After years of defrauding several clients and obstructing tax collection efforts by the IRS, plaintiffs’ lawyer Michael Avenatti was sentenced to 14 years in prison by a federal judge in December 2022.
Several victims were named in the case, including injury victims and others who trusted Avenatti to act in their best interest. Concerning the wire fraud accounts he pleaded guilty to in June 2022, Avenatti used various tactics, including falsifying documents and outright lying, to mislead his clients and misrepresent their settlements from cases. In addition to defrauding multiple clients, Avenatti also attempted to thwart tax collection efforts from the IRS and wrongly avoided paying taxes for many years. According to prosecutors in the case, all of these actions were done to fund Avenatti’s lavish lifestyle, stealing from his clients in the process.
Our attorneys can help provide guidance during civil and criminal tax investigations by the IRS. To learn more about how our Dual Licensed Tax Attorneys and CPAs can assist you, call the Tax Law Offices of David W. Klasing today at (800) 681-1295.
On June 16, 2022, former plaintiffs’ attorney Michael Avenatti pleaded guilty to several charges, four being counts for wire fraud. The victims in this case, Geoffrey Johnson, Alexis Gardner, Gregory Barela, Michelle Phan, and Long Tran, collectively suffered losses of $7.6 million. The following information regarding Avenatti’s tactics was learned from court documents.
In 2015, Mr. Johnson received a settlement from the County of Los Angeles after filing a lawsuit against the county for negligence causing him to become paraplegic. With Avenatti as his lawyer, Mr. Johnson settled for $4 million. The funds were then placed in a client trust account, and Avenatti continued using the entire amount to fund his business and personal expenses. Avenatti did not inform his client, Mr. Johnson, of these actions, instead giving him period payments and paying the rent for Mr. Johnson’s living facility to keep Mr. Johnson unaware of Avenatti’s actual use of the funds.
In 2017, Ms. Gardner was supposed to receive an initial $2.75 million payment of a $3 million settlement yet was never given a copy of the settlement agreement by Avenatti, her lawyer for the case. Avenatti then used $2.5 million of the settlement to finance his personal expenses and purchases, including a private jet. During this time, Ms. Gardner was under the impression that she would receive her entire $3 million settlement in structured monthly payments over the coming eight years. Similar to Mr. Johnson’s case, Avenatti gave Ms. Gardner funds for rent each month for about a year, totaling approximately $227,500. While receiving payments, Ms. Gardner was under the impression the funds were coming from the settlement, not Avenatti.
After resolving an intellectual property dispute, Mr. Barela expected to receive a $1.9 million settlement in early 2018. Upon receiving the first large portion of the settlement, which equaled $1.6 million, Avenatti embezzled the funds. During this time, Avenatti provided Mr. Barela with a fake settlement agreement, falsely claiming the settlement would be received later in the year. Avenatti then continued using the funds from Mr. Barela’s settlement to pay his personal, legal, and business expenses.
Michelle Phan and Long Tran
Ms. Phan and Mr. Tran hired Avenatti to aid negotiations during two sales of Ms. Phan’s shares in a company she founded, IPSY. The shares sold totaled over $35 million. After subtracting his attorney’s fees from the initial sale of shares, Avenatti took funds from the balance he was not entitled to, equally $4 million. When questioned by his clients, Avenatti claimed the funds had already been wired to them and reinforced the lie by showing them wire transfer documents of a separate transfer. In reality, Avenatti used the $4 million he stole from Ms. Phan and Mr. Tran for his own business expenses, to pay creditors of his law firms, and to give payments to Mr. Johnson, Ms. Gardner, and Mr. Barela, all the while defrauding Ms. Phan and Mr. Tran.
In addition to defrauding his clients, Avenatti engaged in tax evasion. In total, Avenatti avoided paying upwards of $3.2 million in payroll taxes to the IRS. Included in that sum is the amount Avenatti withheld from employees’ paychecks that worked for his company Global Baristas US LLC.
Doing his best to obstruct tax collection efforts by the IRS, Avenatti lied to an IRS revenue officer. He also told employees to no longer deposit cash receipts. Avenatti changed the name of his company, its Employer Identification Number, and bank account information on record with his credit card number to avoid paying the necessary taxes to the IRS.
To reinforce these charges, prosecutors illuminated other unsavory tactics Avenatti used to obstruct efforts by the IRS to collect taxes. According to prosecutors in the case, Avenatti engaged in the following:
Several months after pleading guilty to 16 charges on June 16, 2022, including four counts of wire fraud and one count of endeavoring to obstruct the administration of the Internal Revenue Code, an act more commonly known as tax evasion, Michael Avenatti was sentenced on December 5, 2022.
Because of the severity of the charges against him and the serious damage his actions caused the clients that trusted him, Avenatti was sentenced to 14 years in federal prison. The judge on the case, United States District Judge James V. Selna, ordered that his sentence be run consecutively with sentences totaling five years from two previous federal cases.
In addition to his prison sentence, Avenatti was ordered to pay a total of $10,810,709 in restitution to the clients named in the case and to the IRS.
If you need assistance on your case, our lawyers & CPAs can provide it. To learn more about how our Dual Licensed Tax Attorneys and CPAs can help you, call the Tax Law Offices of David W. Klasing today at (800) 681-1295.
See our Criminal Tax Law Q and A Library