Attorney Michael Avenatti was arrested Monday in New York on a criminal complaint alleging he 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, according to federal authorities in Los Angeles.

Avenatti, 48, of Century City, is charged with wire fraud and bank fraud in a two-count felony complaint filed in Los Angeles. He is also facing a separate federal case filed in New York involving 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 co-conspirator — allegedly one of his clients.

“A lawyer has a basic duty not to steal from his client,” said U.S. Attorney Nick Hanna. “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.”

Without addressing the case filed against him in Los Angeles, Avenatti in a Twitter posting Monday morning said he is going to 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.”

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 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. Avenetti’s initial court appearance will be 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.

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