Michael Avenatti Asks for Leniency as Prosecutors Recommend Lengthy Prison Sentence in Client Fraud Case

Federal prosecutors want Michael Avenatti to spend nearly 18 years in prison for defrauding four clients out of nearly $12.5 million in a “cruel” scheme that reduced his clients to his beggars and coincided with crimes against the Internal Revenue Service and U.S. Bankruptcy Court.

In a 52-page memorandum filed Tuesday, Assistant U.S. Attorneys Brett Sagel and Ranee Katzenstein say Avenatti should serve a 210-month sentence served in addition to the approximately five years he’s currently serving out of the Southern District of New York for defrauding Stormy Daniels and trying to extort Nike. The recommendation includes extra prison time for a tweet Avenatti sent in 2019 that prosecutors say was an implied threat to one of the victims — as well as a subpoena he served on another victim’s wife while representing himself in his 2021 trial that prosecutors say was an intimidation tactic.

“Defendant’s criminal conduct arose from calculated choices that resulted in multiple blatant and egregious violations of the trust placed in him by his clients over the course of many years,” the memo reads, adding that the “malevolence of defendant’s actions is magnified by the undisputed fact that the defendant did not need to do what he did.”

“Defendant was not driven to commit his crimes by need, desperation, or the inability to legitimately earn a living,” prosecutors wrote. “Despite the significant advantages defendant enjoyed — including a first-rate education and a thriving professional career — defendant chose to commit numerous, deplorable crimes harming vulnerable victims over a lengthy period of time.”

Avenatti, meanwhile, is asking for a six-year sentence to be served concurrently with his New York sentences, arguing the money he stole from his clients is far less than prosecutors allege — $1.5 million to $3.5 million — while acknowledging he acted selfishly and deserves to spend time in prison.

“Defendant misappropriated monies due four of his legal clients, misled them repeatedly, and violated their trust,” according to the 75-page memo. “In doing so, he put his own selfish interests ahead of his clients, committed federal crimes, and broke some of the most important rules governing attorneys in the State of California.”

But the memo warns of punishing Avenatti too harshly based on “his notoriety; the desire of the government and others to make an example out of him; unbridled vindictiveness; and/or what those in the media, or on social media, may say after his sentencing.” It cites his good work as a lawyer and accuses prosecutors of ruining defense evidence by allowing Avenatti’s former paralegal, Judy Regnier, to throw away boxes that “contained eighteen years’ worth of mitigation materials, including thank you cards, notes of appreciation, letters, awards, etc., spanning defendant’s legal career and representation of thousands of clients.”

“These materials are irreplaceable and cannot be duplicated or obtained by other means,” according to the memo, signed by Avenatti’s advisory counsel, H. Dean Steward. He said prosecutors’ $12.5 million loss amount “grossly overstates the loss amount by millions of dollars” without crediting Avenatti for the attorney fees he rightfully earned, costs, and expenses — or the advanced payments he gave to clients.

Steward included supportive letters from Avenatti’s family and friends, as well as from a lawyer who worked with Avenatti to reunite children who’d been separated from their parents at U.S.-Mexico border and two women who described how Avenatti reunited them with their young children.

“He treated us well and he gave us faith. I know that with the help of God, he will get through this,” wrote Lourdes De Leon.

Steward also referenced Avenatti’s embarrassment.

“Defendant’s cataclysmic fall and the resulting humiliation has played out in a very public way, across three years, nationwide and, due to the way he was charged (across three cases and two coasts), repeatedly,” Steward wrote. “This has had a tremendous, negative impact on his family, his friends, his support system, and him.”

The 51-year-old California lawyer, who voluntarily relinquished his California law license in August, pleaded guilty on June 16 to four counts of wire fraud and a tax crime from his 36 count indictment after unsuccessful plea deal negotiations, but prosecutors say his statements at the hearing “show that he has not yet accepted responsibility for his conduct.” Avenatti’s assertions that his crimes involve far less money than prosecutors allege “are empty and frivolous denials of the uncontested evidence that was presented at trial.”

“Defendant’s statements at the change-of-plea hearing also show that he has not truly accepted responsibility for his offenses but is only saying what he thinks will gain him a reduction in his offense level,” according to the memo.

Prosecutors also included a document showing Avenatti was accused just six weeks ago of an additional $15,000 theft in 2018.

According to an interview memo, Sagel, Katzenstein and IRS agents meet via teleconference on Aug. 29 with Amelia Racine, a former client to Eagan Avenatti who said she never received a $15,000 settlement the firm secured for a had injury Racine suffered while working as a model. She’s currently represented by Filippo Marchino, a former Eagan Avenatti partner who’s accused in U.S. Bankruptcy Curt of conspiring with Avenatti to hide assets.

“AUSA Sagel informed Racine that the government will do its best to provide the funds MA stole back to Racine, but despite its best efforts, the government is not likely to do so due to a lack of funds for victims,” the memo reads.

Prosecutors cited a “self-serving apology” letter addressed to the victims that Avenatti submitted to the U.S. Probation Office, saying it “did not identify any specific conduct for which he was apologizing,” though Steward’s memo says Avenatti sent letter to each client “through each of their respective attorneys.”

“He expressed remorse for his wrongdoings, described his failures, and promised to work towards making them whole,” Steward wrote, adding in a footnote that Avenatti “reiterates and stands by the entirety of his written apology and promises to his four clients.”

Avenatti is scheduled to be sentenced Nov. 7 by Senior U.S. District Judge James V. Selna in Santa Ana. Sagel and Katzenstein have said they will dismiss his remaining six wire fraud counts, and they’ll also dismiss the remaining tax and bankruptcy charges if Selna imposes a sentence they believe accounts for the totality of his crimes.

The major legal issue for the judge will determining the total amount of money involved in Avenatti’s crimes because that’s what dictates sentences for wire fraud under U.S. Sentencing Commission guidelines. Prosecutors also are seeking more prison time because of the vulnerability of one of the victims, the sophistication of the scheme, the financial hardship caused to the victims and his abuse of his position of trust, as well as Avenatti’s obstruction of justice for the courtroom subpoena to the wife of client turned victim Greg Barela, and the threatening tweet to his client-turned-victim Alexis Gardner and her ex-boyfriend, NBA player Hassan Whiteside, posted after a Los Angeles Times article detailed Avenatti’s fraud against her.

Avenatti had secured $3 million from Whiteside on behalf of Gardner but lied to her about the money while giving her 15 payments totaling $218,000 between March 2017 and his arrest in March 2019. Barela, meanwhile, had a $1.6 million settlement through Avenatti that he still has never received.

Prosecutors say the obstruction of justice enhancement also is supported by Avenatti’s numerous lies under oath, in judgement debtor exams, his state bar disciplinary hearings and in U.S. Bankruptcy Court. They also cited Avenatti’s admission in an August 2019 recorded phone call to his former law partner, Michael Eagan, that he’d forged Eagan’s signature on a settlement agreement used to dismiss the initial bankruptcy proceedings.

Avenatti’s other victims are Geoff Johnson, a paraplegic for whom Avenatti secured a $4 million settlement with Los Angeles County, and Michelle Phan, a self-made international cosmetics entrepreneur who hired Avenatti amid his fame in 2018 to negotiate a departure package with ISPY but never received a final $4 million payment. Bank records in trial showed Avenatti used the money to pay creditors so he could get his law firm out of bankruptcy initially. Phan’s friend Long Tran was central to her efforts to try to recover the money, and he testified at trial, so the overall case against Avenatti is sometimes said to involved five clients and four settlements.

Prosecutors included with their memo statements from the victims, including Johnson, who said still to this day does “not know why Michael lied and deceived me, why he broke my trust, why he broke my heart.”

“I trusted him implicitly, I believed the things he told me, but it was all part of his plan to defraud me of my settlement,” Johnson wrote. “To this day, I have a hard time trusting people because of what Michael did, and I live in constant fear of being taken advantage of again, particularly given my physical disability.”

Gardner said described resentment and “a wave of bitter anger at having been mistreated.”

“I have lost job opportunities, personal relationships, and friendships where I have pushed people away in fear of being taken advantage of. I am constantly plagued by my wounds, as my heart truly hurts. I have felt pain writing this,” Gardner wrote.

Barela’s statement described realizing he’d been cheated by “the man you have admired and even felt a friendship towards.” Tran also described “this heavy burden, this overwhelming guilt, this immense shame in knowing that my closest friend endured a great deal of suffering because I chose to hire Michael Avenatti.”

“I can’t fix this and that knowledge will eat away at me for the rest of my life,” Tran wrote.

Prosecutors’ memo describes a four-year scheme perpetuated “through sophisticated means” that included Avenatti moving the money through several bank accounts, forging Johnson’s signature on his settlement agreement, providing Barela a bogus agreement, giving Gardner money “in a form designed to make her believe the payments were from her ex-boyfriend,” and splitting Phan’s wire transfers to try to fend off detection. It also describes Avenatti perjuring himself in civil proceedings, threatened and intimated witnesses, and produced false documents.

Johnson was the earliest victim: Avenatti secured his $4 million settlement, but instead of giving him his full share, he gave him small payments totally $282,070 in 99 increments between January 30, 2015 and March 22, 2019. The final payment occurred after Avenatti had been confronted about the embezzlement in a judgement debtor exam in U.S. District Court. Testimony in his 2021 trial in Santa Ana detailed how he visited Johnson after the exam and had him sign a testimonial describing Avenatti as “an exceptional, honest and ethical attorney,” which he posted to Twitter.

Evidence in the 2021 trial detailed how Avenatti’s actions prevented Johnson from buying a handicap accessible home and caused him to lose his Social Security benefits.

Prosecutors say Avenatti’s embezzlement “inflicted tremendous harm on his victims.”

“The emotional damage was particularly acute because defendant stole from clients who had turned to him for help addressing harms they had already suffered and had put their trust in him and relied on him to represent their interests,” the memo reads.

Further, Avenatti helped conceal his crimes by “exploiting his knowledge of the legal system,” telling his clients the settlements were confidential, and suggesting that “dire consequences would follow if they discussed their cases with anyone other than defendant.” At the same time, he defrauded the U.S. Treasury of $1.6 million in payroll taxes from his law firm Eagan Avenatti LLP as well as $3.2 million through his company Global Baristas, which owned the now shuttered Tully’s Coffee stores. Avenatti didn’t pay the Treasury despite withholding the money from his employees’ paychecks.

“Defendant did not commit his crimes to support his family, pay child support, or pay for any other arguably mitigating reason; to the contrary, he stole from his clients to live an extravagant lifestyle while some of his victims could barely make ends meet,” prosecutors wrote.

A 2003 George W. Bush appointee, Selna presided over Avenatti’s trial in July and August 2021, granting his surprise request to represent himself on the first day of jury selection then navigating aggressive courtroom tactics that drew tears from one of the clients turned victims. The judge declared a mistrial at Avenatti’s request after prosecutors disclosed mid-trial financial information from his seized law firm computer servers that the judge said should have been released long ago.

But Selna declined to dismiss the indictment, and the 9th Circuit Court of Appeals affirmed that move earlier this year. Tuesday’s memo says the newly revealed financial data, which came through a billing software program called Tabs3 Software, ended up showing prosecutors’ loss calculations were correct:  “indeed, if anything, they were generous because they gave defendant credit for ‘costs’ to which he was not actually entitled.”

Avenatti currently is imprisoned at the Terminal Island facility near Long Beach, serving about five years for the Daniels fraud and Nike extortion convictions. Both convictions are factoring into California prosecutors’ 17.5-year recommendation because they are considered criminal history that’s relevant under U.S. Sentencing Guidelines.

The recommendation from U.S. Probation, which is not fully available to the public, recommends less prison time because the New York matters “could have been combined into one criminal case,” according to Tuesday’s memo. However, prosecutors say the analysis is wrong because the crimes “were of a completely different character, involved completely different acts, and were not part of a common scheme or plan.” They cite a decision by U.S. District Judge Jesse Furman in the Daniels wire fraud case that says Avenatti’s Nike conviction should be considered criminal history.

Avenatti’s memo takes issue with prosecutors’ assessment of his criminal history by referencing former top SDNY prosecutor Geoff Berman‘s new book describing a “turf war” between California and New York prosecutors over Avenatti. Instead of combining efforts, prosecutors “were instead more concerned over who would benefit from a high-profile prosecution of defendant and avoid being ‘punished’ by Main Justice,” Steward wrote.

“These statements also undermine the repeated representations from the government that Main Justice was never involved in the prosecution of defendant,” the memo says.

The New York cases drew broad media coverage, but it’s the California case that’s always been the most consequential in terms of prison time and reputation damage, as it involves five clients and millions of dollars of embezzlement over several years. It began as an IRS tax collection effort in 2015 regarding Eagan Avenatti, then grew in 2016 to include a tax investigation into the Tully’s Coffee venture. It escalated as Avenatti lied to agents and continued collecting payroll taxes without giving the money to the government. IRS criminal investigators took over the case in March 2018.

The criminal referral was approved on March 19, 2018, shortly after Avenatti sued then-President Donald Trump on behalf of Daniels, whose real name is Stephanie Clifford. But U.S. Treasury Special Agent Remoun Karlous noted the lawsuit’s timing in a declaration filed in January 2020 and emphasized it was filed “well-after the EA LLP IRS collection case began in September 2015 and the GBUS IRS collection case began in September 2016.” Karlous said an IRS agent first discussed a fraud referral “in September 2017, approximately six months before the Clifford lawsuit was filed.”

The criminal referral came as Avenatti was engulfed in another growing financial dispute with potential criminal undertones: The bankruptcy of his law firm, Eagan Avenatti LLP, and a $14.85 million debt to former law partner Jason Frank, which continues to accrue interest to this day. Avenatti’s 36-count indictment includes four bankruptcy charges for making false statements related to his firm’s case, including submitting false reports and lying under oath.

But while some news organizations reported on Avenatti’s troubles, cable TV pundits continued to put him on air. Testimony in the California case demonstrated how some of his clients were reluctant to approach Avenatti about their concerns regarding their payments because of his rising national profile.

Prosecutors referenced the presidential hopes that briefly surrounded Avenatti in 2018 in their memo, describing in a footnote how he “repeatedly gave assurances during media interviews (and on Twitter) that he would release his tax returns if he ran for president, despite not having filed tax returns for nearly a decade.” They also reference his threatening and bullying tactics against “lay individuals, lawyers, and members of the media, if they accused defendant of impropriety” and his repeated misrepresentation of a $454 million jury verdict that was gutted on appeal.

Prosecutors also included a transcript of an Aug. 22, 2019, call between Avenatti and the other name partner for Eagan Avenatti, Michael Eagan, in which Eagan confronts Avenatti about forging his signature on a settlement document presented in the bankruptcy case.

“You know I didn’t sign that thing. You can’t be telling people that under oath,” Eagan tells Avenatti. Avenatti’s response included, “I’m not disputing what you’re saying.”

Avenatti’s tactics as his own lawyer in his 2021 trial also earned a few paragraphs, with prosecutors saying his “callous abuse” was seen in his cross-examinations of the victims that incorporated “irrelevant — and confidential — information hat he only knew because of his prior representations of the clients.”

“Defendant’s shameless cross-examinations of his victims — which could elicit almost nothing that could actually advance his defense — showed he had no remorse for the harm he had already inflicted on them and has no empathy for anyone who he believes stands in his way of obtaining what he wants,” prosecutors wrote.

Follow reporter Meghann Cuniff on Twitter for more details.

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