On Monday, celebrity lawyer Michael Avenatti was arrested and charged in two separate federal cases in New York and California. He was released on $300,000 bond later that day and reportedly vowed, I will be fully exonerated and justice will be done.
In the former case, Avenatti faces extortion-related charges in New York for an alleged shakedown of Nike. Prosecutors said Avenatti and a mystery accomplice, believed to be California lawyer Mark Geragos, tried to bully the corporation into a $25-million payday to hush up allegations that Nike had secretly paid high-school basketball players.
Meanwhile, the feds also charged Avenatti with bank fraud and wire fraud in California, and accused him of stealing $1.6 million due to a client and faking personal income tax returns in order to receive $4 million worth of loans from one Mississippi bank. Investigators also say that he has not filed tax returns for himself or his businesses for years, and that he obstructed IRS efforts to collect millions in unpaid taxes from his law firm Eagan Avenatti, his coffee company Global Baristas, and himself personally.
The California case follows a steady stream of legal troubles plaguing the attorneyincluding allegations that he hid millions from bankruptcy court, and a divorce case in which he owes more than $1 million in child support to his ex-wife. The charges also reveal new information on how Avenatti allegedly funded his lavish, high-flying lifestyle even as he dodged the IRS and employee checks bounced.
The lawyer denied the New York charges in a tweet Tuesday morning, saying: I am anxious for people to see what really happened. We never attempted to extort Nike & when the evidence is disclosed, the public will learn the truth about Nikes crime & coverup.
Here are some of the sketchiest reveals, according to the feds:
A client never got his million-dollar settlementbecause Avenatti used it to pay personal expenses
In an affidavit, Remoun Karlous, special agent with the IRS-Criminal Investigation in Los Angeles, details how Avenatti allegedly kept client Gregory Barelas $1.6-million settlement check for himself and used it to pay personal expenses.
Barelas allegations against Avenatti, whom he accused of running his firm like a Ponzi scheme, were exclusively reported by The Daily Beast in January.
According to the court papers, even as Avenatti dodged Barelas questions about when his money would be coming, the lawyer secretly transferred money from the settlementdeposited in a client-trust accountto bank accounts in his own name and to Eagan Avenatti and Global Baristas, as well as to a lawyer hed worked with in an unrelated case.
At one point, Avenattis firm allegedly presented Barela with a doctored copy of his settlement agreement that deceived the client on when his payout would arrive. On Monday, Barelas attorney, Steven E. Bledsoe, told The Daily Beast: Falsifying settlement documents and taking a clients money is about as low as a lawyer can get. It appears that is what Mr. Avenatti has done.
The feds are worried about Avenatti destroying evidence and intimidating witnesses
Karlouss affidavit also reveals authorities filed the search warrant and other documents under seal in order to prevent Avenatti or others from destroying or tampering with evidence, intimidating witnesses, or changing patterns of behavior.
One payroll employee said he was scared of Avenatti while working at Global Baristas because he did not want to be personally sued.
The worker respected Avenatti at first, but over time he no longer trusted Avenatti and became concerned that Avenatti would sue him for anything, the affidavit states. The employee also expressed concern that Avenatti might attempt to retaliate against him if he learned that [he] was cooperating with the governments investigation.
The feds say some evidence may have already been lost, since Global Baristas was evicted from its corporate headquarters and Avenatti refused to pay the bill for the companys cloud-based server.
Avenatti dodged the IRS when it came to collect
Avenatti is accused of obstructing the IRS from collecting unpaid payroll taxes from Global Baristas, his Seattle-based coffee company that owned the now-shuttered chain Tullys, which he purchased out of bankruptcy for $9.2 million in 2013.
Avenatti obstructed the governments tax collection, court papers allege, by lying to an IRS Revenue Officer, changing contracts, merchant accounts, and bank account information to avoid liens and levies imposed by the IRS, and instructing employees to deposit over $800,000 in cash from Tullys stores into a secret bank account.
While Avenatti previously told The Daily Beast that he sold Global Baristas to a private group for $27.78 million, the affidavit states the government has been unable to locate any information confirming that Avenatti sold the company, and concludes that Avenattis claims of a sale appear to be false.
Multiple former Tullys employees told investigators that they warned Avenatti about the companys unpaid taxes but that he refused to authorize payments to the IRS. Those employees cooperated with the IRS probe but feared Avenatti would retaliate against them or even sue them personally.
The affidavit claims that Avenatti blamed his former payroll companies for Eagan Avenatti and Global Baristas for his failure to pay taxes. When an IRS officer initially contacted Avenatti in October 2016, the lawyer, appeared shocked and did not appear to understand how payroll taxes worked, the document states.
Avenatti would allegedly punt the problem to an accountant in Los Angeles, who eventually became unreachable. In June 2017, the IRS filed a nearly $5-million tax lien against Global Baristas in Washington. Months later, a new power of attorney for the company told the IRS officer that the left hand did not know what the right hand was doing, that Avenatti was busy, and that employees were not doing their jobs.
In September 2017, an employee contacted the IRS investigator with intel, and others followed suit. Global Baristas former director of retail operations even backed up her work files on a personal laptop, worried shed be held personally responsible for the companys shady finances, and that it would be her word against Avenattis.
Between July 2013 and September 2015, Global Baristas paid its federal tax deposits to the IRS on a biweekly basis. Those payments stopped in the third quarter of 2015, authorities say. The IRS started its collection effort with Global Baristas in September 2016.
Global Baristas has failed to pay $3.12 million in federal payroll taxes, including approximately $2.39 million in trust fund taxes, according to the court papers. Although the IRS received approximately $611,023 in payroll tax payments during the IRS collection case, such payments only account for a small portion (approximately 16 percent) of the total amount of payroll taxes [Global Baristas] owed to the IRS, the affidavit alleges.
Investigators say Global Baristas and Avenattis LLC, Doppio, which owns 80 percent of the coffee chain, failed to file federal corporate or partnership income tax returns for the tax years from 2013 through 2017. According to the affidavit, GBUS, GB LLC, and Doppio have never filed income tax returns.
Avenatti stashed the coffee cash in his law firms and his race-car company
According to the affidavit, Global Baristas failed to file employment tax returns and pay about $3.12 million in federal payroll taxes, including $2.39 million in trust fund taxes, which had been withheld from employee paychecks, between the fourth quarters of 2015 and 2017.
During that period, Avenatti transferred about $1.7 million from Global Baristas accounts to bank accounts associated with Avenatti & Associates and Eagan Avenatti.
After the IRS launched a collection action in September 2016, issued a $5 million tax lien in July 2017 and levied multiple Global Baristas bank accounts, Avenatti allegedly blamed the error on a third-party payroll company. Authorities say Avenatti knew, however, that the third-party had discontinued its services with the coffee chain.
In September 2017, after an IRS officer warned of potential criminal proceedings and levied multiple Global Baristas bank accounts, Avenatti allegedly directed his employees to stop depositing cash receipts from Tullys stores into the companys usual KeyBank account. To avoid the levies, the employees were ordered to deposit cash receipts into a Bank of America account for Avenattis car racing entity, GB Autosport, LLC.
Between September and December of 2017, about $859,784 in cash was deposited into the auto racing account, the affidavit states.
Avenatti used his coffee company to sponsor his racing team
A former controller for Global Baristas told investigators that funds were routinely transferred between the coffee chain and Eagan Avenatti, and that unreasonable legal fees were being paid to Avenattis law firm. (Multiple employees told the IRS that they never saw any invoices for legal services from Eagan Avenatti and they didnt believe that Avenatti did any legal work for Global Baristas.)
The controller also said Global Baristas sponsored the International Motor Sports Association (IMSA) and spent $200,000 on license fees and other investments related to Avenattis racing team.
Another former controller said Avenatti directed her not to pay Global Baristas payroll taxes for the third quarter of 2015, leading her to quit. She told the IRS investigator that Avenattis moral compass didnt point north, the affidavit states.
The former controller thought Global Baristas spent about $750,000 on the IMSA sponsorship, which she called a vanity decision by Avenatti, the document alleges. Global Baristas was hemorrhaging money at the time and [the employee] did not think the IMSA sponsorship was the best use of funds, the affidavit states. Without the IMSA expenses [Global Baristas] would have been cash neutral and in a better financial position.
Avenatti changed Global Baristas name to skirt IRS levies and liens
In September and October of 2017, Avenatti is also accused of directing Global Baristas credit card processing company to change his Global Baristas name and Federal Employer Identification Number, from GBUS to GB LLC. He also allegedly directed the processing company to have all receipts paid to a new account that wasnt subject to the IRS levies.
In November 2016, about a month after an IRS officer first contacted Avenatti over Global Baristas unpaid taxes, Avenatti allegedly changed the coffee companys name in a contract with the Boeing Company, from GBUS to GB Hospitality LLC, a firm that investigators say wasnt registered with any government agency.
In September of 2017, Boeing canceled its contract with Global Baristas over a failure to pay commission. Boeing agreed to purchase two Tullys kiosks at Boeings facilities for $155,010 as part of this split, court papers allege. Avenatti instructed a Boeing attorney to wire the payment to an Eagan Avenatti trust account rather than to Global Baristas, apparently to avoid detection by the IRS, according to the affidavit.
Avenatti then transferred the money to an Avenatti & Associates account, from which he transferred $15,000 to his personal checking account. He used $13,073 of that money for rent at a Los Angeles luxury residence. Indeed, out of the $155,010 Boeing transferred to the EA LLP trust account, it appears that only approximately half ever ended up in [Global Baristas] bank accounts, the affidavit states.
Avenatti warned his employees about going to the press: I will fucking destroy him
Sometime after Tullys stores shuttered in March 2018, Avenatti called one former director and yelled at her because a store manager had released confidential information to the press. I will fucking destroy him, Avenatti said of the employee. Avenatti warned that if he was willing to sue the president, then he was willing to sue an employee, the affidavit states.
After this conversation, the unnamed director felt Avenatti was no longer responsive to his Global Baristas employees.
Meanwhile, an employee in the accounting department recalled telling Avenatti he couldnt pay vendors because there wasnt money in Global Baristas account. Avenatti responded by saying it was his money, the affidavit stated. Avenatti always made it clear that he was the boss and it was his company.
The accounting staffer also told IRS investigators that Avenatti never wanted anything in writing. If someone sent him a question, he wouldnt respond via email but instead called them back. If he did reply in a message, hed instruct, Call me.
Avenatti and his law firms failed to file to the IRS even as he lived lavishly
Eagan Avenatti hasnt filed partnership tax returns for the tax years from 2013 to 2017, although the firm appears to have deposited $137.89 million into its bank accounts during those tax years, IRS investigators say.
For its part, Avenatti & Associates also failed to file corporate tax returns from 2011 to 2017, despite the companys $37.96 million in deposits to its bank accounts including net payments of about $23.82 million from Eagan Avenatti.
Avenatti filed personal income tax returns in 2009 and 2010 indicating that he owed the IRS a total of $850,438 plus interest and penalties, but he failed to make the tax payments, the affidavit alleges.
According to his personal bank account records, Avenatti received about $8.46 million from Avenatti & Associates and Eagan Avenatti between 2011 and 2017. Meanwhile, Avenatti never filed tax returns from 2011-2015; each year, he or his tax preparer would file an extension request for his individual tax return in which $0 in tax liability was reported, according to the affidavit. The document states that he never filed an individual tax return for 2016 or 2017 and has not yet filed requests for extensions for those years.
During these tax years, Avenatti generated substantial income and lived lavishly, yet largely failed to pay any federal income tax, the document states. Avenatti also appears to have evaded the assessment and collection of federal income taxes during these tax years by using the entities he controlled, such as [Global Baristas, Eagan Avenatti and Avenatti and Associates] to hide and conceal his personal income.
In September 2015, the IRS filed a federal tax lien worth $903,987 due to Avenattis failure to pay taxes in 2009 and 2010.
Avenatti and Eagan Avenatti still owe Uncle Sam at least $765K
As part of Eagan Avenattis bankruptcy case, the firm owed $2.38 million to the IRS. The government received an initial payment of $1.5 million in March 2018, but said Avenatti and his firm failed to make the remaining payments to the IRS as scheduled.
In August 2018, Eagan Avenatti, Avenatti himself and the IRS reached an agreement for a $75,000-a-month payment plan. Eagan Avenatti made a $75,000 payment via check that month, but no other monies have been received since.
Avenatti and his firm still owe the United States approximately $765,015, plus accrued interest and penalties, the affidavit states.
Avenatti liked to spend the millions he kept from the IRS on watches, Porsches, and his ex-wife
Investigators detailed how Avenatti allegedly spent the millions he kept from the IRS on personal expenses. Between 2011 and 2018, his personal corporation, Avenatti & Associates, paid his first ex-wife approximately $979,590 in what appears to be child support or alimony.
Between 2011 and 2017, a total of $237,985 in cash was withdrawn from Avenatti & Associates account at California Bank & Trust via check or ATM. Those years, his corporation also paid a total of $216,720 to Neiman Marcus.
Avenattis company paid $10,500 to a luxury watch store in Newport Beach between March and June 2011, and $58,000 in June 2014.
Other big expenses included $462,499 to Chase Home Finance in connection to the mortgage of his Laguna Beach home. He also shelled out $1.22 million to a custom home builder in Newport Beach between 2014 and 2015.
Avenatti spent $82,236 on a Porsche between February and March 2015, and doled out another $195,000 to a Porsche dealer in May 2016.
Between April and July 2016, Avenatti & Associates paid $500,000 in rent for a Newport Beach home, and $176,500 to Exclusive Resorts, an elite private vacation club, in September 2016.
Avenatti faked tax returns to get a bank to give him a big loan
Avenatti obtained loans from The Peoples Bank in Biloxi, Mississippi from January 2014 to December 2014, including a $850,500 loan to Global Baristas, a $2.7-million loan to Eagan Avenatti, and another $500,000 loan to Eagan Avenatti, according to the court papers.
Authorities say that to obtain these loans, Avenatti provided false federal personal income tax returns for 2011, 2012 and 2013. In these phony returns, Avenatti claimed he earned $4 million to $5.42 million in adjusted gross income those years. He also claimed to pay the IRS $1.6 million in estimated tax payments in 2012 and $1.25 million in 2013.
The feds say, however, that he never filed personal income tax returns those years, and didnt make any tax payments to the IRS in 2012 and 2013. At the time, Avenatti owed the IRS about $850,000 in unpaid taxes, plus interest and penalties, from 2009 and 2010.
Avenatti claims hes worth $70 million
In May 2013, Avenatti provided a personal balance sheet to HomeStreet bank and indicated he had assets of $40 million, liabilities of $5.46 million and a net worth of $34 million. One year later, he informed The Peoples Bank he had assets of $69 million, liabilities of $5.49 million and a $64 million net worth.
In November of 2014, Avenatti upped his net worth to $70.24 million in an updated personal balance sheet, which listed $75 million in assets and $5.45 million in liabilities.
Despite claiming that he had a net worth in 2013 and 2014 ranging from $34 million to $70 million, Avenatti did not file any personal income tax returns during these tax years, the affidavit states.