LOS ANGELES (CN) – Federal agents arrested embattled attorney Michael Avenatti on Tuesday evening following hours of testimony by the attorney in state bar proceedings after a former client accused him of misappropriating settlement money.
A federal spokesperson speaking on condition of anonymity said Avenatti was arrested as he left the State Bar courtroom in downtown LA on Tuesday, where he was testifying about his involuntary inactive status after a former client claimed Avenatti had stolen a $1.6 million settlement payment.
Avenatti’s attorney said his client was arrested by federal authorities during a break and would not finish his testimony for the day. The arrest stemmed from a pending federal criminal case, the attorney said.
But attorney Steven Bledsoe of Larson O’Brien, the attorney for the former Avenatti client, told reporters outside the courthouse that “Mr. Avenatti has been arrested by federal authorities for violating the terms of his release.”
In a letter published in the U.S. District Court for the Southern District of New York docket Tuesday, assistant U.S. attorneys notified U.S. District Judge Paul Gardephe of the arrest warrant issued for Avenatti due to "potential violations of the conditions of pretrial release" in the Central District of California.
"A few minutes ago, the Government was advised by the USAO-CDCA that an arrest warrant had been issued, and that it expected the defendant to be arrested soon," the prosecutors wrote. "We understand that that has now occurred. We are still gathering information and will provide an update to the Court as soon as we can."
The U.S. attorney's office in Los Angeles did not immediately respond to requests for comment.
Earlier Tuesday, Avenatti called the client’s claims “nonsense” but appeared upset where he was asked questions about the settlement.
But before he took the stand, Avenatti excused himself from the hearing for two hours to take a court call from the Southern District of New York. Avenatti faces charges there of attempting to extort tens of millions of dollars from Nike.
Avenatti apologized to the State Bar court when he returned.
Avenatti’s now defunct California law firm, Eagan Avenatti, represented Gregory Barela in an intellectual property dispute starting in 2014. Barela and the undisclosed defendant reached a settlement deal in December 2017.
But Barela says Avenatti stole a $1.6 million payment while giving him a forged document with an incorrect payment schedule shortly after the deal was reached. Avenatti denied the accusations in court.
Barela testified Avenatti told him the first payment would be made in early 2018. The money never came, Barela says, and accuses Avenatti of keeping the money to pay his personal debts.
For several months, Barela says he communicated with Avenatti through text messages, emails and phone calls about the $1.6 million payment that never arrived. All the while, Barela says he was incurring credit card debt to pay off business and personal expenses.
On the witness stand Tuesday, Avenatti was terse and short-tempered with California State Bar attorney Eli Morgenstern. When asked to review the settlement agreement negotiated on behalf of Barela, Avenatti said he has not had the chance to review all the documents in the case.
Morgenstern persisted, asking Avenatti about the settlement. Avenatti said, “I see those words on the page” but refused to acknowledge he’d seen the document before.
When asked about the first draft of the agreement, Avenatti said, “I don’t know.” said Avenatti when asked about the first draft of the agreement.
Morgenstern asked, “You don’t know?”
Avenatti responded: “‘I.’ That refers to me. ‘Don’t’ is the abbreviation ‘do not.’ ‘Know’ is usually a verb relating to knowledge.”
Later, Morgenstern asked if the hearing was important to Avenatti since he did not know about the documents that were exhibits for the hearing.
“I’ve been a 20-year member of the state bar,” Aveantti shouted. “You don’t think this is important to me?”
Judge Yvette Roland cut Avenatti off. “Mr. Avenatti, this is not your opportunity to make a speech,” she said.
Several of Avenatti’s computers were confiscated by federal investigators after he was charged with 36 counts of bank and wire fraud in the Central District of California, the same day federal prosecutors in New York filed their charges.
Avenatti’s attorney Tom Warren said later that many of the documents on Avenatti’s computers were turned over by federal prosecutors but not all had been reviewed by Avenatti personally.
Morgenstern argued there is a reasonable probability that Avenatti will be disbarred in California due to Barela’s accusations.
When asked if it was his practice to notify clients when he received funds on their behalf, Avenatti said he was generally aware of the rules but asked to review the specific rule that Morgenstern cited.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.