12 Most Explosive Allegations in Massive 36-Count Indictment Against Michael Avenatti

Attorney Michael Avenatti was hit with a 61-page federal indictment in the Central District of California, accusing him of a variety of crimes including fraud, false statements, obstruction, and failure to pay taxes. There’s a ton of information in the massive court document, so here’s a breakdown of the key points.

1.Avenatti allegedly negotiated $4 million settlement with County of Los Angeles for disabled client, then kept the money

Avenatti negotiated a settlement on Jan. 21, 2015 for $4 million after “Client 1” sued LA County. Avenatti allegedly told Client 1 that the terms of the settlement were confidential, the payment had to wait until a Special Needs Trust was set up, and that the client couldn’t get a lump sum payment. All of this was false, the indictment says.

On Jan. 26 of the same year, Avenatti put the $4 million in a client trust account but didn’t tell Client 1 that they payment had been made. He then transferred $3,125,000 of that money to other accounts, including his own personal bank account and those of his other businesses, as well as towards personal expenses. By July 6, the $4 million was gone from the client trust account. Avenatti allegedly placated Client 1 by paying their rent and assisted living bills, but said they were “advances” on the settlement that hadn’t been paid yet, when it had allegedly been paid and spent by Avenatti.

2. The client lost Social Security benefits because Avenatti allegedly didn’t turn over information

Avenatti agreed to help Client 1 respond to a request from the Social Security Administration for information related to the settlement that was needed to make a determination about the client’s social security income (SSI) benefits. Avenatti didn’t respond, allegedly to hide his embezzlement. As a result, Client 1 lost their SSI benefits in February 2019, the indictment says.

Avenatti allegedly told Client 1 in March 2019 that the settlement finally went through and he’d get payments. This only happened after Avenatti was asked about this during a public judgment-debtor examination on March 22.

3. Avenatti allegedly tried to cover himself by having the client sign a document, now cites it as a defense

In an attempt to protect himself from any claims Client 1 might bring against him, Avenatti had Client 1 sign a document saying he was satisfied with his representation. At the same time, Avenatti allegedly had the client sign another document, saying that it was necessary to effectuate payment from LA County, which was false.

Ironically, Avenatti tweeted an image of such a statement of satisfaction from a client on Thursday, claiming it vindicated him.

4. Avenatti allegedly stole $2.5 million from a client to buy a plane

A second matter deals with Avenatti’s representation of Client 2, who had secured a $2.75 million settlement in another case. Unbeknownst to the client, Avenatti allegedly placed $2.5 million of that money in another law firm’s trust account, then used the funds to buy a private airplane. The rest of the money was transferred to other accounts.

Avenatti eventually said that the settlement was being paid in installments, and started making a series of payments to Client 2 that totaled only $194,000. Avenatti then stopped, claiming that the other party in the settlement was being difficult, the indictment says. Avenatti allegedly told Client 2 in March 2019 that the other party would pay a lump sum to cover the supposed missed payments from July 2018 to March 2019.

5. Avenatti allegedly gave client a fake settlement agreement

Client 3 had won a $1.9 million settlement, with $1.6 million to be paid on Jan. 10, 2018 and the rest in annual installments of $100,000 on Jan. 10, 2019, 2020, and 2020. Avenatti allegedly gave Client 3 an “altered copy” of the agreement that said the initial payment was to be made by March 10, 2018, and the subsequent payments on March 10 2019, 2020, and 2021. He had Client 3 sign the signature page for the actual agreement, and sent it to the opposing party. On Jan. 5, 2018, Avenatti received the $1.6 million payment in a client trust account, and did not tell Client 3.

Between then and March 14, 2018, Avenatti spent $1,599,400 for his own expenses without telling the client, the indictment says. In the months following the March 10, 2018 date he gave the client, Avenatti allegedly told him the opposing party hadn’t paid. He then allegedly paid Client 3 and the client’s spouse a series of payments totaling roughly $130,00 in what he called “advance payments.”

6. Feds say Avenatti stole millions from client and used the money to pay the IRS

Avenatti is accused of stealing $4 million from another client and using the money to pay off various expenses. Client 4 was supposed to get $8,146,288 in a payment from a company resulting from a stock transaction, but Avenatti allegedly spent nearly half of that himself. The indictment says that $2,828,423 of the money was transferred to a firm representing Avenatti in a bankruptcy matter involving his old firm Eagan Avenatti. The money helped pay off the firm’s creditors, which included the IRS.

Eventually, the indictment said, Avenatti used two wire transfers to pay Client 4 the remaining $4,146,288 that he hadn’t already spent (one transfer of $4 million and another for the rest), but claimed that there were really three transfers and that the entire $8,146,288 had been paid. He allegedly used the wire transfer confirmation document for the first $4 million to claim that it was really for the non-existent transfer of the missing $4 million.

7. Allegedly used one client’s money to pay others

The expenses Avenatti used Client 4’s money to pay off apparently included placating his other clients. The indictment said that $1,900 went to Client 1 and $34,000 went to Client 2. He is also accused of using money from his coffee business Global Baristas US LLC (GBUS) to pay clients.

8. Millions in unpaid taxes?

The indictment also alleges that Avenatti kept millions from the IRS. His businesses allegedly withheld tax money from employees’ paychecks, but then kept the money instead of turning it over to the IRS. In June 2017, the IRS imposed a tax lien against the company for the nonpayment of nearly $5 million in federal payroll taxes. From August 2017 to January 2018, the IRS sent levy notices to financial institutions saying that the company owed the IRS more than $5.2 million.

9. Obstruction?

The indictment says that Avenatti “corruptly obstructed and impeded” the IRS’s attempts by providing false statements that he wasn’t involved in GBUS’s finances and that he wasn’t aware of the money owed. He also allegedly told employees of Tully’s Coffee (owned by GBUS) to place cash receipts in a little-used account for a separate entity, instead of the account that was subject to an IRS levy notice.

10. IRS says Avenatti hasn’t filed an individual federal income tax return since 2011

According to the indictment, Avenatti was late in filing his tax returns in 2010 and 2011 (for the years 2009 and 2010, respectively), and failed to pay hundreds of thousands of dollars he owed to the IRS. He finally paid his balances for those years in 2015, after he sold his home in Laguna Beach, California, the indictment says, but since then he hasn’t even filed an individual federal tax return at all.

He is also accused of failing to file tax returns for Eagan Avenatti or his current firm Avenatti & Associates (through which he had owned his share of Eagan Avenatti) for 2015, 2016, and 2017.

11. Fake tax returns?

Not only is Avenatti accused of not filing tax returns, he’s also accused of pretending he filed in order to get bank loans for his businesses. The indictment says that he gave a bank, among other things, a return for the year 2011 showing that he made more than $4.5 million.

“In truth and in fact,” the indictment says, Avenatti “had not filed any 2011 U.S. Individual Income Tax Return with the IRS,” or paid the more than $1.5 million he owed for that year. He also allegedly submitted false returns for his firm, and misrepresented business income.

As part of the alleged fraud described above, Avenatti is also accused of fraudulently using the tax preparer identification number of another person.

12. Alleged false statements related to bankruptcy case

Finally, the indictment delves into a matter that Law&Crime has covered before, the 2016 bankruptcy case involving Eagan Avenatti at a time when they were facing an arbitration case from attorney Jason Frank. Frank had worked with the firm with an arrangement that provided for him to collect a percentage of the firm’s annual profits. He claimed that the firm didn’t pay him what they were supposed to, and failed to provide tax returns and other documents, as they were supposed to.

The bankruptcy case put the arbitration matter on hold, right before Avenatti was supposed to testify at a deposition. A judge noted that the bankruptcy had “a stench of impropriety.”

According to the indictment, Avenatti made several false statements regarding Eagan Avenatti, giving amounts for the firm’s accounts receivable that were less than the accurate amounts. He also allegedly lied under oath on June 12, 2017 when he said he did not collect counsel fees for litigation related to the Super Bowl. In reality, the indictment claims, Avenatti received payments totaling $1,361,000 on May 12, 2017.

Avenatti denies wrongdoing, and tweeted several statements about the allegations against him.

In one tweet he said, “I intend to fully fight all charges and plead NOT GUILTY,” and accused the government of trying to “sideline” him with the indictment.

In another, he went more on the offensive, saying, “Any claim that any monies due clients were mishandled is bogus nonsense.”

This indictment is just the latest legal problem Avenatti is facing. He was indicted in Manhattan federal court for allegedly trying to extort Nike for millions of dollars. Additionally, he agreed to turn over control of Eagan Avenatti to a court-appointed receiver, then allegedly tried to declare bankruptcy on the firm’s behalf without the receiver’s consent.

Michael Avenatti Indictment by on Scribd

[Image via Phillip Faraone/Getty Images for Politicon]

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