Avenatti indicted and jet is seized

LOS ANGELES -- Michael J. Avenatti bilked clients to fund a lavish lifestyle built on a Ponzi scheme of bank fraud, tax evasion and perjury, alleges an indictment handed down Thursday containing 36 fresh felony charges against the beleaguered attorney.

Nicola T. "Nick" Hanna, U.S. attorney for the Central District of California, announced the indictment about the same time Avenatti appeared in Los Angeles County Superior Court for a continued hearing related to a personal debt to a former law partner.

"It is Lawyer 101: You do not steal your client's money. It's one of your highest duties, and every lawyer knows it," Hanna said.

Avenatti was a few blocks away at the Stanley Mosk Courthouse, telling Superior Court Judge Edward B. Moreton Jr. he intended to invoke his Fifth Amendment right against self incrimination in a judgment debtor exam over $4.85 million he owes an ex-partner. Moreton ended the brief proceeding after denying a motion for a protective order from Avenatti's lawyer, Ronald S. Hodges of Shulman Hodges & Bastian LLP, regarding subpoenaed financial documents.

Avenatti then took to Twitter to defend himself, calling the allegations of theft against clients "bogus nonsense" and saying he intends to "fully fight all charges and plead NOT GUILTY." He posted a portion of a document he said one of his alleged victim clients signed "less than a month ago attesting to my ethics and how his case was handled."

According to the indictment, Avenatti secured the statement one or two days after a March 22 judgment debtor exam in U.S. District Court, in which he was shown bank records indicating he'd secured a $4 million settlement for the client, Geoffrey Johnson, but was paying Johnson no more than $1,900 monthly. The indictment describes it as an attempt "to further lull" Johnson and "to establish a defense."

Reached by phone Thursday, Avenatti said he has "a lot of evidence and facts that we look forward to presenting in due time."

Avenatti also faces four extortion related charges in the Southern District of New York for a case involving Nike that's separate from the alleged financial crimes in the Central District. He's free on $300,000 bond after being arrested March 25. The new indictment replaces bank and wire fraud charges filed in the Northern District that accompanied the extortion case.

Steven J. Katzman of Bienert Katzman PLC, who represents Avenatti in the Central District criminal case, said his client is presumed innocent, and an indictment isn't evidence.

"We intend to examine the government's evidence, thoroughly investigate the allegations and provide Mr. Avenatti a full defense to the charges," Katzman said.

Federal investigators on Wednesday seized a $5 million jet in Santa Barbara that Avenatti partly bought with stolen money, said Thom Mrozek, spokesman for the U.S. attorney's office. Steven R. Welk, chief of the asset forfeiture section in Los Angeles, will seek its forfeiture.

Avenatti's criminal case will be prosecuted by Julian L. Andre and Brett A. Sagel, who joined Hanna at the news conference Thursday. An Internal Revenue Service agent who watched Avenatti's March 22 debtor exam also attended.

Both debtor exams have revealed much of the information included in the indictment through bank subpoenas and other records obtained by Jason M. Frank, a former Avenatti partner now owed $14.85 million over the bankruptcy of Eagan Avenatti LLP. Frank is represented in the exams by Andrew D. Stolper, his current partner at Frank Sims & Stolper LLP and a former assistant U.S. attorney in the Central District.

Hanna credited IRS investigators and said they built the case through bank records, interviews and other evidence, but he acknowledged they're following the civil litigation, too.

Calling it a "homegrown tax case," Ryan L. Korner, special agent in charge of IRS criminal investigations, said Avenatti's tax problems began "nearly a decade ago" when he didn't pay $569,000 in 2009 income taxes. Avenatti missed a $281,000 payment in 2010, then never filed another personal income tax return while funding what Korner described as "a lavish lifestyle that has no limits," including multi-million-dollar homes and a car-racing hobby. Investigators say he also stopped paying payroll taxes for his coffee company, Global Baristas, through which he owns Tully's coffee shops, and he didn't file taxes on behalf of Eagan Avenatti LLP or Avenatti & Associates, either.

"We will investigate all individuals, including high-profile attorneys, who violate the tax laws," Korner said.

The IRS criminal referral occurred March 19, 2018, just as Avenatti was gaining fame for suing President Donald J. Trump on behalf of adult film actress Stephanie "Stormy Daniels" Clifford. According to the indictment, the grand jury was seated in September.

At 61 pages, it charges Avenatti with stealing $12 million from five clients in four cases, including Johnson, a paraplegic man whom Hanna said recently lost his Social Security income because Avenatti failed to complete paperwork. Hanna said Johnson also wanted to buy a home with his settlement money from a lawsuit against Los Angeles County, but Avenatti said it wasn't available, and the home "fell out of escrow because the money already paid by the county had already been pilfered by Mr. Avenatti."

The other alleged victims include Gregory Barela, represented by Larson O'Brien LLP in a case over a $1.9 million settlement, and a client from whom Avenatti is accused of embezzling $2.75 million, which allegedly went to the jet seized on Wednesday. According to the indictment, Avenatti periodically paid that client small amounts totaling $194,000, then lied in March and said he couldn't pay because the other party broke the settlement.

The last two alleged victims hired Avenatti to negotiate a common stock repurchase agreement with a company, involving shares worth $35 million. According to the indictment, he paid one client the initial $27 million he owed, but he never paid the remaining $8 million, instead using some of the money to pay his firm's bankruptcy creditors, including the IRS.

Avenatti is charged with 10 counts of wire fraud in relation to the five clients as well as two counts of bank fraud for allegedly lying about his income to secure loans from the Peoples Bank in Mississippi. He's also charged with aggravated identity theft for allegedly using someone else's tax identification number while securing the loans and four counts of bankruptcy fraud, including false declaration in bankruptcy and false testimony under oath in bankruptcy for allegedly lying about his income during Eagan Avenatti's forced bankruptcy.

Additionally, Avenatti faces 19 tax crimes, including endeavoring to obstruct the administration of the IRS for allegedly lying to an IRS investigator about his role in Global Barista's finances and altering company contracts.

The IRS criminal referral began with an investigation into Global Barista's unpaid taxes, and federal authorities in February obtained a search warrant for seven digital devices provided to them by former employees. They also searched the Yorba Linda home of Judy Regnier, Avenatti's longtime secretary and a paralegal, the day of his arrest in New York.