LOS ANGELES _ Los Angeles attorney Michael Avenatti was arrested Monday on federal charges of embezzling money from a client, defrauding a bank and attempting to extort sports-gear giant Nike in separate criminal cases filed in New York and Santa Ana, Calif.
Avenatti's arrest in Manhattan came just hours after a meeting with Nike lawyers that federal prosecutors recorded as part of a sting operation to capture him trying to extract millions of dollars from the company, according to Geoffrey S. Berman, the U.S. attorney for the Southern District of New York.
In a tweet sent shortly before he was arrested, Avenatti had threatened to go public with claims that Nike officials were paying the families of top high school basketball players.
"A suit and tie does not mask the fact that, at its core, this was an old-fashioned shakedown," Berman said at a news conference in Manhattan on Monday afternoon.
Celebrity attorney Mark Geragos of Los Angeles was an alleged co-conspirator in the Nike scheme, though he wasn't charged, The Associated Press reported.
If convicted on all counts, Avenatti, 48, would face a maximum penalty of 97 years in prison, according to federal prosecutors.
The federal charges mark a dramatic fall for an obscure California plaintiff's lawyer who vaulted to fame just a year ago as the pugnacious attorney for porn actress Stormy Daniels in her lawsuit against President Donald Trump over the $130,000 she was paid to keep quiet about their alleged affair.
Avenatti used the media exposure to secure clients in high-profile cases tied to Brett M. Kavanaugh's Supreme Court confirmation hearings, Trump's separation of immigrant families on the U.S.-Mexico border and the sexual abuse charges against R&B star R. Kelly _ even as he fought a raft of litigation accusing him of financial wrongdoing in his personal life.
In Southern California, federal prosecutors accused Avenatti of embezzling from a $1.6 million lawsuit settlement payment that belonged to a client, Gregory Barela of Irvine, Calif.
They also said he submitted fictitious tax returns to a Mississippi bank in 2014 to secure $4.1 million in loans to his Newport Beach firm, Eagan Avenatti, and his troubled coffee business, Global Baristas US, which operated Tully's outlets in California and Washington state.
Mark Pearson, chief of the IRS criminal investigation office in Los Angeles, said Avenatti used his ill-gotten gains "to fuel an unrestrained and lavish lifestyle" that cost $200,000 a month to maintain.
At a news conference with Pearson in downtown L.A., U.S. Attorney Nick Hanna took issue with Avenatti's description of himself on his preferred social media platform of Twitter: "Attorney, Advocate, Fighter for Good."
"The allegations in this case describe something different: a corrupt lawyer who instead fights for his own selfish interests by misappropriating close to $1 million that rightfully belonged to one of his clients," Hanna said.
The New York complaint accused Avenatti of "attempting to extract more than $20 million" from Nike. He threatened to hold a news conference if Nike didn't pay his client, an AAU basketball coach in California who alleged the company was paying families of high school prospects, and hire Avenatti to conduct an internal investigation of the company, the federal charging papers say.
After an initial meeting Tuesday, federal investigators began monitoring all contacts between Avenatti and the company, Berman said. Federal investigators recorded a call Friday during which Avenatti threatened Nike that he could take $10 billion off the company's market cap by holding the news conference if he wasn't paid.
"You guys know enough now to know you've got a serious problem," Avenatti said during the recording, according to the complaint.
Avenatti and Nike had what Berman termed a "final meeting" on Monday, during which the company "would either cede to Avenatti's demands or suffer the consequences."
Berman said Avenatti was going to attempt to link the company to a wider federal investigation into corruption and the illegal payment of college basketball players, the timing of which could be problematic for Nike in the midst of the NCAA men's and women's basketball tournaments.
Just before his arrest, Avenatti tweeted he would be holding the news conference about Nike, alleging criminal conduct in college basketball in Los Angeles, on Tuesday morning.
The complaint says an unnamed person "known for representation of celebrity and public figure clients" joined Avenatti in threatening to go public with damaging allegations against Nike. Federal officials declined to confirm reports by the AP and The Wall Street Journal identifying the lawyer as Geragos, whose clients have included Michael Jackson and "Empire" actor Jussie Smollett.
Avenatti demanded $1.5 million for his client and $15 million to $25 million for him and the second lawyer to conduct the investigation, according to prosecutors.
In the California prosecution, Avenatti is accused of two fraud schemes.
The first involved his alleged embezzlement from his Irvine client, Barela, who was due a $1.6 million settlement payment in an intellectual property dispute. Avenatti received the money in January 2018, but hid the payment from Barela and used it to pay personal expenses, along with bills for his coffee business, prosecutors said.
"To this day, nearly 15 months later, Mr. Avenatti's client is still waiting for the bulk of his settlement, even after he hired another attorney who discovered that Mr. Avenatti had the funds all along," Hanna said.
In the other alleged scheme, Avenatti submitted phony tax returns to Peoples Bank of Mississippi in 2014 to secure $4.1 million in loans to Eagan Avenatti and his coffee company, Hanna said. In reality, Avenatti had never filed personal income tax returns for 2011, 2012 or 2013, and he failed to pay federal income taxes in all three of those years, the U.S. attorney said.
Avenatti still owes the IRS more than $850,000 for unpaid personal income taxes, interest and penalties for 2009 and 2010, Hanna added.
Daniels, who is no longer a client of Avenatti's, said Monday morning she was "saddened but not shocked" by news of the criminal charges.
"I made the decision more than a month ago to terminate Michael's services after discovering he had dealt with me extremely dishonestly, and there will be more announcements to come," Daniels said in a tweet.
Earlier this month, his firm, Eagan Avenatti, filed for federal bankruptcy protection. It is the second time in two years the firm has sought court protection from its creditors.
The move comes three weeks after Jason Frank, a former lawyer at the firm, filed court papers accusing Avenatti of hiding millions of dollars from the court that oversaw its previous bankruptcy. A judge quickly dismissed the new bankruptcy petition and ordered Avenatti to testify on whether it was filed in bad faith to dodge creditors, as Frank alleged.
Avenatti has denied any wrongdoing.
Monday's news marks Avenatti's latest run-in with law enforcement, coming just months after his ex-girlfriend lobbed domestic violence allegations at him in Los Angeles. Prosecutors ultimately declined to charge him with a felony in late 2018, and the city attorney's office decided to settle the matter through an informal hearing.
The arrest announced Monday marked a precipitous fall, even by today's whirlwind standards. Eight months ago, Avenatti was exploring a run for the 2020 presidential nomination, drawing large crowds and favorable reviews from Trump-loathing partisans.
"I believe we cannot be the party of turning the other cheek," Avenatti told audiences from California to New Hampshire, differing with those _ including, most prominently, former first lady Michelle Obama _ who counseled grace in the face of enmity. "I say when they go low, we hit harder."
By December, however, Avenatti's presidential exertions had run their course, as some of the novelty wore off and other more credible candidates began ramping up their efforts. He issued a statement taking himself out of the running and citing family obligations as the reason.
