A 36-count federal indictment unveiled Thursday accuses Attorney Michael Avenatti of committing a host of fraud and tax offenses, including stealing millions of dollars from clients and millions of dollars of employment taxes that his coffee company should have paid to the Internal Revenue Service.
The indictment returned by a grand jury in Santa Ana outlines four areas of criminal conduct, all of which relate to the misappropriation or the illegal concealment of funds.
Avenatti, 48, a Century City resident, was arrested on March 25 pursuant to a criminal complaint that alleged the theft of money from one client and the use of bogus tax returns to obtain a series of loans, according to the U.S. Attorney’s office. The indictment significantly broadens the scope of the case againt Avenatti, who appeared in federal court in Santa Ana on April 1, according to the government.
The criminal charges in the indictment address four areas of wrongdoing: the embezzlement of millions of dollars that should have been paid to clients, the failure to file income tax returns and failure to pay the IRS millions of dollars in taxes, the submission of fraudulent loan applications that included tax returns never filed with the IRS, and the concealment of assets from the Bankruptcy Court.
“These four areas of criminal conduct alleged in the indictment are all linked to one another because money generated from one set of crimes appears in other sets, typically in the form of payments to lull victims and to prevent Mr. Avenatti’s financial house of cards from collapsing,” said U.S. Attorney Nick Hanna.
“The financial investigation conducted by the IRS details a man who allegedly failed to meet his obligations to the government, stole from his clients, and used his ill-gotten gains to support his racing team, the ownership of Tully’s coffee shops, and a private jet,” added Acting Special Agent in Charge Ryan L. Korner with IRS Criminal Investigation in Los Angeles. “Individuals who intentionally thwart the IRS and fail to meet their tax obligations will be caught and they will be held accountable.”
Both Hanna and Korner appeared at a news conference in Downtown L.A. Thursday morning and also released a statement outlining the allegations.
Avenatti faces 10 counts of wire fraud related to more than $12 million he received on behalf of clients as a result of settlements in lawsuits and other negotiations. While he was entitled to attorney’s fees for work done on behalf of clients, the indictment alleges that Avenatti stole millions of dollars from clients he represented in four matters.
In each of the four cases of embezzlement alleged in the indictment, Avenatti received money on behalf of clients into client trust accounts, misappropriated the money, and lied to the clients about receiving the money or, in one case, claimed that the money had already been sent to the client, according to the government.
In the case of a victim called Client 1 in the indictment, Avenatti represented the man in a lawsuit against the County of Los Angeles that alleged, among other things, Client 1 became a paraplegic as a result of the county violating his constitutional rights. The county paid a $4 million settlement in January 2015, but within months Avenatti had drained the entire settlement payment from his law firms’ trust account and used portions of the settlement to finance his coffee business or pay personal expenses.
Avenatti concealed the receipt of the settlement from Client 1 and instead gave him periodic “advances” of no more than $1,900 and paid the rent for his assisted living facility, according to the indictment. The client is named Geoffrey Ernest Johnson, according to the Los Angeles Times.
Client 2 obtained a $3 million settlement in a matter, which included a payment of $2.75 million in early 2017. The indictment alleges that Avenatti took the bulk of this money and used it to purchase his portion of a jet, while falsely telling Client 2 that the settlement called for monthly payments over eight years.
Avenatti made 11 monthly payments, making them appear to come from the individual who paid the settlement, but then Avenatti allegedly stopped paying Client 2.
Further charges alleged 19 tax-related offenses, some relating to Avenatti’s ownership of Global Baristas US LLC (GBUS), which operated Tully’s Coffee. Starting in late 2015 and continuing into 2017, GBUS failed to file employment tax returns and failed to pay approximately $3.2 million in federal payroll taxes, according to the indictment, which notes that this figure includes at least $2.3 million in “trust fund taxes” that GBUS had withheld from its employees’ paychecks.
Avenatti also faces two counts of bank fraud stemming from an alleged scheme in which he submitted bogus financial information to obtain three loans totaling $4.1 million from The People’s Bank, a federally insured financial institution in Mississippi. As alleged in the criminal complaint, Avenatti submitted personal tax returns that had never been filed with the IRS, but the indictment further alleges that he submitted documents to the bank that overstated the resources of the Eagan Avenatti law firm.
The indictment specifically charges Avenatti with 10 counts of wire fraud related to the theft of money that should have been paid to clients, eight counts of willful failure to collect and transmit taxes withheld from GBUS employee, one count of endeavoring to obstruct the administration of the Internal Revenue Code, four misdemeanor counts of willful failure to file his personal tax returns for the years 2014 through 2017, three misdemeanor counts of willful failure to file Eagan Avenatti’s tax returns for the years 2015 through 2017, three misdemeanor counts of willful failure to file tax returns for Avenatti & Associates for the years 2015 through 2017, two counts of bank fraud related to the loans received from The People’s Bank, one count of aggravated identity theft for misusing the name of a tax preparer in relation to the bank fraud scheme, three counts of making false declarations in relation to a bankruptcy, and one count of giving false testimony under oath in Bankruptcy Court.
Avenatti earlier Thursday morning responded to to the filing of the indictment, asserting that he plans to plead not guilty and fight the charges.
“For 20 years, I have represented Davids vs. Goliaths and relied on due process and our system of justice. Along the way, I have made many powerful enemies. I am entitled to a FULL presumption of innocence and am confident that justice will be done once ALL of the facts are known,” Avenatti said in a tweet. “I intend to fully fight all charges and plead NOT GUILTY. I look forward to the entire truth being known as opposed to a one-sided version meant to sideline me.”
Avenatti, Stormy Daniels’ former attorney in her dispute with President Donald Trump, is also facing a federal case in New York for allegedly trying to extort more than $20 million from Nike, the world’s largest supplier of athletic shoes and apparel. Following his arrest, Avenatti tweeted receipts and other information he alleges show corruption on the part of Nike in recruiting of young athletes.
Avenatti’s has been free on $300,000 bond.
>> Want to read more stories like this? Get our Free Daily Newsletters Here!Follow us: