Immersed in business feuds, Avenatti is charged with fraud
By BRIAN MELLEY and AMY TAXIN
Wednesday, March 27
LOS ANGELES (AP) — Even before federal prosecutors unsealed charges against Michael Avenatti, the lawyer best known for representing porn actress Stormy Daniels in legal battles against President Donald Trump was facing legal scrutiny for his business practices.
Avenatti was testifying last Friday in his own defense in a civil case that included allegations he pocketed $1.6 million from a client as federal authorities were including that claim in a criminal case that could put him behind bars for decades.
Avenatti, 48, faces charges in California for allegedly filing bogus tax returns to secure $4 million in loans and embezzling the client’s settlement funds. He faces charges in New York of threatening to release damaging information against Nike if it didn’t pay him and another lawyer up to $25 million.
About 12 hours after he was released from custody, Avenatti returned to his combative form Tuesday and went on the offensive, accusing Nike of “rampant” corruption.
He claimed on Twitter that Nike funneled “large sums” of money to elite student-athletes bound for top colleges and said the corruption reached the company’s highest levels.
Prosecutors have not commented on whether Avenatti’s information about Nike was accurate but said he crossed a line by trying to enrich himself with threats.
A Nike spokesman declined to answer questions about Avenatti’s tweets. The company said in a statement Monday that it will “not be extorted or hide information that is relevant to a government investigation.”
While Avenatti confidently declared after his release from custody that he would be exonerated, he told CBS on Tuesday that he is concerned about the charges.
“I’m nervous, I’m scared,” he said. “If I wasn’t, it wouldn’t make a lot of sense.”
The arrest of Avenatti, who seized the spotlight as a Trump antagonist and considered his own run for president, came as a surprise to many — but not to some people who have worked with him.
Jason Frank was an independent contractor for the firm of Eagan Avenatti, which went through bankruptcy proceedings. He has been seeking compensation he claims he’s owed for work done before he resigned in 2016, according to federal court filings.
Frank is still trying to collect a $10 million judgment his firm won against Eagan Avenatti and a $4 million personal judgment against Avenatti.
Avenatti repeatedly failed to turn over court-ordered records, and deposited millions of dollars of client fees into accounts hidden during bankruptcy proceedings, Frank’s lawyers wrote in filings seeking a court-appointed receiver.
“The conduct described in the criminal complaint is the conduct we’ve seen Mr. Avenatti engage in with respect to his debts to his partners going back years,” attorney Andrew Stolper said. “What you see is a lawyer using his kind of inside knowledge of the legal system.”
Most of a nearly $1.4 million payment sent to Eagan Avenatti as part of a settlement with the NFL was funneled to an account for personal expenses such as rent on a luxury apartment and monthly payments on a Ferrari, Frank’s lawyers said.
On Friday, Stolper questioned Avenatti under oath at a debtor exam about a $4 million payment his firm received from Los Angeles County on behalf of a paraplegic man who tried to kill himself in jail.
Avenatti testified that he paid the firm’s client, Geoffrey Johnson, all the money he was owed, but checks show Johnson received monthly payments totaling no more than a couple of hundred thousand dollars over the past three years, Stolper said.
In an email to The Associated Press, Avenatti said Johnson approved all transactions and accounting and has been kept in the loop.
“He has repeatedly thanked me for my dedication to his case and the ethics I have employed,” Avenatti wrote.
Avenatti was also questioned in court about the case of Gregory Barela, who he negotiated a $1.9 million settlement for in an intellectual property dispute against a Colorado company, according to court records.
Barela hired new lawyers to chase the money down after he said Avenatti would not pay him. Barela’s lawyers went to the FBI after finding records that $1.6 million was paid to Avenatti.
Attorney Steven Bledsoe sat in court Friday afternoon as Avenatti repeatedly dodged questions and denied stiffing Barela.
“Avenatti testified he paid Mr. Barela everything he was owed without ever identifying any payment,” Bledsoe said. “Documents show he didn’t pay anything. It was just B.S.”
Prosecutors also dispute Avenatti’s account.
While he was still on the witness stand in Los Angeles, prosecutors filed a wire fraud charge in U.S. District Court in Santa Ana accusing Avenatti of embezzling from Barela.
Prosecutors said Avenatti deceived Barela about the date he received the payment and never turned it over to him. At one point, he provided a $130,000 “advance” on the payment he already received and later offered to loan Barela $100,000 if he paid interest.
“It appears Mr. Avenatti loaned the client’s own money to the client,” U.S. Attorney Nick Hanna said in announcing the charges. “Money that Mr. Avenatti had already secretly collected.”
Attorney Ken White, a former federal prosecutor, said the relatively short criminal complaints without disclosing too much evidence indicates prosecutors are confident they have a strong case. Indictments are likely to offer more information and, possibly, additional charges that could include evidence uprooted by Frank.
“It will be interesting to see when the indictment finally comes down to what extent it’s going to mirror more of what his former partner’s been saying,” White said.
Taxin reported from Santa Ana. Associated Press writer Jim Mustian in New York contributed to this report.
Avenatti hit with Nike extortion claims, other charges
By BRIAN MELLEY and LARRY NEUMEISTER
Tuesday, March 26
LOS ANGELES (AP) — A year ago, Michael Avenatti’s star was rising as the combative, media-savvy lawyer representing porn actress Stormy Daniels in her legal battles against President Donald Trump.
He hammered the president as a regular fixture on cable news and baited and bashed critics on Twitter while flirting with his own run for the White House.
Those days seemed like a distant memory as Avenatti was arrested Monday and federal prosecutors on both coasts announced charges that could send him to prison for the rest of his life.
Avenatti tried to shake down Nike for as much as $25 million by using his prominent position to threaten the company with bad publicity, federal prosecutors said. He was also accused of stealing a client’s settlement money to pay his own expenses and filing fake tax returns to get $4 million in loans from a Mississippi bank to fund a lavish lifestyle.
He was arrested at a New York law firm where he had gone to meet with Nike executives. It was just minutes after he tweeted that he planned to hold a news conference Tuesday to “disclose a major high school/college basketball scandal perpetrated by Nike that we have uncovered.”
“When lawyers use their law licenses as weapons, as a guise to extort payments for themselves, they are no longer acting as attorneys. They are acting as criminals,” said Geoffrey S. Berman, the U.S. attorney in New York.
Prosecutors in New York said their investigation began only last week while California investigators had been building a tax case against Avenatti for more than a year.
The allegations “paint an ugly picture of lawless conduct and greed,” said U.S. Attorney Nick Hanna in Los Angeles. Avenatti describes himself on Twitter as “fighter for good,” but the accusations describe “a corrupt lawyer who instead fights for his own selfish interests.”
Avenatti, 48, was ordered released on $300,000 bond after a brief court appearance Monday evening in New York. He did not enter a plea. Emerging from the courthouse, he said he expected to be cleared of the charges.
“For the entirety of my career, I have fought against the powerful. Powerful people and powerful corporations. I will never stop fighting that good fight,” he said. “I am highly confident that when all the evidence is laid bare in connection with these cases, when it is all known, when due process occurs, that I will be fully exonerated and justice will be done.”
Avenatti’s fame from the Daniels case made him a leading figure in the anti-Trump movement, with relentless cable news appearances, a hard-punching style and a knack for obtaining information about others’ wrongdoing.
His sharp reversal of fortune led critics to hit back on Twitter. Donald Trump Jr., whom Avenatti inaccurately predicted would be charged in the investigation into ties between his father’s 2016 presidential campaign and Russia, gloated.
“Good news for my friend MichaelAvenatti, if you plead fast enough, you might just get to share a cell with Michael Cohen!” he wrote, referring to the former Trump lawyer set to go to prison next month for crimes that include orchestrating hush-money payments to Daniels. Trump Jr. mocked Avenatti by ending with the lawyer’s trademark hashtag #basta, an Italian word meaning “enough.”
Prosecutors said Avenatti and a co-conspirator initially approached Nike on behalf of a client who coached an Amateur Athletic Union basketball program sponsored by the company in California.
They claimed to have evidence of misconduct by Nike employees and threatened to hold a news conference last week on the eve of a company’s quarterly earnings call and the start of the NCAA tournament. Avenatti told Nike the company could either pay them $15 million to $25 million to investigate the allegations, or pay him more than $22 million for his silence, the criminal complaint said.
Two people familiar with the investigation confirmed the unidentified co-conspirator was Mark Geragos , a Los Angeles criminal defense lawyer known for his work with celebrities. The people spoke on condition of anonymity because the information was not made public by prosecutors.
Geragos, a CNN contributor, has a client list that has included Michael Jackson, Winona Ryder, Scott Peterson, Colin Kaepernick and most recently Jussie Smollett, the actor accused of fabricating a racist, anti-gay attack in Chicago. Geragos did not respond to messages seeking comment. Within hours, CNN cut ties with him.
While lawyers sometimes make demands to seek out-of-court settlements, it crosses the line to extortion if they threaten to go public with damaging information to get something of value or gain leverage in a civil dispute, attorney Neama Rahmani said.
“The Department of Justice historically has been very cautious when charging attorneys, so they likely have evidence that Avenatti seriously crossed this line,” said Rahmani, a former federal prosecutor.
Nike officials told investigators Avenatti claimed to know of rules violations by an amateur basketball team sponsored by Nike. Executives immediately reported the threats to federal authorities.
The company “firmly believes in ethical and fair play, both in business and sports, and will continue to assist the prosecutors,” Nike said in a statement.
Avenatti rose to national prominence by representing Daniels, whose real name is Stephanie Clifford, in a lawsuit to break a confidentiality agreement to speak about her alleged affair with Trump. He also made headlines in recent weeks representing two women who accused R&B star R. Kelly of sexual abuse.
Daniels said she was “saddened but not shocked” by the arrest. She issued a statement Monday on Twitter saying she fired Avenatti a month ago after “discovering that he had dealt with me extremely dishonestly.” She said she would not elaborate.
While Avenatti’s lawsuit effectively tore up the gag order that threatened financial penalties if Daniels spoke about the case, a defamation lawsuit filed on her behalf against Trump backfired, and a court ordered her to pay the president’s $293,000 in legal fees.
Avenatti himself has been dogged with tax and financial troubles in recent years.
A U.S. bankruptcy court ordered his former firm to pay $10 million to a lawyer who claimed it had misstated its profits.
The bank fraud case involved $4 million in loans he got from The Peoples Bank in Biloxi, which prosecutors said he obtained by filing fraudulent tax returns claiming $14 million in income over three years. However, he never filed tax returns those years, nor paid the $2.8 million he reported on the forms. In fact, he still owed more than $850,000 to the IRS at the time for previous income.
Mark Pearson, the assistant agent in charge of IRS criminal investigations in Los Angeles, said Avenatti’s crimes supported a $200,000-a-month lifestyle, a car racing venture and pricey homes in the wealthy Orange County communities of Newport Beach and Laguna Beach.
Convictions on all charges carry up to 47 years in the New York case and 50 years in the California case, prosecutors said.
Melley reported from Los Angeles. Associated Press writers Jim Mustian in New York, Michael Balsamo in Washington and John Antczak in Los Angeles also contributed to this report.
Celebrity lawyer Geragos linked to Avenatti extortion case
By CHRISTOPHER WEBER
Wednesday, March 27
LOS ANGELES (AP) — Attorney Mark Geragos has had a long career representing high-profile clients including Michael Jackson, Colin Kaepernick and Jussie Smollett. Now Geragos might need a defense attorney himself after being named in a case accusing lawyer Michael Avenatti of trying to extort Nike.
Geragos is not charged with a crime but two people familiar with the investigation confirmed Monday that he is the unidentified co-conspirator in court papers charging Avenatti with attempting to shake down Nike for $25 million by threatening the company with bad publicity. The people spoke on condition of anonymity because the information was not made public by prosecutors.
Geragos, 61, didn’t respond to requests for comment.
For decades the media savvy attorney has defended headline-grabbing cases involving troubled Hollywood stars like Winona Ryder and Chris Brown and wife killer Scott Peterson.
A longtime CNN contributor, Geragos appeared on the network this month to discuss the case against his client Jussie Smollett, the “Empire” actor accused of fabricating a racist, anti-gay attack in Chicago. Within hours of the extortion case breaking, CNN cut ties with him.
Prosecutors in Chicago on Tuesday abruptly dropped all charges against Smollett, although there was no indication it had anything to do with the latest development involving Geragos.
“He is in many ways the face of the legal profession because of his years on CNN,” said Jessica Levinson, a professor at Loyola Law School in Los Angeles, where Geragos earned his law degree. “For people who are in the know in Los Angeles, they can name a couple of lawyers, and he is one of them.”
Levinson said she was surprised by Geragos’ connection to the extortion case. He has a solid reputation in the profession and no history of misconduct, she said.
Last year, Geragos helped negotiate a multiyear, multimillion-dollar deal between Nike and Colin Kaepernick, the former NFL player known for inspiring other players to protest police brutality, racial inequality and other social issues. In announcing the agreement on Twitter, Geragos called Kaepernick an “All American Icon.”
Geragos’ website bio describes him as “the only lawyer besides Johnnie Cochran ever named ‘Lawyer of the Year’ in both Criminal and Civil arenas.”
He was admitted to the bar in 1983 and made his name in the 1990s when he got an acquittal in an embezzlement case against Susan McDougal, who was previously convicted in the Whitewater scandal involving President Bill Clinton. A few years later he represented Clinton’s brother, Roger Clinton, in a drunken-driving case.
He got probation for Winona Ryder after the actress was convicted by a jury in a felony grand theft case, and for Chris Brown, the singer who pleaded guilty to assaulting his then-girlfriend Rihanna.
Perhaps most prominently, Geragos represented Michael Jackson after the pop superstar was accused of child molestation. Jackson ultimately replaced Geragos, saying he wanted a lawyer who would devote his full time to the case.
Geragos was simultaneously representing Scott Peterson, a California fertilizer salesman who was eventually found guilty of murdering his pregnant wife.
He later represented Jackson in a separate case and settled a lawsuit for $2.5 million against the owner of a charter jet company that secretly recorded the singer while he flew on a private plane.
A Los Angeles native with Armenian roots, he’s been a champion of efforts to have the 1915 Armenian Genocide recognized at the national level.
It’s unclear what his connection is with Avenatti, the bellicose attorney best known for representing porn actress Stormy Daniels in lawsuits against President Donald Trump. Avenatti said he’s confident he’ll be “fully exonerated” after being arrested Monday on charges including extortion and bank and wire fraud.
Follow Weber at https://twitter.com/WeberCM
Ethics body questions ex-EPA chief’s $50-a-night condo deal
By ELLEN KNICKMEYER
Tuesday, March 26
WASHINGTON (AP) — The U.S. Office of Government Ethics is refusing to certify one of the final financial disclosure reports of ex-Environmental Protection Agency chief Scott Pruitt, citing the cut-rate $50-a-night deal Pruitt had for a luxury Washington condo.
The ethics body said in a finding released Tuesday that federal authorities never resolved the key question involved — whether Pruitt’s condo deal with the wife of a lobbyist was a proper business arrangement or an improper gift linked to a lobbyist who did business with the EPA.
Pruitt, a former Oklahoma attorney general, resigned last July amid unrelenting scandals over his lavish spending at the EPA and allegations that he repeatedly sought to use his position to obtain favors for himself and his family.
Pruitt’s critics said those favors included his arrangement to rent a Capitol Hill condo for a below-market rate of $50 a night, payable only on the nights he stayed there. Pruitt rented the luxury condo from a company co-owned by the wife of J. Steven Hart, then-chairman of the powerhouse Washington lobbying firm Williams & Jensen. Hart has since left the firm.
Pruitt had insisted the condo deal was a proper business arrangement. Pruitt couldn’t immediately be reached for comment Tuesday, and Washington attorney Cleta Mitchell, who sometimes speaks on his behalf, declined to comment, saying she had not reviewed the new ethics finding.
The EPA’s own internal watchdog office closed its probe of the condo deal earlier without ruling on the ethics, saying its investigators were unable to interview Pruitt after he resigned.
Because of that, the Office of Government Ethics says, it also is unable to determine whether the condo deal was something that Pruitt should have reported as a valuable gift. The federal government’s top ethics office therefore is refusing to certify that Pruitt’s financial disclosure report for his last months in office complies with federal ethics codes.
The Office of Government Ethics has only limited enforcement authority regarding ethics rules for senior officials, and it was unclear where the new findings left the many ethics allegations against Pruitt over his time at the EPA.
Democratic lawmakers had asked the FBI to look into the scandals surrounding Pruitt. Those included allegations he had sought favors including sports tickets, jobs for his wife and a cheap used mattress, sometimes allegedly asking staff to make the requests.
The Justice Department has not publicly disclosed how it responded to Democratic lawmakers’ desire for an FBI probe.
Democrats, now in control of the House, have largely focused oversight hearings on more recent issues involving President Donald Trump’s administration.
Two of the Democratic senators who had been among the most vocal on Pruitt’s alleged ethical lapses said the conclusion announced Tuesday “underscores why the EPA Office of Inspector General needs to take ethics issues more seriously.”
“When the EPA IG fails to fully investigate ethical violations brought to its attention, it signals there are no consequences for unethical behavior by EPA officials,” Sens. Tom Carper of Delaware and Sheldon Whitehouse of Rhode Island said in a joint statement.
Jennifer Kaplan, a spokeswoman for the EPA’s watchdog office, declined comment.
Associated Press writers Chad Day and Mike Balsamo contributed to this story.