Monday, March 25, 2019
Lawyer Michael Avenatti Arrested on Federal Bank Fraud and Wire Fraud Charges
LOS ANGELES – Attorney Michael Avenatti was arrested today pursuant to a criminal complaint alleging he embezzled a client’s money in order to pay his own expenses and debts — as well as those of his coffee business and law firm — and also defrauded a bank by using phony tax returns to obtain millions of dollars in loans.
Avenatti, 48, of Century City, was arrested today pursuant to a two-count felony complaint charging him with wire fraud and bank fraud. He also was arrested pursuant to a separate federal case filed in New York.
According to an affidavit filed with the criminal complaint in this case, Avenatti negotiated a settlement which called for $1.6 million in settlement money to be paid on January 10, 2018, but then gave the client a bogus settlement agreement with a false payment date of March 10, 2018. The affidavit states that Avenatti misappropriated his client’s settlement money and used it to pay expenses for his coffee business, Global Baristas US LLC, which operated Tully’s Coffee stores in California and Washington state, as well as for his own expenses. When the fake March 2018 deadline passed and the client asked where the money was, Avenatti continued to conceal that the payment had already been received, court documents said.
Avenatti also allegedly defrauded a bank in Mississippi by submitting to the lender false tax returns in order to obtain three loans totaling $4.1 million for his law firm and coffee business in 2014. According to the affidavit, Avenatti obtained the loans by submitting fabricated individual income tax returns (Forms 1040) for 2011, 2012, and 2013, reporting substantial income even though he had never filed any such returns with the Internal Revenue Service. The phony returns stated that he earned $4,562,881 in adjusted gross income in 2011, $5,423,099 in 2012, and $4,082,803 in 2013, according to the affidavit. Avenatti allegedly also claimed he paid $1.6 million in estimated tax payments to the IRS in 2012 and paid $1.25 million in 2013. In reality, Avenatti never filed personal income tax returns for 2011, 2012 and 2013 and did not make any estimated tax payments in 2012 and 2013. Instead of the millions of dollars he claimed to have paid in taxes, Avenatti still owed the IRS $850,438 in unpaid personal income tax plus interest and penalties for the tax years 2009 and 2010, court papers state. The affidavit also alleges that, as part of his loan applications, Avenatti also submitted a fictitious partnership tax return for his law firm.
“A lawyer has a basic duty not to steal from his client,” said United States Attorney Nick Hanna. “Mr. Avenatti is facing serious criminal charges alleging he misappropriated client trust funds for his personal use and he defrauded a bank by submitting phony tax returns in order to obtain millions of dollars in loans.”
“Professionals, including attorneys, who create elaborate schemes that have no purpose other than to mislead others and defraud both their clients and federally insured financial institutions, run the very high risk of prosecution,” said Special Agent in Charge Ryan Korner of IRS-Criminal Investigation. “The criminal complaint unsealed today shows a pattern of selfish behavior that paints Mr. Avenatti as a lawyer who only represents his own self interests.”
If convicted on both charges, Avenatti will face a statutory maximum sentence of 50 years in federal prison. Avenetti’s initial court appearance will be today in New York. He is expected to face the criminal charges in the California case in United States District Court in Santa Ana at a later date.
A complaint contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt.
This matter is being investigated by Internal Revenue Service-Criminal Investigation.
This case is being prosecuted by Assistant United States Attorneys Julian L. André of the Major Frauds Section and Brett A. Sagel of the Santa Ana Branch Office.
USAO – California, Central
Ciaran McEvoy Public Information Officer United States Attorney’s Office Central District of California (Los Angeles) (213) 894-4465
Press Release Number:
Updated March 25, 2019