As Avenatti denies extortion charges, focus shifts to Orange County probe

Facing six felony charges in two cases, Michael J. Avenatti's legal troubles mounted Tuesday even as he publicly lashed out against his alleged extortion victim.

As Avenatti took to Twitter to accuse apparel giant Nike Inc. of crimes and cover-ups, federal authorities combed through items seized from an Orange County home they suspect could hold a trove of evidence of other misdeeds by the attorney. The home is that of Judy Regnier, Avenatti's longtime secretary and paralegal. She's described in the criminal complaint as being "personally involved" in many of Avenatti's financial transactions and contracts, and Avenatti named her in a recent judgment debtor exam as one of his few remaining employees.

IRS agents spent Monday at her cul de sac home in Yorba Linda, serving one of several warrants in an investigation that accuses Avenatti of defrauding a client of a $1.6 million settlement and fraudulently obtaining bank loans for his coffee company, Global Baristas, and his now-bankrupted law firm, Eagan Avenatti LLP.

The Central District of California case is separate from an extortion probe involving Nike that's ensnared Avenatti and his alleged, unindicted co-conspirator, identified in news reports as Los Angeles lawyer Mark Geragos. A spokesman for the U.S. attorney in the Southern District of New York declined Tuesday to confirm the identity of the co-conspirator but mentioned he had been widely named in the press.

Legal experts say the Southern California case could be the more devastating one for Avenatti.

"The Orange County case could conceivably be a much bigger deal because it may involve trust funds." said ethics specialist Diane L. Karpman of Karpman & Associates.

Steven J. Katzman of Bienert Katzman PLC said Avenatti's biggest problem could be "death of a thousands cuts."

"He could beat back some of it, but if it's presented in a collective fashion, he's got a problem on credibility," said Katzman, a former U.S. trustee and federal prosecutor.

Both Karpman and Katzman said the extortion case in New York raises questions about the applicability of a zealous advocacy defense, which would depend on whether Avenatti truly represented a client when he threatened to tank Nike's stock price by publicizing his allegations of corruption involving amateur athletics. Excerpts from his profanity-laced tirades, which were covertly recorded by federal investigators, are included in the California criminal complaint.

"Just looking at how he negotiates, it's over the top and frankly, unprofessional. But is it illegal?" Katzman said. "It's a very gray line. Was this extortion or was this just very aggressive -- and questionably ethical -- settlement discussions?"

Geoffrey S. Berman, the U.S. attorney for the Southern District of New York, addressed that defense head on in a news conference Monday, stating, "Avenatti's conduct had nothing to do with zealous advocacy for a client or any other kind of legitimate legal work."

Karpman called Berman's statement "obviously code for, 'That is going to be the big defense.'"

"It's like a dead giveaway," Karpman said. "If he's got a client, that's going to be a very viable defense. There's a whole body of case law about zealously representing a client."

Joseph A. Yanny of Yanny & Smith agreed the extortion case is questionable but said the allegations raise obvious ethical issues that could lead to disbarment.

"He's going to a prospective defendant and saying, 'If you pay me money, I'll shut my mouth.' That's not OK," Yanny said. But criminally, "they're really stretching it," he said.

Yanny noted that at least two of the three loans behind Avenatti's bank fraud charge appear to have been repaid, which lessens the amount of prison time he's facing if convicted.

Still, Yanny said, "This guy's in a world of hurt."

Avenatti was released on $300,000 bond after appearing before U.S. Magistrate Judge Katharine H. Parker of the Southern District of New York on Monday, with his travel limited to New York and California. He is prohibited from having contact with unindicted co-conspirator outside the presence of counsel. He's also barred from spending or transferring $5,000 or more from any account he controls without notifying the court, and must surrender his passport. United States v. Avenatti, 19MJ-02927 (S.D. N.Y., filed March 24, 2019). United States v. Avenatti, 19MJ-00241 (C.D. Cal., filed March 22, 2019).

While the New York case developed in less than two weeks, the Orange County investigation started last year and heated up in February when IRS agents obtained a warrant through U.S. Magistrate Judge Douglas F. McCormick of the Central District that allowed them to search seven digital devices provided to them by former employees of Global Baristas. While the investigations were unrelated, California and New York authorities coordinated Avenatti's arrest on Monday, with McCormick signing a warrant on Friday and a New York magistrate judge authorizing another one on Sunday for four extortion-related charges.

In addition to his bank and wire fraud charges, the Central District search warrant authorized the seizure of evidence for 13 other possible crimes by Avenatti, including attempting to evade or defeat tax, bankruptcy fraud, false statements, money laundering and aggravated identity theft. Assistant U.S. Attorney Julian L. Andre of the major frauds section is prosecuting.

Geragos, the celebrity founder of Geragos & Geragos in Los Angeles, has not been charged with a crime. He did not return messages seeking comment on Tuesday. Benjamin Brafman, a New York lawyer who the Los Angeles Times reported is representing him, told the Daily Journal on Tuesday that he won't be representing Geragos because of a conflict, and he didn't yet know who would be.

A State Bar member since 2000, Avenatti rocketed to fame last spring while representing adult film actress Stephanie "Stormy Daniels" Clifford in a now-dismissed lawsuit against President Donald J. Trump. The attorney appeared on news shows more than 100 times and expressed interest in seeking the U.S. presidency.

But his mounting troubles began years ago as his boutique crumbled into bankruptcy.

A broken agreement to pay an ex-partner $4.85 million began a months-long court battle over what's now a $14.85 million debt. His creditors accused him of diversionary courtroom tactics that echo his approach to an ongoing, eight-year-old Orange County Superior Court case in which former co-counsel at Stoll, Nussbaum & Polakov APC, accuse him of stealing $5.4 million. His divorce case includes allegations of missed spousal and child support payments, and recent judgment debtor exams have revealed a host of evidence that opposing attorneys say appears to show he's using client and firm money to pay personal expenses.

Avenatti does not yet have counsel in his criminal cases. His lawyer in his recent judgment debtor exam, Ronald S. Hodges of Shulman Hodges & Bastian LLP, said Tuesday he had not been retained in the criminal case, and a federal public defender represented him at his New York appearance Monday.