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Michael Avenatti accused of hiding millions of dollars from bankruptcy court

The Los Angeles Times
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Michael Avenatti, lawyer for porn actress Stormy Daniels, speaks outside court Michael Cohen’s sentencing Dec. 12, 2018 in New York.

LOS ANGELES — Michael Avenatti hid millions of dollars from the court overseeing his law firm’s bankruptcy and used much of the money for personal compensation, a former partner alleges in new court records.

The firm, Eagan Avenatti, was required by law to file monthly reports on its income and spending during the year when it was under U.S. Bankruptcy Court protection from its creditors, starting in March 2017.

Avenatti signed the reports under penalty of perjury as the firm’s managing partner and majority owner.

But the reports did not disclose that Avenatti opened six bank accounts that received millions of dollars in legal fees during the bankruptcy, his former partner claims in court documents filed Tuesday night.

The reports also divulged nothing about the personal compensation to Avenatti, which would have required permission from the bankruptcy trustee, the court papers allege.

He used some of the money for personal expenses such as $13,000 in rent for his Century City apartment; a $3,640 payment on his Ferrari; $21,000 for Passport 420, an Avenatti company that owns a Honda jet; $150,000 for his troubled coffee company, Global Baristas; $53,600 for his ex-wife, Christine Carlin; and $232,875 for HTP Motorsport, his auto racing team, the records show.

The court documents were filed by Jason Frank, a former lawyer at Eagan Avenatti who has been trying for eight months to collect a $10 million judgment he won against the firm. Frank’s court papers allege that Avenatti’s bank maneuvers were an unlawful effort to dodge his firm’s creditors.

“This includes brazen acts of bankruptcy fraud,” Frank’s lawyer, Scott H. Sims, wrote in the court papers.

Avenatti denied wrongdoing.

“Every dollar has been properly accounted for and reported as required and as previously set forth in numerous accountings,” he said by email. “This is much to-do about nothing.”

Avenatti, best known for tormenting President Trump as he represented porn actress Stormy Daniels in a hush-money scandal, said the bankruptcy court did not require all of his legal fees to be paid through Eagan Avenatti.

“There has never been any misdeeds or fraud — any claim to the contrary is politically motivated, completely bogus and driven by Jason’s own personal demons and vendetta,” he said.

Avenatti is scheduled to appear Thursday in federal court in Santa Ana for an interrogation by Frank’s lawyers on the firm’s failure to pay the $10 million judgment. Frank, who was a non-equity partner at Eagan Avenatti, won the judgment after the bankruptcy case was dismissed last March.

In the new court papers, Frank asked U.S. District Judge Virginia A. Phillips to appoint a receiver to seize Eagan Avenatti and stop the firm from dissipating its assets. Eagan Avenatti was recently evicted from its Newport Beach offices after skipping monthly rent payments.

Last month, Frank asked the judge to hold Avenatti and the firm in contempt of court for defying a subpoena for some of the firm’s financial records. He urged the judge to put Avenatti in jail to compel compliance. She has not yet scheduled a hearing on the request.

Through subpoenas to banks, Frank obtained records that detail millions of dollars in lawsuit settlement payments, legal fees and other funds Avenatti collected during the bankruptcy but did not disclose to the trustee, the new court records show.

In one case, Eagan Avenatti was representing ticket holders who sued the National Football League in connection with seating snafus at the 2011 Super Bowl in Arlington, Texas.

After the NFL case was closed, a Texas lawyer told Avenatti in a May 2017 email that he was ready to transfer $1.4 million to Eagan Avenatti, the court records show.

Avenatti responded with wiring instructions that split the money, with $409,000 directed to a firm account that was disclosed to the bankruptcy trustee and $953,000 to an undisclosed account controlled by Avenatti.

Over the next two months, Avenatti moved nearly all of the $953,000 in seven transactions to another undisclosed account, according to the bank records Frank filed in court. He then shifted it all again in seven transactions of almost identical amounts to Avenatti & Associates, his personal corporation.

Avenatti & Associates used much of the money to pay his personal expenses during those two months, the documents show.

Avenatti said he and his company were entitled to reimbursement for more than $1 million in out-of-pocket expenses in litigating the case against the NFL.

In the weeks after his law firm emerged from bankruptcy, Avenatti rocketed to fame as he attacked Trump over the $130,000 paid to Daniels just before the 2016 presidential election to keep her quiet about their alleged 2006 sexual encounter in Lake Tahoe.

Avenatti later traveled the country and raised money to explore a campaign for president. A few weeks after his November arrest on suspicion of domestic violence, he announced he would not run. Los Angeles prosecutors later declined to file any charges.