Michael Avenatti indicted on 36 counts, accused of embezzling tens of millions of dollars
Erica Orden, CNN
(CNN) — A federal grand jury in California has indicted celebrity attorney Michael Avenatti on 36 counts, including embezzlement, wire fraud, tax evasion, bankruptcy fraud and bank fraud connected to his alleged theft of tens of millions of dollars from five clients, one a paraplegic.
The 61-page indictment, disclosed by prosecutors on Thursday, outlines years of alleged deception and an array of false statements to both federal and bank officials by a man who, over the course of the past year, has become one of the highest profile attorneys in the country.
Wednesday’s indictment comes two weeks after federal prosecutors in Manhattan and Los Angeles charged Avenatti, who became a household name during his representation of adult-film actress Stephanie Clifford, known professionally as Stormy Daniels, nearly simultaneously in two criminal cases. In the New York case, Avenatti is accused of attempting to extort more than $20 million from sportswear company Nike.
US Attorney for the Central District of California Nick Hanna said at a news conference in Los Angeles on Thursday that much of Avenatti’s misconduct was interrelated.
“Money generated from one set of crimes was used to further other crimes, typically in the form of payments designed to string along victims, so as to prevent Mr. Avenatti’s financial house of cards from collapsing,” Hanna said.
He added that, as part of the case against Avenatti, federal authorities seized a $5 million jet Avenatti co-owned on Wednesday.
Beginning in 2015, Avenatti executed a scheme to defraud five clients, according to the indictment, one of whom was a paraplegic from whom Avenatti allegedly withheld a settlement payment of $4 million.
After Avenatti negotiated settlements for the clients that required payment to go to them, he would lie to the clients about the terms of the settlements, instead depositing the funds to attorney trust accounts he controlled, the indictment says. He would then embezzle and misappropriate those funds, according to the indictment, and to prevent discovery of his scheme, would tell clients the settlement proceeds hadn’t yet been paid, among other tactics.
In the case of the paraplegic client, for example, Avenatti, after having pocketed the client’s $4 million settlement from a lawsuit against the county of Los Angeles, directed a small portion of what the client was owed, $124,000, to be paid to the client and made some payments to assisted living facilities to cover the client’s rent, according to the indictment. But Avenatti denied to the client that the total settlement had already been paid, the indictment reads.
As a result, that client was unable to purchase a house he sought. The client was also denied disability benefits in February 2019 after Avenatti failed to respond to the Social Security Administration on the client’s behalf, allegedly fearing that disclosure of information the administration sought would expose Avenatti’s scheme.
“As it turns out, within months of receiving the settlement proceeds in 2015, Mr. Avenatti had drained the entire $4 million payment from his trust account, using significant portions of these funds to finance his coffee business, his auto-racing enterprise and his own personal lifestyle,” Hanna said Thursday.
In another instance, Avenatti allegedly used $2.5 million from a client’s settlement payment to purchase a private plane, the title of which was held through an Avenatti-controlled LLC called Passport 420.
On Thursday, Avenatti tweeted after the indictment was announced: “For 20 years, I have represented Davids vs. Goliaths and relied on due process and our system of justice. Along the way, I have made many powerful enemies. I am entitled to a FULL presumption of innocence and am confident that justice will be done once ALL of the facts are known.”
He added later: “Any claim that any monies due clients were mishandled is bogus nonsense.”
Prosecutors also charged Avenatti with giving false testimony in a case involving the bankruptcy of his law firm Eagan Avenatti LLP. In one example in the indictment, Avenatti answered “no” under oath during the proceeding when asked if his firm received any fees from the Super Bowl NFL litigation. Prosecutors alleged Avenatti and his law firm received $1.36 million from the litigation.
The indictment also accuses Avenatti of having failed to file multiple individual income tax returns, saying the last such return he filed with the IRS was in 2010.
Avenatti also allegedly submitted false information to financial institutions for several loans, including a 2011 tax return noting his adjusted gross income for that calendar year of approximately $4.6 million. In fact, Avenatti hadn’t filed a 2011 tax return with the IRS.
And, according to the indictment, he failed to pay nearly $5 million in payroll taxes for a coffee store chain, Global Baristas US LLC, that he owned in Washington and California even while withholding the taxes from employees’ paychecks. After the IRS sought those unpaid taxes through a lien and levy notices to financial institutions that did business with the coffee company, Avenatti lied to IRS officials about his involvement in the chain’s finances, the indictment says.
Avenatti rose to fame representing Daniels, whose alleged affair in 2006 with President Donald Trump led in part to criminal charges against Trump’s former personal attorney Michael Cohen. Cohen pleaded guilty and is set to report to prison next month, and Avenatti and Daniels have parted ways. Trump has denied having an affair with Daniels.
In recent months, Avenatti has attached himself to other controversial matters, representing a woman who claimed misconduct by US Supreme Court Justice Brett Kavanaugh while he was in high school and several parties connected to a case against musician R. Kelly.
On Thursday, asked about Avenatti’s claim that the indictment was the result of a conspiracy by prominent figures Avenatti has antagonized, Hanna dismissed that allegation: “Nothing can be farther from the truth.”