Lawyer Avenatti charged in California with U.S. fraud, tax crimesQuote
LOS ANGELES — In a sweeping expansion of the criminal charges against Michael Avenatti, a federal grand jury has indicted the Los Angeles lawyer on 36 counts of fraud, perjury, failure to pay taxes, embezzlement and other financial crimes.
Avenatti stole millions of dollars from five clients and used a tangled web of shell companies and bank accounts to cover up the theft, the Santa Ana grand jury alleged in an indictment that prosecutors will make public Thursday.
One of the clients, Geoffrey Ernest Johnson, was a mentally ill paraplegic on disability who won a $4-million settlement of a suit against Los Angeles County. The money was wired to Avenatti in January 2015, but he hid it from Johnson for years, according to the indictment.
In 2017, Avenatti received $2.75 million in proceeds from another client’s legal settlement, but concealed that too, the indictment says. The next day, he put $2.5 million of that money into the purchase of a private jet for Passport 420, LLC, a company he effectively owned, according to prosecutors.
At the time, Avenatti and his businesses owed millions of dollars in back taxes, the government claimed, and his Newport Beach law firm, Eagan Avenatti, was weeks from bankruptcy.
Federal agents seized the Honda HA-420 jet at Santa Barbara Airport on Wednesday under a court-approved warrant that remains under seal, said Thom Mrozek, a spokesman for the U.S. attorney’s office in Los Angeles.
The breadth of Avenatti’s alleged crimes is clear in the maximum sentence he would face if convicted on all counts: 335 years in prison.
In a separate federal case in New York, Avenatti faces up to 47 more years if convicted on charges of trying to extort more than $20 million from Nike, the sportswear giant. An indictment in that case is expected soon.
Avenatti, who is free on a $300,000 bond, tweeted Thursday morning that he’d made many powerful enemies over the last two decades.
“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 wrote shortly after U.S. attorney Nick Hanna summoned media to a Los Angeles news conference to announce the new charges.
The twin criminal cases have put Avenatti’s legal career in jeopardy just a year after he rocketed to fame as the hard-charging and telegenic attorney for adult-film actress Stormy Daniels in her battle to nullify a nondisclosure agreement with President Trump.
He lost both of her lawsuits, and Daniels now owes the president nearly $300,000 in legal fees, more than double the $130,000 in hush money that Trump paid her to keep quiet about their alleged 2006 affair.
In the California case, Avenatti was initially charged with bank and wire fraud, now eclipsed by a wide array of other alleged crimes. Prosecutors say he submitted phony tax returns and financial statements to Peoples Bank of Mississippi to secure more than $4.1 million in business loans.
He is also accused of embezzling from another client’s settlement of $1.6 million, which Avenatti denied receiving when he’d actually spent it all on personal expenses, prosecutors said.
On the day of his arrest, federal agents executed search warrants at Avenatti’s Century City apartment, his Echo Park law office and the Yorba Linda home of Judy Regnier, the office manager at Eagan Avenatti, according to the U.S. attorney’s office.
The exact amount of Avenatti’s alleged embezzlement from the five clients is unclear, because clients typically must use a portion of their settlement funds to pay their lawyers’ fees and expenses.
Under State Bar of California rules of professional conduct, a lawyer must promptly notify a client of the receipt of any funds they are entrusted to hold for the client and turn over the money at the client’s request.
In the Johnson theft, the indictment alleges, Avenatti received $4 million from Los Angeles County in 2015 to settle the paraplegic’s suit over his treatment at the Twin Towers Correctional Facility. Johnson, who was suicidal, jumped twice from an upper floor of the jail, injuring himself so badly the second time that he can never walk again, according to the suit.
After getting the $4 million, the indictment says, Avenatti did not tell Johnson the money had arrived. He soon funneled most of the money through multiple bank accounts. It landed in the accounts of GB Autosport, LLC, which managed Avenatti’s race-car team, and Global Baristas U.S., his troubled Seattle coffee company, according to the indictment.
In just over five months, Avenatti had spent the entire $4 million, but never told Johnson, the grand jury alleged. Instead, over the next four years, he paid Johnson a total of $124,000 in installments ranging from $1,000 to $1,900 and made some rent payments at Johnson’s assisted living facility.
He falsely told Johnson the payments were “advances” on a county settlement payment that had not yet arrived, according to the grand jury.
In November 2018, Johnson asked Avenatti to send information on the settlement to the Social Security Administration so it could gauge his eligibility for disability payments.
“Knowing full well that the requested information could lead to inquiries that could reveal” the embezzlement, Avenatti ignored Johnson’s request, causing the government to cut off his disability payments two months ago, according to prosecutors.
Avenatti’s alleged tax crimes were both personal and business. Prosecutors say he failed to file personal income tax returns in 2014, 2015, 2016 and 2017 — years when, according to the Internal Revenue Service, he deposited millions of dollars in his personal bank accounts.
Avenatti also failed to file tax returns for both of his law firms, Eagan Avenatti and Avenatti & Associates, in 2015, 2016 and 2017, the government charged.
The grand jury also accused Avenatti of lying to the IRS about his pocketing of nearly $2.4 million in taxes withheld from the paychecks of employees of Global Baristas U.S., which operated Tully’s coffee stores in Washington and California.
When the IRS started garnishing the company’s bank accounts, the indictment says, Avenatti ordered employees to deposit the stores’ cash and credit-card receipts in new accounts under a new company name. In an email instructing a credit-card processing company to switch accounts, Avenatti wrote, “we need this done ASAP.”
It's always been entertaining how much Avenatti is like Trump while both sides have a history of embracing theirs and attacking the others