Lawyer Michael Avenatti Arrested on Federal Bank and Wire Fraud Charges


LOS ANGELES (CNS) - Newport Beach attorney Michael Avenatti was arrested today on charges of bank fraud, embezzling a client's money and attempting to extort more than $20 million from athletic equipment giant Nike in cases filed in Santa Ana and New York.

The criminal complaint filed in Santa Ana alleges Avenatti embezzled a client's money in order to pay his own expenses and debts -- as well as those of his coffee business and law firm -- and also defrauded a bank by using phony tax returns to obtain millions of dollars in loans.

The 48-year-old attorney -- who gained national attention by representing the porn actress Stormy Daniels in her lawsuit against President Donald Trump -- is charged with wire fraud and bank fraud in the two-count felony complaint filed Friday in federal court in Santa Ana.

``A lawyer has a basic duty not to steal from his client,'' U.S. Attorney Nick Hanna of the Central District of California said at a late morning news conference in downtown Los Angeles. ``Mr. Avenatti is facing serious criminal charges alleging he misappropriated client trust funds for his personal use and he defrauded a bank by submitting phony tax returns in order to obtain millions of dollars in loans.''

The separate federal case filed in New York -- where he was arrested --

involves allegations that he threatened to damage Nike's reputation if the company did not agree to make at least $22.5 million in payments to him and an unnamed, uncharged co-conspirator -- believed to be Los Angeles-based attorney Mark Geragos, according to the Wall Street Journal and The Associated Press, which both cited unidentified sources.

There was no immediate response from Geragos to a request for comment.

Avenatti appeared in federal court in New York Monday afternoon, and a judge allowed him to be released on $300,000 bond. Upon his release, he proclaimed his innocence.

``For the entirety of my career, I have fought against the powerful -- powerful people and powerful corporations,'' he said. ``I will never stop fighting that good fight. I am highly confident that when all of the evidence is laid bare in connection with these cases, when it is all known, when due process occurs, that I will be fully exonerated and justice will be done.''

The federal extortion case was filed against Avenatti about 45 minutes after he tweeted that he would hold a news conference Tuesday in New York ``to disclose a major high school/college basketball scandal perpetrated by Nike that we have uncovered. This criminal conduct reaches the highest levels of Nike and involves some of the biggest names in college basketball.''

In a statement, Nike said the company ``will not be extorted or hide information that is relevant to a government investigation. Nike has been cooperating with the government's investigation into NCAA basketball for over a year. When Nike became aware of this matter, Nike immediately reported it to federal prosecutors. When Mr. Avenatti attempted to extort Nike over this matter, Nike ... aided the investigation. Nike firmly believes in ethical and fair play, both in business and sports, and will continue to assist the prosecutors.''

According to an affidavit filed with the criminal complaint in the wire and bank fraud case, Avenatti negotiated a settlement which called for $1.6 million in settlement money to be paid on Jan. 10, 2018, but then gave the client a bogus settlement agreement with a false payment date of March 10, 2018.

The affidavit alleges that Avenatti misappropriated his client's settlement money and used it to pay expenses for his coffee business, Global Baristas US LLC, which operated Tully's Coffee stores in California and Washington state, as well as for his own expenses. When the fake March 2018 deadline passed and the client asked where the money was, Avenatti continued to conceal that the payment had already been received, court documents allege.

Avenatti also allegedly defrauded a bank in Mississippi by submitting to the lender false tax returns in order to obtain three loans totaling $4.1 million for his Newport Beach law firm and coffee business in 2014. According to the affidavit, Avenatti obtained the loans by submitting fabricated individual income tax returns for 2011, 2012, and 2013, reporting substantial income even though he had allegedly never filed any such returns with the Internal Revenue Service.

The allegedly phony returns stated that he earned $4,562,881 in adjusted gross income in 2011, $5,423,099 in 2012, and $4,082,803 in 2013, according to the affidavit. Avenatti also allegedly claimed he paid $1.6 million in estimated tax payments to the IRS in 2012 and paid $1.25 million in 2013. In reality, Avenatti never filed personal income tax returns for 2011, 2012 and 2013 and did not make any estimated tax payments in 2012 and 2013, federal prosecutors allege.

Instead of the millions of dollars he claimed to have paid in taxes, Avenatti still owed the IRS $850,438 in unpaid personal income tax plus interest and penalties for the tax years 2009 and 2010, court papers allege. The affidavit also alleges that, as part of his loan applications, Avenatti also submitted a fictitious partnership tax return for his law firm.

``Professionals, including attorneys, who create elaborate schemes that have no purpose other than to mislead others and defraud both their clients and federally insured financial institutions, run the very high risk of prosecution,'' said Special Agent in Charge Ryan Korner of the IRS-Criminal Investigation section. ``The criminal complaint unsealed (Monday) shows a pattern of selfish behavior that paints Mr. Avenatti as a lawyer who only represents his own self interests.''

If convicted on both charges, Avenatti would face up to 50 years in federal prison. His initial court appearance was scheduled for Monday in New York. He is expected to face the criminal charges in the California case in U.S. District Court in Santa Ana at a later date. It remains to be seen which case will be prosecuted first.

At the news conference in Los Angeles, Hanna said the Santa Ana charges paint ``an ugly picture of lawless conduct and greed.'' The prosecutor alleged that while Avenatti often boasts of representing clients who have few options, he is actually ``a corrupt lawyer who fights for his own selfish interests.''

Hanna denied that the timing of the announcement involving charges against the widely known Trump foe was somehow politically motivated.

``It's completely untrue,'' Hanna told reporters. ``(It has) nothing to do with anything political. The facts in these cases speak for themselves.''

Mark Pearson, IRS Criminal Investigation assistant special agent in charge, told reporters that Avenatti allegedly used cash that should have been used to pay his taxes ``to fuel an unrestrained and lavish lifestyle'' that cost as much as $200,000 a month.

Daniels tweeted that she was ``saddened but not shocked'' by the news of Avenatti's arrest.

``I made the decision more than a month ago to terminate Michael's services after discovering that he had dealt with me dishonestly and there will be more announcements to come,'' she wrote.

Daniels claims that she had an affair with Trump, but a federal judge in Los Angeles dismissed her suit against the president earlier this month and ruled that she must pay his attorney fees.

In early March, Avenatti's law firm, Eagan Avenatti, filed for bankruptcy protection. But that filing was tossed out when a former attorney for the firm, Jason Frank, claimed in court papers that Avenatti had failed to disclose millions of dollars in assets during a previous bankruptcy proceeding.


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