As part of a 36-count indictment issued Thursday, federal prosecutors accused prominent celebrity lawyer Michael Avenatti of embezzling nearly $4 million from a settlement issued to a client with paraplegia — and then using the money for his business ventures.
Avenatti was charged by a grand jury in the Central District of California on a slew of financial crimes including 10 counts of wire fraud related to allegedly embezzling his clients’ money, 19 counts of tax fraud, four counts of bankruptcy fraud, and two counts of bank fraud.
The indictment alleges that Avenatti committed wire fraud in embezzling $12 million from financial settlements and legal judgments won by four of his clients, often lying to clients about how much money they had received or falsely claiming their judgments would be paid out over the course of several months.
Prosecutors say Avenatti represented a man named Geoffrey Ernest Johnson, identified as client 1 in charging documents, in a lawsuit against Los Angeles County alleging that the County had violated the man’s constitutional rights, causing to him to become paraplegic.
In a Thursday statement to INSIDER, an attorney for Johnson confirmed he is client 1. Johnson’s new lawyer said he was the victim of “appalling fraud” at the hands of Avenatti, “the one person who owed him loyalty and honesty most of all.”
“Mr. Avenatti stole millions of dollars that were meant to compensate Mr. Johnson for a devastating injury, spent it on his own lavish lifestyle, then lied about it to Mr. Johnson for years to cover his tracks,” the statement continued.
Johnson’s current attorney, Josh Robbins, said Avenatti’s actions “have left Mr. Johnson destitute” and that Johnson “is cooperating fully with the government’s investigation, and hopes that justice will be done in this case.”
After LA County agreed to pay Johnson a $4 million settlement in 2015, prosecutors allege that Avenatti falsely claimed to Johnson that the value of the settlement couldn’t yet be disclosed, had to be paid through a special-needs trust, and would be paid out in multiple installments over time.
The indictment further alleges that Avenatti funneled $3.125 million of the total $4 million settlement into his own personal bank accounts, and into shell companies and accounts associated with his personal accounts, the coffee company he owned, Global Baristas US LLC, and his race-car business, GB Auto.
Avenatti is accused of then paying out Johnson in small settlements and helping pay some of his living expenses while continuing to falsely state that the full settlement hadn’t yet been approved and fully handed down from Los Angeles County.
Prosecutors also allege that when Johnson tried to purchase a house using the settlement, the deal fell through because Avenatti continued to cover up his alleged embezzlement by lying to his client about the status of the payment.
The indictment further alleges that the Social Security Administration (SSA) contacted Avenatti regarding how the settlement could affect Johnson’s eligibility for Supplemental Security Income (SSI) disability benefits in November 2018.
Avenatti did not respond to the SSA’s inquiry out of fear that it would expose his alleged embezzlement of Johnson’s settlement, directly leading to his client losing his disability benefits altogether this February, prosecutors say.
And after Avenatti was questioned by authorities about the alleged embezzlement in late March of this year, Avenatti then allegedly told his client that the settlement had been formally approved by Los Angeles and made his client sign a document stating he was “satisfied with Avenatti’s representation” in the case, prosecutors say.
Avenatti, who has vehemently denied the charges, faces a maximum sentence of 335 years in prison if convicted on all counts.
Last month, federal prosecutors in the Southern District of New York indicted Avenatti in a separate case on charges of trying to extort Nike for $20 million.
Avenatti is set to appear in court to be arraigned in the California case on April 19.