Convicted Orange County attorney Michael Avenatti “stole” settlement money from several clients to help bail out his law firm from bankruptcy, stave off creditors and to spend on himself, a federal prosecutor told jurors Wednesday in the defendant’s embezzlement trial, but Avenatti said the government has failed in its accounting of his expenses and that he did nothing wrong.
Avenatti, who sprinted to fame during a dispute with Donald Trump over a nondisclosure agreement between the former president and an adult film actress, won the right on the eve of trial to represent himself in the trial, so he personally made an opening statement to the jury. His attorney, Dean Steward, is assisting him as a co-counsel on the case.
Avenatti is accused of 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.
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. But he is on trial now on just the 10 counts of wire fraud, with the rest of the case to be tried at a later date.
The case revolves around settlements Avenatti negotiated for clients Geoffrey Johnson, Alexis Gardner, Gregory Barela and Michelle Phan.
Avenatti negotiated a $4 million settlement for Johnson, who was left a paraplegic following a suicide attempt while in Los Angeles County Jail.
“In 2011, Geoffrey Johnson was in a really bad place,” Assistant U.S. Attorney Brett Sagel said, telling jurors that Johnson was “confined to a wheelchair for the rest of his life” and hired Avenatti to file a civil rights lawsuit against Los Angeles County. Johnson wanted money to buy a special home and van to help him with his disability, Sagel said.
Avenatti failed to tell Johnson of the settlement and deposited the money into a attorney-client account and “spent all of that money on himself and his businesses,” Sagel alleged.
“You will learn Geoffrey Johnson was the first of several clients” who suffered the same fate, Sagel told the jury. “In each of them, he stole all or part of their money.”
In the case of Johnson, Avenatti sent him payments ranging from $1,000 to $1,900 and paid rent at various assisted living facilities for Johnson that the attorney claimed were “advances” on the settlement, prosecutors allege.
Avenatti deceived Johnson, telling him the county wouldn’t make lump-sum payments, which they did in this case, and then strung him along for years, saying the settlement had not yet been “finalized,” Sagel alleged.
Two years after the settlement, Avenatti told Johnson he could pay for a house with “cash,” but then delayed the home purchase with “excuse after excuse,” until he tried to buy a house with a loan first in his own name and then in the client’s name, Sagel alleged.
On March 22, 2019, during a public hearing in which Avenatti was accused of stealing Johnson’s settlement money, he went to the client’s home and presented him with more paperwork to sign to receive his settlement money, Sagel alleged.
Avenatti also cheated client Alexis Gardner in her January 2017 settlement with ex-boyfriend Hassan Whiteside of the Sacramento Kings as they wound down their relationship, Sagel alleged.
According to the prosecutor, Gardner was “essentially homeless” when she hired Avenatti, who negotiated $3 million for her in mediation. Avenatti did not tell her the “true terms” of the settlement and “falsely” told her that Whiteside would pay her $15,000 a month over the next eight years when, in fact, he agreed to pay $2.75 million upfront with the rest by Nov. 1, 2020, Sagel said.
Instead of turning the money over to his client, Avenatti kept it for himself, Sagel alleged.
“Defendant simply stole the $2.75 million and used it on himself and to buy a private plane and pay business expenses,” the prosecutor said.
When Gardner followed up on more than one occasion, saying she did not receive her monthly payment, Avenatti texted back to her that he would resolve it, according to Sagel. In one case he wrote, “Still?.. I’m on it,” according to Sagel. Another time he texted her, “That’s a problem. Let me find out what’s happening,” and another time, he wrote, “I will find out what the hell is going on,” Sagel alleged.
In all, Avenatti made 11 payments to Gardner totaling about $194,000, according to Sagel.
The prosecutor said Avenatti negotiated a settlement for Gregory Barela in December 2017 in an intellectual property dispute with a Colorado-based company, Brock USA LLC. Barela was due an upfront $1.6 million payment in January 2018 and then three more payments of $100,000 each in January of 2019, 2020 and this year.
Sagel alleged that Avenatti told Barela the payments were due in March instead of January of each of those years and in the meantime instructed him to “go ahead and charge up your credit cards” to start a new company.
“Defendant paid none of the $1.6 million to Greg Barela,” Sagel alleged. “Defendant had already spent the money — all but $600.”
When Barela followed up to see when he would be paid, Avenatti responded that Brock USA failed to turn over the money, Sagel said. At some point, Avenatti started sending Barela “advances” from April 2018 to November 2018 that amounted to about $130,000, the prosecutor said.
Phan, who was another of Avenatti’s clients, was the founder of IPSY, a makeup company, and a pioneering “social media influencer,” Sagel said. Avenatti represented Phan starting in August 2017 when she wanted to leave IPSY, Sagel said.
Avenatti negotiated a stock repurchase agreement for Phan and her business manager, Long Tran, Sagel said. The first payment was to be for $27,478,940 worth of stock, followed later by additional shares of stock worth $8,146,288, for a total of $35,625,228, Sagel said.
The company wired the $27 million to an attorney-client trust account Avenatti managed in September 2017, the prosecutor said.
The company then wired the remaining $8 million to Phan in March 2018, but Avenatti pocketed that money, Sagel alleged. Avenatti was embroiled in bankruptcy proceedings for his firm and wanted to get out of it, so he took $3 million of that money to pay off creditors, including the Internal Revenue Service, the prosecutor alleged.
Avenatti, however, said the evidence in the case will show that his law firm was a “David vs. Goliath” operation that represented clients on contingency and that he had a right to be paid for a variety of expenses that he paid upfront before winning any settlements or trial judgments.
“Let me be clear, no crime has been committed by me and I never intended to steal or defraud any clients at all — not last week, not last month, not last year, not ever,” Avenatti said. “I have pleaded not guilty for one reason — because I am not guilty.”
Avenatti said that on March 31, 2019, investigators met with Johnson, and he told the special agents that he signed the $4 million settlement agreement.
“Not only did he sign it, but it had been brought to him — by me,” Avenatti said.
The agreement was brought to Johnson while he was staying at an assisted living facility in West Hills that was being paid for by Avenatti’s law firm for “a very long time,” the defendant said, telling jurors that Sagel’s allegation that he stole the money was “completely false.”
When Avenatti found out Gardner was living out of her car, hoping security at a grocery store in West Hollywood wouldn’t notice and force her to leave, he was “horrified” and made sure “she had a place to lay her head,” the attorney said. He said such expenses came out of the pockets of the attorneys handling their clients’ cases.
He alleged that Barela has an “extensive criminal history” for “defrauding people,” and asked Avenatti’s firm to do a number of assignments outside of the case against Block, driving up the fees.
When he founded his law firm in 2007, “we represented thousands of the little guys,” Avenatti said. “We represented the Davids versus the Goliaths. We were blessed to do it well. We gave people who had no chance a fighting chance.”
Avenatti said his civil law firm had to pay all sorts of often “very expensive” fees such as experts used in testimony, and it was all a gamble that his attorneys would win a settlement or judgment.
“We bore all the risk,” he said. “If the case went south and there was no recovery, the client would be out nothing. We — I — would be out hundreds of thousands of dollars and in some cases millions of dollars. In many cases we were attempting to make chicken salad out of chicken scratch. We took cases no one else would touch because they were too risky. We were entitled to be paid our percentage, our costs, our expenses out of pocket.”
Avenatti said federal prosecutors, for example, paid their experts on attorneys’ fees $500,000 for this case.
Avenatti said the government’s expert has “failed” to properly account for his firm’s expenses and fees.
“It doesn’t add up,” Avenatti said of the government’s claims. “They paid him over half a million dollars to get it right — to get it exactly right — to the dollar. And the evidence will show that he failed.”
Avenatti said prosecutors have presented a case “plagued by sloppiness and lack of detail. We will show it is all smoke and mirrors.”
He predicted his acquittal.
“At the end of this case, I will rise before you again and I will ask you to find me not guilty because that is exactly what I am,” Avenatti said.
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