Newly found data prompts mistrial in Avenatti fraud case

SANTA ANA -- A federal judge declared a mistrial Tuesday in Michael J. Avenatti's wire fraud case, finding that prosecutors failed to turn over data from accounting software his law firm used.

"I find that prejudice occurred here in a number of ways. I think the defendant was denied an opportunity to craft his overall theory of the case and presentation, including opening statements, by not having this additional material," U.S. District Judge James V. Selna said.

Assistant U.S. Attorneys Brett A. Sagel and Alexander C.K. Wyman looked crestfallen after Selna made the ruling and left the courtroom without comment.

Avenatti stood up and shook his legal team's hands vigorously. Outside of court, he thanked H. Dean Steward and Courtney L. Cummings-Cefali, the lawyers who advised him throughout the trial as he represented himself.

"This has been an incredibly difficult journey for my family, for my children, for my friends, and lastly, for me," Avenatti said. "Today is a great day for the rule of law in the United States of America."

Selna set a retrial to begin Oct. 12 and it is unclear how the data might impact the case.

"Even though the ultimate result may be the same and Avenatti may be convicted when he is retried, it is a black eye for federal prosecutors," said Neama Rahmani, a former federal prosecutor who was not involved in the case. "The bottom line is, the assistant U.S. attorneys trying the case did not comply with their discovery obligations, which is never a good thing."

Avenatti is charged with 10 counts of wire fraud. Prosecutors say he embezzled $10 million from five clients in contingency matters. USA v. Avenatti, 19-cr-61 (C.D. Cal., filed April 10, 2019).

Tabs3 was one of two accounting software systems used by now defunct Eagan Avenatti LLP. The Tabs system kept track of client expenses, which was core to his defense. Avenatti contended throughout the five-week trial that he provided services to his clients that weren't free and that his clients weren't sure how much they were actually owed.

Prosecutors throughout the trial had said they did not have the data from the software. The U.S. attorney's privilege review, or "taint", team, found it after Selna ordered them to work through the weekend. Assistant U.S. Attorney Patrick Fitzgerald, head of the taint team, came to court Tuesday and told Selna that neither Wyman nor Sagel ever saw or possessed the data. Sagel told Selna that prosecutors depended on whatever the taint team provided.

Selna stressed that he did not believe that Wyman, Sagel or the taint team intentionally withheld the data.

"It wasn't produced through inadvertence and failing to appreciate what was there," Selna said. "I think the taint team has fairly acknowledged there may have been shortcutting of the review process."

But the judge remarked that prosecutors were on notice for some time about the existence of Tabs data from meetings they had with Avenatti's former paralegal, Judy Regnier, on July 25 and Nov. 19, 2019. Regnier testified earlier in the trial that QuickBooks and Tabs had to be evaluated, in order to accurately calculate the firm's expenses.

To get a conviction, prosecutors did not need to prove the amount of money they believe Avenatti stole, just that he took the money through acts of omission and fraudulent concealment. They estimated he took $10 million dollars and used much of it to buy himself a corporate jet and to pay creditors of a bankrupt coffee business in which he was a partner.

Selna said Tuesday, "I believe the defendant is entitled to challenge that number, and show that it wasn't accurate."

"It may have shown the amount was appropriated as lesser or greater," but Avenatti was entitled to have the relevant Tabs data to pose that question for jurors, Selna said.