Attorney Michael Avenatti should be prevented from practicing law for pocketing a client's settlement and covering his tracks through “deceit, dishonesty and lies,” a lawyer for the California State Bar said Wednesday.
Attorney Eli Morgenstern said Avenatti poses a threat to clients and the public if he continues to perform legal work. The bar is seeking to put Avenatti on involuntary inactive status, and Morgenstern said it is likely he will eventually be disbarred.
Avenatti, who separately faces federal criminal charges, denounced the hearing as a “dog and pony show” and a “complete joke.”
The lawyer best known for representing porn actress Stormy Daniels in lawsuits against President Donald Trump faces charges in New York of trying to extort millions of dollars from Nike and stealing from Daniels. He faces trial in California on charges he cheated on his taxes and embezzled millions from clients.
In the bar proceeding, Avenatti is only accused of stealing from one client, Gregory Barela, for whom he negotiated a $1.9 million settlement in an intellectual property dispute.
Avenatti stole all but $609 of the initial $1.6 million payout made in January 2018, Morgenstern said. He said bank records support the allegations.
Barela said Avenatti never told him the money had been received and gave him the runaround as he desperately racked up debts trying to run a construction supply business and another startup.
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Barela anxiously texted Avenatti for months to ask about the money as he went $250,000 into credit card debt.
“I was going broke," Barela testified.
It was only after hiring a new lawyer that Barela realized Avenatti had lied to him for eight months about the proceeds of the settlement. He is still owed $710,000, Morgenstern said.
Avenatti, in comments to reporters before the hearing, said Barela is a “career criminal with a history of lying.”
Barela's lawyer said Avenatti was blaming the victim.
“Nothing Mr. Avenatti says changes the fact that he appears to have falsified the payment dates in Mr. Barela’s settlement agreement and stolen his settlement money,” attorney Steven Bledsoe said.
Federal prosecutors have charged Avenatti with embezzling from Barela. U.S. Attorney Nick Hanna said in announcing criminal charges in March that Avenatti had even gone so far as to offer Barela a $130,000 “advance” on money Avenatti had pocketed. Avenatti later offered Barela a $100,000 loan — if he paid interest.
“It appears Mr. Avenatti loaned the client’s own money to the client,” Hanna said. “Money that Mr. Avenatti had already secretly collected.”
Avenatti has previously denied stiffing Barela, saying all the funds were accounted for. He said in bar court filings that he was owed more than his 40% contingency fee because of other legal work he did for Barela.
Barela testified that he signed no other agreements with Avenatti for legal work.
Attorney Ellen Pansky, who represents Avenatti, said even if he improperly applied funds from the settlement, he did so in good faith and it didn't merit preventing him from performing legal work.
If the bar prevails, Avenatti will effectively be suspended from practicing while it seeks his future disbarment.
Avenatti said it is unlikely he'll eventually be disbarred and said those proceedings would likely be years away.
“The entire thing is going to be shown to be politically motivated," Avenatti told reporters.