Mar 27, 2019 2:58PM PT
How Michael Avenatti May Have Crossed the Line Between Negotiation and Extortion in Nike Case
By Sheena Butler-Young
Sheena Butler-Young
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Attorney Michael Avenatti
CREDIT: Peter Foley/Shutterstock
Disgraced attorney Michael Avenatti this week made headlines when he was arrested for allegedly attempting to extort upwards of $20 million from Nike Inc.
Manhattan federal prosecutors accused Avenatti of threatening to release damning allegations against Nike if it did not agree to pay him and a purported co-conspirator more than $22 million. The case is plagued with unanswered questions.
Where Nike is concerned — Avenatti took to Twitter after his arrest to suggest several high-profile players received illegal payouts from the brand — whether its alleged involvement in pay-for-play will face legal scrutiny remains a mystery. To date, no Nike employees have been implicated in the government's pay-for-play investigation, but the company's youth basketball division has already been subpoenaed, noted fashion law attorney Elizabeth Kurpis.
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Meanwhile, former Adidas executive James "Jim" Gatto was sentenced to prison time just this month for his role in the NCAA pay-for-play scandal that turned college basketball on its head in 2017. Avenatti claims to have similar information on Nike employees, and federal prosecutors claimed he used those alleged facts to formulate an extortion scheme against the brand.
For what it's worth, even if claims against Nike were taken to court and it was proved that the brand paid high school players under the table, it is doubtful Nike's business would take a substantial hit, according to Matt Powell, senior sports industry analyst with The NPD Group Inc.
"I think most people are aware of how corrupt amateur athletics have become. That is really no surprise to anyone that things like this occur," Powell said, noting he's seen "no material business impact" on Adidas stemming from the pay-for-play scandal and convictions.
Avenatti has shouldered a wave of criticism in the court of public opinion since the case was announced. And there has been significant confusion around the line between aggressive closed-door legal negotiations and extortion, which involves trying to obtain money by using the threat of reputational or financial harm, among other things. (Avenatti has been a divisive public figure after entering the public spotlight roughly two years ago to represent Stormy Daniels in her case against President Donald Trump.)
"Whether a threat of litigation is extortion really turns on whether the litigation is pursued through entirely legal processes," Kurpis explained. "For instance, if Avenatti tried to pressure Nike into settlement by exaggerating the magnitude of [Nike's] liability, and this was based on misrepresentations or false information, then a court may find that this rises to the level of extortion and it would no longer be considered just a threat of litigation."
Furthermore, if Avenatti demanded — as federal prosecutors allege — that Nike hire him to perform an internal investigation, Kurpis said, and such an act "only serves to enrich himself and doesn't help remedy the wrong allegedly suffered by his client," that could also hurt him in court.
Prosecutors allege Avenatti requested that Nike hire him and his purported co-conspirator "to conduct an internal investigation of Nike, with a provision that if Nike hired another firm to conduct such an internal investigation, Nike would still be required to pay Avenatti and [the alleged accomplice] at least twice the fees of any other firm hired," court documents stated. Avenatti also, per court papers, told Nike's attorneys on March 20 that his demand was not simply to be retained by Nike but to "be paid at least $10 million or more by Nike in return for not holding a press conference."
"I'm not f**king around with this, and I'm not continuing to play games … You guys know you have a serious problem. And it's worth more in exposure to me to just blow the lid on this thing," he allegedly told Nike attorneys.
Among his other purported threats to Nike, court papers state Avenatti told Nike's counsel: "I'll go take 10 billion dollars off your client market cap … I'm not f**king around."
"A little less narcissism probably would have gone a long way [for Avenatti], and my guess is, if he took a more appropriate course of action, like, say, sending a letter and including a draft complaint in an effort to resolve the issues amicably without threats of public disclosure, he may have been able to avoid any claims of extortion by the U.S. government entirely," Kurpis added.
In short, Kurpis said it is not out of the ordinary for an attorney who is "armed with allegations" to present such claims to a potential defendant and make settlement demands.
"The way Avenatti went about it here was a bit questionable and possibly unethical, but the issue really is whether this arises to the level of criminal behavior," she added.
In response to the case, a spokesperson for Nike said the brand "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. 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."
The spokesperson added, "Nike firmly believes in ethical and fair play, both in business and sports, and will continue to assist the prosecutors. We can't comment further on ongoing legal matters."