Michael Avenatti embezzled millions from paraplegic client’s settlement, new 36-count indictment alleges

Michael Avenatti, former attorney for Stormy Daniels, has been indicted by a federal grand jury in California on 36 counts, including embezzling from a paraplegic, court documents released Thursday show.

Avenatti, 48, faces charges of wire fraud, failure to collect and withhold payroll taxes, attempting to obstruct the IRS, failing to file tax returns, aggravated identity fraud, bank fraud and false testimony under oath during bankruptcy.

The lawyer was arrested March 25 on some of the counts, but the 61-page indictment filed by a federal grand jury late Wednesday “significantly broadens the scope of the case,” according to a statement from the U.S. Attorney’s Office for the Central District of California.

The criminal charges in the indictment “are all linked to one another because money generated from one set of crimes appears in other sets — typically in the form of payments to lull victims and to prevent Mr. Avenatti’s financial house of cards from collapsing,” said U.S. Attorney Nick Hanna.

Avenatti wouldn’t comment beyond statements he made on Twitter.

“I intend to fully fight all charges and plead NOT GUILTY. I look forward to the entire truth being known as opposed to a one-sided version meant to sideline me,” he wrote Thursday.

The charge involving the paraplegic man says Avenatti drained a $4 million settlement paid out to the client by Los Angeles County, using “portions of the settlement to finance his coffee business or pay personal expenses,” the U.S. attorney’s office statement said.

“Avenatti concealed the receipt of the settlement from Client 1 and instead gave him periodic “advances” of no more than $1,900 and paid the rent for his assisted living facility,” the statement said.

Avenatti lied by telling that client as he was trying to buy a house that his settlement money was not available, causing him to fail to meet escrow, according to the indictment. Avenatti is also accused of failing to fulfill a promise to respond to that client’s Social Security Administration inquiry, leading to a loss of benefits.

Josh Robbins, the attorney representing that alleged victim, Geoffrey Ernest Johnson, said in a statement that Johnson is the “victim of an appalling fraud.”

“Mr. Avenatti stole millions of dollars that were meant to compensate Mr. Johnson for a devastating injury, spent it on his own lavish lifestyle, then lied about it to Mr. Johnson for years to cover his tracks,” Robbins said. “His actions have left Mr. Johnson destitute.”

Avenatti also allegedly embezzled millions of dollars from four other clients, using the money to fund the purchase of a jet, his coffee business, “his auto racing enterprise” and his own legal and personal expenses.

He used some clients’ money to pay previous clients he had swindled and “pay some of his law firm’s bankruptcy creditors, including the IRS,” according to the U.S. attorney’s office.

“As an attorney, holding your client’s money to trust is one of the highest duties. It is lawyer 101. You do not steal your client’s money. And that is one of your highest duties and every lawyer knows it,” Hanna said.

Avenatti tweeted a client’s testimonial calling him “an exceptional, honest and ethical attorney.”

“Any claim that any monies due clients were mishandled is bogus nonsense. … I look forward to proving my innocence,” Avenatti wrote in the tweet.

Any claim that any monies due clients were mishandled is bogus nonsense. By way of example only (there are MANY more like this), here is a document Mr. Johnson signed less than a month ago attesting to my ethics and how his case was handled. I look forward to proving my innocence pic.twitter.com/tWL1aIuPy0— Michael Avenatti (@MichaelAvenatti) April 11, 2019

Nineteen tax-related charges against Avenatti include accusations he has not filed personal income tax returns since 2010, and didn’t file some tax returns for his two law firms. He is also accused of failing to pay more than $3 million in payroll taxes while he was the owner Global Baristas US LLC, which operated Tully’s Coffee.

“Avenatti allegedly attempted to obstruct the IRS’s efforts to collect the taxes” by lying and directing funds from credit card transactions at Tully’s coffee shops to a new bank account, the U.S. attorney’s office said.

Two bank fraud charges against Avenatti allege he secured bank loans by submitting tax returns that had never been filed with the IRS and by claiming that the Eagan Avenatti law firm had $508,200 in its operating account when it had only a little more than $43,000.

Avenatti is also charged with four counts of bankruptcy fraud for allegedly failing to report all of Eagan Avenatti’s accounts receivable, under penalty of perjury, and falsely testifying under oath during a bankruptcy hearing by denying the firm had received more than $1.3 million in fees when it had.

The IRS has been investigating Avenatti for more than two and a half years, Hanna said.

If Avenatti is convicted of all 36 counts, he could face a potential 335 years in federal prison, according to the U.S. attorney’s office. He is currently free on $300,000 bond, and is scheduled to be arraigned in U.S. District Court in Santa Ana on April 29.

A $5 million jet co-owned by Avenatti was seized Wednesday as part of the ongoing investigation, officials said.

The new charges follow Avenatti’s arrest in New York last month for allegedly trying to shake down Nike for up to $25 million and on two counts of wire and bank fraud from Southern California, where his firm is based. Avenatti has said he expects to be cleared.

The attorney is best known for representing porn actress Stormy Daniels in lawsuits against President Donald Trump.

The charges are the latest major blow to a career that took off last year when Avenatti represented Daniels in her lawsuit to break a confidentiality agreement with Trump to stay mum about an affair they allegedly had.

Avenatti became one of Trump’s leading adversaries, attacking him on cable news programs and Twitter. At one point, Avenatti even considered challenging Trump in 2020.

But in California, his business practices had come under scrutiny from the IRS and a former law partner who was owed $14 million by Avenatti and the Eagan Avenatti firm.

Source: NBC

Leave a Reply

%d bloggers like this:
A DAILY ROUNDUP OF THE MOST FASCINATING WALL ST, COMPLIANCE AND REGULATORY NEWS.