California State Bar: Michael Avenatti Misappropriated Client’s Funds

LOS ANGELES (CN) – For several months last year, attorney Michael Avenatti received text messages from a client pleading for updates on a $1.6 million settlement agreement owed to him as delays pushed him into debt.

Unbeknownst to the client, according to federal prosecutors, Avenatti spent most of the money on his own personal bills and projects. 

On Wednesday, Avenatti appeared in a California State Bar Court for an involuntary inactive status hearing that went late into the night as the Bar Court’s attorney argued Avenatti’s actions caused harm to the client, who never received his settlement money.

Avenatti’s now defunct law firm, Eagan Avenatti, represented Gregory Barela in an intellectual property dispute starting in 2014 and a settlement agreement was reached in December 2017 with an undisclosed entity.

Michael Avenatti speaks outside court in New York on Dec. 12, 2018. (AP Photo/Julio Cortez, File)

Payments were set to begin in early 2018 but prosecutors say Avenatti provided Barela a forged payment schedule and then never wired that money over.

For several months Barela communicated with Avenatti through text messages, emails and phone calls, inquiring about the $1.6 million settlement payment that never arrived. All the while, Barela says he was incurring credit card debt to pay off business and personal expenses.

When asked by the State Bar’s attorney why Barela and his new attorney filed a complaint with the court against Avenatti, Barela testified: “Because he took my money.”

The State Bar’s attorney Eli Morgenstern argues Avenatti continues to harm his former client because Avenatti did not pay back the $840,000 that was taken.

Before the hearing, Avenatti announced to a group of reporters outside the courtroom, “This is a dog and pony show. And this entire thing is going to be shown to be politically motivated and a bunch of bullshit.”

Avenatti said he would not characterize the hearing as a disbarment hearing but during opening arguments Morgenstern argued there is a reasonable probability that Avenatti would be disbarred from practicing law in California due to the misappropriation of a client’s funds.

Barela reached a settlement agreement of $1.9 million with the unnamed entity. According to prosecutors, Avenatti received the first initial payment of $1.6 million in January 2018.

Following that deposit to an account for the settlement, prosecutors say Avenatti purchased a cashier’s check for $617,000 to pay a Florida attorney and by March 2018 approximately $835,000 was withdrawn from the account, leaving about $600 remaining.

Barela testified during that same time he was incurring debt and could not pay his bills.

Avenatti provided Barela multiple loans that Barela thought were being borrowed against the settlement money that Avenatti said was never delivered, according to prosecutors, who say the loans were actually the settlement money.

By November 2018, Barela retained new legal counsel from the Los Angeles firm Larson O’Brien. Morgenstern asked why Barela sought to be represented by someone else than Avenatti.

“I was doubting he was being truthful with me,” Barela said.

He testified he got into a shouting argument while Avenatti was his attorney after asking about the settlement money.

“He went off,” Barela testified. “He was cussing. He shouted. I shouted back.”

Barela also testified he pleaded guilty to contracting without a license in 2005 and then pleaded guilty to diversion of funds in 2018.

On cross-examination, Avenatti’s attorney Tom Warren asked Barela about criminal charges and business partners who faced similar charges.

“Do you take any responsibility for the crimes you pleaded guilty to in 2018?” Warren asked Barela.

“Correct,” said Barela.

During the court hearing, an animated Avenatti addressed State Bar Court Judge Yvette Roland and raised his arm when he wanted to object to questions from Morgenstern.

This March, federal prosecutors in two states coordinated joint charges against Avenatti, who previously represented adult film star Stormy Daniels in her lawsuit against President Donald Trump.

Prosecutors in the Southern District of New York say Avenatti threatened shoe company Nike’s attorneys during a phone call this March, in which he reportedly tried to extort $20 million ahead of a potential college basketball scandal.

Prosecutors filed charges against Avenatti in the Central District of California for misappropriating multiple clients’ funds.

Avenatti has not indicated if he will testify during the State Bar Court hearing which are set to continue in January.

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