Law firm manager says bank records show Avenatti misappropriated client’s money

The accountant who recently took control of operations at Michael Avenatti’s longtime law firm says bank records support prosecutors’ allegation that the celebrity attorney embezzled money from a client.

The sworn statement by Brian Weiss, the receiver overseeing Eagan Avenatti since February, came in a separate civil case as Avenatti made his first court appearance Monday in his wire and bank fraud prosecution in Santa Ana federal court.

Dressed in a crisp business suit, Avenatti stood before U.S. Magistrate John D. Early as the judge informed him and several other accused criminals of their rights. Interpreters whispered Spanish and Vietnamese translations to the defendants who could not understand English.

The judge asked Avenatti if he’d read the nearly 200 pages of charging documents filed against him by federal prosecutors and Internal Revenue Service agents.

“I have, your honor,” Avenatti replied.

The judge released Avenatti on the same $300,000 bond that he posted a week ago in New York after his arrest there by FBI and IRS agents. Federal prosecutors in Manhattan charged Avenatti with extortion and conspiracy for his alleged attempt to shake down Nike for more than $20 million.

Avenatti has denied wrongdoing.

The wire fraud charge in the Santa Ana case stems from Avenatti’s alleged theft of a $1.6-million settlement payment that belonged to Gregory Barela, an Irvine client.

Avenatti had the money wired to an account that he controlled in January 2018, but hid the payment from Barela, the IRS alleged in court papers. Avenatti spent all the money on personal and business expenses unrelated to Barela, the government claimed.

Weiss, who has full control of Eagan Avenatti’s finances under a court order, filed his statement backing up that allegation on Sunday in a Los Angeles federal civil suit. He said he had analyzed the firm’s bank records.

“Based on my review, it appears that Avenatti misappropriated client funds belonging to [Eagan Avenatti] client Greg Barela,” Weiss wrote.

Avenatti said by text message that Weiss “has no idea what the totality of the documents show.” Weiss also does not know what other work he did for Barela or how much it cost, Avenatti said.

Avenatti is best known for representing porn actress Stormy Daniels in her efforts to void a nondisclosure agreement that barred her from talking about her alleged 2006 sexual encounter with Donald Trump.

After the Santa Ana court hearing, Avenatti approached a cluster of news cameras outside the courthouse.

“I am highly confident that when the process plays out that justice will be done,” Avenatti told reporters before stepping into a black sports utility vehicle as a heckler shouted, “Creepy porn lawyer!”

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Early scheduled an April 29 arraignment for Avenatti, on the assumption that a grand jury will indict him before then. It is not yet clear whether Avenatti must face separate trials in New York and California and, if he does, which would come first.

Avenatti agreed in February to relinquish control of Eagan Avenatti to Weiss after a former partner filed court papers accusing him of hiding millions of dollars from the judge that oversaw the firm’s bankruptcy in 2017 and 2018.

Avenatti, who now calls his law practice Avenatti & Associates, agreed to let Weiss take possession of Eagan Avenatti’s bank accounts, case files, computers and other assets.

In the civil case filing on Sunday, Weiss asked a Los Angeles federal judge to remove Avenatti as plaintiff’s counsel in a class-action suit against surgical gown makers Kimberly-Clark and Halyard Health. The gowns were supposed to protect doctors and nurses from illnesses such as Ebola and HIV, but sometimes leaked.

The plaintiffs won a $454-million jury verdict against the companies, the biggest of Avenatti’s career. A judge reduced it last year to roughly $24 million. The verdict is on appeal.

Weiss asked the court to replace Avenatti with Irvine lawyers Jason Frank, Andrew Stolper and Scott Sims, who worked on the case at Eagan Avenatti before leaving to launch their own firm in 2015.

The criminal charges against Avenatti make his continuing role in the case “untenable,” Weiss’s lawyer Jack Reitman argued in court documents.

Moreover, he wrote, Eagan Avenatti “no longer has any employees or attorneys, nor does it have any money in its bank accounts,” so its resources are insufficient to handle the case.

U.S. District Judge Dolly M. Gee rejected Weiss’ request Monday on procedural grounds, but left open the possibility that he could refile it.

In his text message, Avenatti called Weiss’ motion “bogus.” He said Frank and Stolper were “trying to get control of a case they had little to nothing to do with in order to line their own pockets.”

Last year, Frank won a $10-million judgment against Eagan Avenatti and a $4.85-million personal judgment against Avenatti in cases stemming from a dispute over pay when they were law partners.