Celebrity lawyer Michael Avenatti’s desperate bid to avoid a guilty verdict and possible prison sentence depended on an obscure middle manager at Nike named Carlton DeBose.
In his trial in a Manhattan courtroom over the past 11 days, Avenatti has gambled that if he could expose corruption at Nike, at least one juror would view his demands for a huge payoff from the company as less like attempted extortion and more like high-stakes negotiating.
DeBose is head of Nike’s Elite Youth Basketball League, and allegedly helped steer cash to favored teenage basketball players.
The U.S. Justice Department, Nike and DeBose dismissed Avenatti’s strategy as a slanderous shell game intended only to confuse jurors.
Judge Paul Gardephe issued his decision Tuesday: Avenatti’s ploy was a non-starter and DeBose didn’t have to take the stand. The ruling not only gutted Avenatti’s defense, but also ended for now the possibility that Nike’s controversial role in amateur basketball would be explored in a court of law.
Defense lawyers rested their case Tuesday and the jury is expected to begin deliberating on Wednesday.
Even without the deeper dive into Nike, the Avenatti trial was a feast for Nike watchers. It provided a rare lens inside the notoriously secretive company. As the lawyers sparred, they made some eye-popping statements and even broke the news of a second federal investigation of the sneaker giant.
The trial also provided a daily illustration of Nike’s close partnership with the U.S. Justice Department. Nike lawyers set the entire prosecution into motion when they alerted the feds to Avenatti’s $20 million demand last March. Since then, they’ve worked in close partnership, plotting strategy, filing similar arguments and planning testimony.
The cooperation might seem routine, except for this: The same U.S. Attorney’s office in the Southern District of New York that is prosecuting Avenatti is continuing an ambitious investigation of the athletic apparel industry and corrupt payments to young basketball players begun in 2017. Government lawyers said last week that the probe is still in progress.
Avenatti argues that there is a connection. With the 2017 investigation still in progress, Nike wanted to “curry favor” with the government prosecutors, he claimed. What better way than to hand over a controversial lawyer who also happened to be a vocal critic of the president?
Roots of a scandal
The Avenatti saga began with a low-profile basketball coach named Gary Franklin, who coached a Los Angeles-based youth basketball squad sponsored by Nike. Franklin went from a fixture in the Nike family to an angry outcast after a falling out with DeBose, he said.
Franklin dubbed himself a whistleblower and said he intended to blow the lid off corruption in youth basketball. And he had important ammunition in his possession: invoices and other records he said backed up his claim that Nike officials directed him to deliver cash to the families and handlers of top high school players.
He hired Avenatti to represent him and extract a settlement.
Avenatti demanded more than $20 million from Nike on the threat of exposing its role in youth basketball. Nike called the feds. With the government’s help, Nike lawyers recorded their subsequent meetings with Avenatti – a video the government played repeatedly during closing arguments Tuesday.
Prosecutors claim Avenatti needed the money to pay off significant debts. Avenatti’s lawyers argue that he was simply negotiating with Nike’s lawyers and had opened the process with a hardball offer.
And while Avenatti remained at the center of the proceedings, the question of whether Nike’s financial contributions to youth basketball are legitimate was a constant theme of the trial.
Early on, Scott Srebnick, one of Avenatti’s lawyers, questioned Nike’s statements that it never paid high school basketball players.
Nike attorney Peter Skinner fired back: “I have to respond to that. We never took the position that there were no payments to players. We said -- and we still stand by it -- that we have never uncovered evidence of a payment to a player to send them to a particular college.”
While Skinner’s use of a double-negative is confusing, he seems to concede that Nike paid players. That would be an unprecedented concession -- and a departure from Nike’s public relations stock line: “Nike firmly believes in compliance with laws and fair play in all sports.”
If true, high school athletes who accepted money could lose their amateur status and endanger their college eligibility.
Nike did not return calls seeking comment on Skinner’s remarks.
Another federal investigation
In a move that plainly annoyed government prosecutors, Avenatti’s attorneys told the world in open court that there’s another federal agency investigating the sneaker industry and its ties to athletes. The U.S. Securities and Exchange Commission, which enforces federal securities laws, subpoenaed Nike last April as part of its probe of the industry.
Scott Wilson, a New York lawyer who represents Nike, confirmed the SEC investigation.
The SEC is a less formidable opponent than the elite prosecutors from the Southern District of New York. “The DOJ can bring criminal charges, but the SEC is limited to consent degrees and civil enforcement proceedings,” said Bruce Campbell, a Portland attorney with the Miller Nash firm.
For reasons that are unclear, the SEC’s regional office in Fort Worth, Texas is leading the probe.
Joe Arellano, a Portland based securities lawyer, said the agency could be looking at disclosure issues. As Judge Gardephe said early in the trial, “to the extent a public company receives a subpoena from a government agency, it is usually disclosed in an SEC filing.”
There is no reference to the amateur basketball investigation -- either by the SEC or the Justice Department -- in Nike’s most recent annual or quarterly financial statements.
In its last three annual financial filings, Nike does include a generic comment that as a multi-national corporation it faces various claims, including lawsuits, regulatory proceedings and government investigations.
Adversaries and allies
At one point, Avenatti’s lawyer Srebnick asked Nike’s lawyer Wilson how many times he’d met with prosecutors since Avenatti’s arrest last March.
Wilson said he couldn’t recall. Srebnick began rattling off a series of dates. “You met with the government at least seven times to prepare to testify in this courtroom, correct?” Srebnick asked.
Wilson finally confirmed the meetings, five of which took place in the two weeks before the trial began.
For months now, it’s been clear that Avenatti faced two formidable adversaries in this case: the Justice Department and Nike. The depth of their alliance was again illustrated on Feb. 8, when prosecutors echoed Nike’s request that the court keep DeBose off the witness stand.
Avenatti had subpoenaed DeBose and six other Nike employees.
Since the Avenatti scandal erupted, DeBose has kept a decidedly low profile. He’s not returned several phone calls from The Oregonian. But in a court filing, he let his feelings be known. If Avenatti is permitted to call Debose to the stand, “it will allow (Avenatti) to further perpetuate his campaign of public harassment and slander of Mr. DeBose in a transparent attempt to save himself.”
“Mr. DeBose -- at the behest of his attorneys -- has remained silent until now, despite the many scurrilous accusations,” DeBose’s filing continued. “But the truth -- and the sum total of Mr. DeBose’s testimony-- would be that he and Nike did not violate any law.”
Federal prosecutor Robert Sobelman wrote in a February filing that even if DeBose’s testimony showed corruption at Nike, his testimony would still be “irrelevant...highly confusing... and distracting.”
They were remarkable sentiments from a lawyer in the prosecutor’s office that indicted two Adidas officials for improper payments to players in September 2017 and it was just getting started. “We know your playbook,” a justice department official proclaimed at the time.
No one from Nike has been charged with anything.
“It doesn't matter whether Nike was in fact engaged in large-scale corruption in amateur basketball,” the judge said. “That doesn't provide a defense to Mr. Avenatti.”