Nike stock is starting the week in the red as a federal extortion trial against celebrity lawyer Michael Aveantti, which alleges he tried to shake down the athletic apparel giant for millions of dollars, gets underway in New York.
Avenatti, who is perhaps best known for representing Stormy Daniels in her lawsuit against US President Donald Trump, allegedly threatened to publicly accuse Nike Inc (NYSE:NKE) employees of improper and illegal conduct unless the firm paid his client US$1.5 million and a further $15 to $25 million for an “internal investigation” of the allegations. Avenatti has pleaded not guilty to three criminal counts and remains in custody in Manhattan ahead of the trial, which is expected to last for three weeks. Nike stock is currently trading for $100.24.
Prosecutors said Avenatti threatened to hold a press conference, based on information from his client Gary Franklin, accusing Nike officials of making and trying to conceal illegal payments to families of top college basketball recruits. Avenatti is also charged with wire fraud for allegedly concealing a settlement offer made by Nike from Franklin, whose California Supreme team participated in the Nike Elite Youth Basketball League. While the company has denied any wrongdoing, Nike stock is currently down 1.8%.
Avenatti has said that it is in violation of his constitutional right to free speech under the First Amendment for a civil lawyer to be prosecuted for threatening to truthfully expose misconduct by Nike that directly related to his client’s claims. He is also charged with stealing approximately $300,000 from Daniels after helping her land a book deal. If found guilty, Avenatti could be jailed for up to 40 years.
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The outbreak of the Coronavirus in China could also be a factor in the falling value of Nike shares today. The sportswear firm generates about 17% of its business from China, and estimates from Credit Suisse say the firm could see a 3% to 5% decrease in earnings per share next quarter if the virus isn’t contained. In October, Nike CEO Kevin Parker stepped down after 13 years in charge of the company.
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