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SANTA ANA (CNS) - A federal judge in Orange County declared a mistrial today in the embezzlement trial of attorney Michael Avenatti, who is accused of stealing settlement money from several clients to help bail out his law firm from bankruptcy, stave off creditors and spend on himself.
The mistrial was granted on technical grounds, with U.S. District Judge James V. Selna ruling that federal prosecutors failed to turn over relevant financial evidence to Avenatti. Selna said he did not find any evidence of intentional misconduct on the part of prosecutors, essentially determining the failure to disclose the data was tantamount to an oversight.
Another hearing in the case was set for Sept. 2, and Selna scheduled a tentative new trial date for Oct. 12.
“This has been an incredibly difficult journey for my family, for my children, for my friends and, lastly, for me,'' Avenatti told reporters after the hearing.
Avenatti, who is representing himself in the case, thanked his co-counsel and defense team “for standing by me and advocating tirelessly on my behalf.''
“Today is a great day for the rule of law in the United States of America,'' he said.
Avenatti, who sprinted to fame during a legal dispute with Donald Trump over a nondisclosure agreement between the former president and adult film actress Stormy Daniels, has consistently maintained that the government failed in its accounting of his expenses and that he did nothing wrong.
He won the right on the eve of trial to represent himself in the case. Attorney Dean Steward assisted him as a co-counsel on the case.
Avenatti is charged with ripping off at least five clients of nearly $10 million in settlement funds between January 2015 and March 2019. Earlier this month, Avenatti was sentenced to 30 months in prison for attempting to extort about $25 million from Nike, in a case that was tried in New York.
In California, Avenatti is charged in a 36-count indictment with 10 counts each of wire fraud and failing to file tax returns, eight counts of willful failure to collect and pay over-withheld taxes, two counts of bank fraud, three counts of a false declaration in bankruptcy and one count each aggravated identity theft and providing false testimony under oath in bankruptcy. His current trial is only on the 10 counts of wire fraud, with the rest of the case to be tried at a later date.
At issue in Avenatti's request for a mistrial or to have charges dismissed was what attorneys refer to as a Brady violation. That law requires prosecutors to turn over any evidence that could be used by the defense.
Avenatti argued that he repeatedly requested accounting information from his former law firm, complaining that not all of it was turned over to his defense team. Prosecutors consistently responded that they turned over everything they had, and Selna at one point denied a request to have direct access to the law firm's servers based on the prosecution's claim.
Selna, however, made a point of emphasizing that he did not find any evidence of wrongdoing by prosecutors.
“I find no misconduct of the prosecution team,'' Selna said.
The judge attributed the issue to a “shortcoming'' in the production of documents from investigators.
Avenatti argued that he was denied access to information from an accounting software program called Tabs. He said the government made its case based on data from another accounting software program called QuickBooks.
The difference in the two is QuickBooks was mainly used for clients billed on an hourly basis, but Tabs was used for clients whose cases were taken contingent on winning. Avenatti argued the Tabs data was critical to his defense because it helped his argument that some of the alleged victims were clients he was entitled to bill for various expenses related to winning the settlements.
Avenatti further argued that the prosecution's expert witness, John Drum, relied on QuickBooks data only when determining the loss to the alleged victims.
“That is why the government never made any effort to produce (the Tabs evidence) because it was exculpatory,'' Avenatti told Selna.
“Time and time again all Brady ... information was not produced,'' Avenatti said.
On Friday, Selna ordered prosecutors to spend the weekend with Avenatti going over the former law firm's computers to find more information from the Tabs accounting system. Avenatti argued that it revealed data favorable to his defense.
“There's no question this data should have been produced,'' Avenatti said. “The damage is substantial... We still don't know the full extent of the prejudice.''
Assistant U.S. Attorney Brett Sagel said at most Selna should provide a recess in the trial so Avenatti could go over the new evidence before continuing with testimony.
Sagel also argued that a cursory review of the new evidence showed that it backed up “exactly what Mr. Drum testified to.''
Selna noted that Avenatti, however, was “entitled to make non-winning challenges as he is to making winning challenges,'' and that any discrepancies in the accounting could be used to challenge Drum's credibility.
Sagel also argued that the government turned over everything it received from investigators.
“We don't have the authority to go into these servers,'' Sagel said, referring to the system that was set up to have a special team to go over all of the law firm's records to identify information that is considered “privileged'' or private by law.
Sagel argued that Avenatti had “access'' to the privileged information and should have asked for what he needed.
Sagel also said he didn't have to prove the exact dollar amount of money lost to show wire fraud.
“Everything in our possession we provided,'' Sagel said. “If there's something missing please let us know. ... He had two years to ask us what we didn't provide. He's had access to this information ... and we provided what we had. ... At no point were we hiding anything.''
Sagel said the Tabs data is not exculpatory.
“They don't change the analysis,'' of the alleged theft, Sagel said.
Avenatti argued that investigators did seize the Tabs data as outlined in a search warrant in the case and they have been in possession of it for years. He said access alone doesn't relieve prosecutors from seeking out exculpatory evidence and giving it to the defense.
“I should have had the benefit of this information,'' Avenatti said. “Details matter.''
Selna said that “financial data is critical to this case'' and that Drum's charts used in the trial were all based on financial data retrieved by investigators.
Selna noted that Avenatti's former office manager, Judy Regnier, mentioned the Tabs program in an interview with investigators in November 2019.
“The government was fully on notice of the existence of the Tabs data'' for years, Selna said.
The judge also noted that during questioning, one of the investigators said he wasn't sure if agents had the Tabs data.
“Tabs data would have been helpful to defendant,'' Selna said.
Avenatti might have had an entirely different strategy if he'd had the Tabs data, Selna said.
Jurors were told at the onset of the trial they wouldn't be needed past Aug. 20, so a delay in the trial would not be appropriate, Selna said.
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