Michael Avenatti Jailed on Eve of Nike Extortion Trial

(Bloomberg) -- Celebrity lawyer Michael Avenatti was jailed in California for bail violations, a week before he was scheduled to go on trial in New York for allegedly trying to extort millions of dollars from Nike Inc.

Avenatti was arrested in Los Angeles Tuesday for allegedly engaging in fraudulent transactions aimed at dodging creditors. In a hearing Wednesday, U.S. District Judge James Selna revoked the lawyer’s bail. The judge said he thought it was likely Avenatti would engage in the same conduct if allowed to remain out on bail.

The sudden development clouds the beginning of Avenatti’s trial in New York. District Judge Paul Gardephe in Manhattan on Wednesday postponed jury selection and ordered the parties to appear before him on Jan. 21 -- the morning the trial was scheduled to start -- to determine how to move ahead. He said he wants the proceedings to begin no later than Jan. 27.

“We’ve had significant disruption to the trial date already,” Gardephe said. “It remains entirely unclear to me why it was necessary to arrest Mr. Avenatti based on allegations that go back primarily to last summer. It raises the obvious question of why did someone wait until Jan. 14 to seek an arrest warrant? That’s created enormous disruption and unless the parties communicate effectively I really don’t know when this case is going to get tried.”

During a phone conference, Avenatti’s lawyers asked Gardephe to postpone the trial indefinitely, saying they don’t know what kind of resources he has to fund his defense.

He’ll need to pay an expert they expect to call during the trial and compensate witnesses for their time and travel. The California case “seems to be broad in scope encompassing all of Mr. Avenatti’s resources,” said one of his attorneys, Jose Quinon, and the judge may need to hold an indigency hearing to determine whether he can afford to pay to fight.

“The rug was pulled from under us because this was absolutely totally unexpected,” Quinon said. “We don’t have the tools. We don’t have the weapons.”

Prosecutors opposed delaying the trial indefinitely, saying that Avenatti had no assets seized prior to his arrest yesterday and that his financial situation remains the same.

“We simply don’t understand how the arrest has any bearing on that,” Assistant U.S. Attorney Matthew Podolsky said.

At the hearing before Selna, the government said Avenatti had been engaged in mail and wire fraud aimed at hiding money from creditors to maintain a lavish lifestyle, including living in a $11,000-a-month apartment. Avenatti’s lawyers had challenged that account, saying it was legal for him to move his money around.

Assistant U.S. Attorney Brett Sagel told Selna that Avenatti showed up at a Mercedes-Benz dealership to buy a car, and put it in his first ex-wife’s name two days later. He also sent her $717,000 he received from a settlement he reached on behalf of a client -- and she sent $500,000 back to him, Sagel said.

“He’s using money that should be going to his creditors to fund his lifestyle,” Sagel said.

Avenatti owes millions to his creditors, including $2.5 million in back payments to his second ex-wife, prosecutors said. Avenatti had also been ordered by a judge to pay $5 million to his former law partner Jason Frank.

Dean Stewart, a lawyer for Avenatti, argued that none of that is illegal. He said his client has done things, including making cash transactions, to “make it harder for his creditors” to collect. But he reported the transactions to pretrial services, his lawyer said.

Selna didn’t accept the argument, finding there’s probable cause Avenatti committed crimes, including mail fraud, while on bail and he should remain behind bars.

There’s “an ongoing danger he will engage in similar conduct” if he’s released, Selma ruled from the bench.

Trump Critic

Avenatti, who gained a national profile as a critic of President Donald Trump after suing him on behalf of adult-film star Stormy Daniels, is accused of demanding that Nike pay him as much as $25 million, He threatened to hold a damaging press conference announcing a youth basketball coach’s allegations that the company made illegal payments to elite players if he didn’t get the money, according to the government.

Earlier on Wednesday, Gardephe denied Avenatti’s request to dismiss the indictment. Avenatti claimed he was singled out for prosecution because to his opposition to Trump. The judge pointed out that much of the case against Avenatti is based on recordings of a March 20 telephone call with Nike’s lawyers and a meeting with the same attorneys the following day. He was arrested on the extortion charges soon after, on March 25.

“The timing of Avenatti’s arrest was driven by the timing of his demands on Nike and the deadline he set for Nike’s capitulation to his demands,” Gardephe wrote. “The brevity of the government’s pre-arrest investigation does not demonstrate that Avenatti is the victim of vindictive or selective prosecution.”

Federal prosecutors in California say Avenatti stole millions of dollars from clients, including a destitute paraplegic man. He’s also facing separate charges in New York that he stole $300,000 from the book advance for Daniels, whose real name is Stephanie Clifford. He has denied any wrongdoing.

The case is U.S. v. Avenatti, 19-cr-00373, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in Federal Court in Manhattan at cdolmetsch@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Joe Schneider, Steve Stroth

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