Federal prosecutors more than two years ago put the hammer down on people who sold illegal Nike knockoffs on the streets of Niagara Falls and Buffalo.

The investigation begun by Niagara Falls police led to 25 arrests in several states. Counterfeit Nike sneakers worth an estimated $7 million were found in two New York City warehouses.

Since then, 16 defendants have taken guilty pleas in Buffalo’s federal court, and District Judge Richard J. Arcara has ordered most of those convicted to pay restitution to Nike — more than $500,000 in one case — after they serve their prison terms.

The case has drawn accolades from people in the business world who consider counterfeiting a major problem. But one defense lawyer in the case said the feds shouldn’t even be involved.

Mark J. Mahoney sees the sales of knockoff merchandise as a business dispute between Nike and the accused counterfeiters, and he questions using federal prosecutors and agents to help a multibillion- dollar company.

“To me, it’s ridiculous to send poor people to prison and then make them spend the rest of their life trying to repay Nike after they get out,” said Mahoney, who represents a woman charged in the case.

Under federal law, Mahoney claims, it is illegal for Arcara to order convicts to pay restitution to Nike. He predicted that the people who have pleaded guilty so far will face $18 million in restitution payments to Nike.

“Under the law, you can’t order restitution payments to a victim who hasn’t suffered a financial loss,” Mahoney said. “Nike has never filed a Victim Impact Statement with the court in this case. I think it’s because they can’t prove that they lost one dollar in sales because of the activities of this group.”

Officials at Nike’s corporate headquarters in Beaverton, Ore., declined to comment.

But U. S. Immigration & Customs Enforcement officials call the case an effective strike against a worldwide problem, noting the illegal sales of counterfeit products cost legitimate businesses $600 billion a year.

“It is a major problem, here and all over the world. It’s everything from knockoff sneakers and T-shirts to fake Viagra pills,” said Lev Kubiak, special agent in charge of ICE investigations in Buffalo. “It has been estimated that the U. S. economy loses 750,000 jobs a year because of the counterfeiting of legitimate products.”

U. S. Attorney Kathleen M. Mehltretter and prosecutor William J. Hochul Jr. strongly disagree with Mahoney.

Regardless of whether Nike or any other crime victim files a Victim Impact Statement with the court, a judge has the right to look at the facts and determine that restitution payments are warranted, Mehltretter said.

“We believe Mr. Mahoney is wrong on this point of the law. We believe Nike has lost money because of this crime, and we believe Judge Arcara is right to order restitution,” she said.

Another big supporter of the government’s crackdown on fake Nikes is Buffalo small-business owner Rick Dehlinger, longtime owner of Rick’s Sports Apparel on Allen Street.

Dehlinger said his business has been hurt for years by unfair competition from people who sell fake Nikes and other sneaker products on the streets for a fraction of retail prices. Top-of-the-line sneakers such as Air Jordans now sell for $120 to $150 a pair in stores, he said.

“I run a legitimate business. I pay taxes, I hire employees. I contribute to the economy by paying rent on a building,” Dehlinger said. “The counterfeiter doesn’t do any of those things, and he’s selling an inferior product that gives Nike a bad name.”

The case that began in Niagara Falls led to the September 2007 recovery of 160,000 pairs of fake Nikes. Customs agents say the sneakers were cheap imitations of Nikes, made illegally in China, where the company’s famous “swoosh” logo was put on each sneaker.

Mahoney represents Ling Zhen Hu, 48, a Chinese woman who lives in Flushing with her husband, Xiao Cheng Lin, who was also arrested. They are accused of conspiracy to traffic in counterfeit goods. Hu is a legal immigrant, but if convicted of a felony, she faces the possibility of being deported back to China, the defense lawyer said.

“She was given sanctuary in this country because of the forced abortion policy in China,” Mahoney said. “It would be a terrible thing to send her back there.”

According to Mahoney, Hu was “basically a clerk” who speaks little English and had no idea that the sneakers she was selling were fake Nikes.

“I’m not saying she’s a perfect person. She’s a struggling immigrant who was hired to sell sneakers. She doesn’t know the first thing about trademark infringement laws,” Mahoney said.

But in court papers, Hochul said Hu had more than a minor role in the counterfeit trafficking operation. Hochul alleged that Hu worked closely with New York City wholesaler Malik Bazzi, who pleaded guilty and is considered one of the major traffickers in the case.

In the couple’s home, federal agents found $518,000 “in cash and monetary instruments,” in addition to a money-counting machine, photographs of Nike sneakers and business ledgers related to the scheme, Hochul said.

And Hu knew exactly in what city and province the knockoff sneakers were made in China, the prosecutor said.

The money found in Hu’s home did not belong to her or her husband, but to others involved in the scheme, Mahoney argued.

If convicted of a felony in the case, Hu could face a prison term and could also be ordered to pay thousands of dollars in restitution to Nike. So far, she has refused to take a guilty plea.