly defrauded a bank in Mississippi by submitting to that bank fake tax returns to get three loans totaling $4.1 million for his law firm and coffee business in 2014.
The tax returns indicated that he had "substantial income even though he had never filed any such returns with the Internal Revenue Service," the prosecutor's office said. "The phony returns stated that he earned $4,562,881 in adjusted gross income in 2011, $5,423,099 in 2012, and $4,082,803 in 2013. ... Avenatti allegedly also claimed he paid $1.6 million in estimated tax payments to the IRS in 2012 and paid $1.25 million in 2013."
"In reality, Avenatti never filed personal income tax returns for 2011, 2012 and 2013 and did not make any estimated tax payments in 2012 and 2013," Hanna's office said.
"Instead of the millions of dollars he claimed to have paid in taxes, Avenatti still owed the IRS $850,438 in unpaid personal income tax plus interest and penalties for the tax years 2009 and 2010. Avenatti also submitted a fictitious partnership tax return for his law firm," the investigators said
Read the New York federal criminal complaint against Michael Avenatti:
Read the Los Angeles federal criminal complaint against Avenatti: