Sports News Without Fear, Favor or Compromise
Sports News Without Fear, Favor or Compromise

Michael Avenatti Did Everything Wrong

When you see the opportunity to say “basta” again.
When you see the opportunity to say “basta” again.
Photo: Stephanie Keith (Getty Images)

You wouldn’t want a news cycle to pass without something to read about Michael Avenatti, and lord knows he wouldn’t either. Because he cares, and because he’s apparently been on an IRS watch list for a decade, that will never happen.

The latest Avenatti news is that he has been indicted in the Central District of California on 36 counts, for a variety of crimes committed both in his personal capacity and through his many businesses. As with all people charged with criminal activity he is innocent until proven guilty, so going forward assume some extremely liberal use of “allegedly” and “according to the Feds,” because I’m not going to muck up the rest of the post with those words. Also if you ever assumed that an Avenatti indictment was inevitable the first time you heard that he was considering a presidential run, please feel free to pat yourself on the back. It was obvious, but you earned it all the same.

The wide-ranging indictment charges him with wire fraud (that is, embezzling client funds), tax evasion (personal and both his law firms), failure to pay payroll taxes (Tully’s coffee chain), obstruction of tax collection (coffee chain again), bank fraud (law firm), identity theft (so that he could do bank fraud) and perjury (to conceal assets during his law firm bankruptcy). If you are an Avenatti connoisseur, you will have noticed that these charges aren’t entirely new—most of the indictment tracks a criminal complaint signed by a judge in order to arrest Avenatti last month. Still, that’s a lot of crimes! And some of them were brand new, and were maybe even added to the indictment because other clients he’d screwed over came forward after last month’s news.


It’s fair to say that, of all the accusations, the theft of client funds is the one that it is getting the most attention. That isn’t really surprising, if only because it’s hard to get too worked up about the IRS or a bank as a victim; the bank didn’t even lose anything, on account of being paid back. But where your average civilian would have been grossed out by Avenatti stealing settlement money from a permanently disabled client to cover his personal debts, attorneys would be even more shocked because of how this particular crime contravened a quirk of legal ethics.

A digression: Despite all the easy jokes, lawyers do have to pass an ethics exam and a character and fitness review in order to practice. The Multistate Professional Responsibility Exam is a series of multiple choice Goldilocks problems in which would-be lawyers have to choose the answer that isn’t too ethical but also isn’t a flat-out violation of the rules. Essentially, you are looking for the least ethical position that the canons allow. There are a lot of rules but my brother once gave me a simple heuristic for doing this: (1) you shouldn’t do anything your mother would be embarrassed to see in the newspaper; (2) attorneys can do almost anything as long as they disclose it to their clients; and (3) judges can’t do anything. (It’s not perfect, but I passed comfortably.) But there’s a reason there’s an “almost” in (2): client funds are absolutely sacrosanct. In a world of debatable and highly subjective morality, this is a big, bright no. This is how attorneys develop the general disposition that, sure, murdering your client would be a crime, but intermingling his funds with the firm’s would be an ethical breach.

That gets us back to Avenatti.

The indictment lists four separate settlements that Avenatti procured on behalf of his clients—clients who clearly had significant, meritorious claims ranging from a $1.9 million contract case to $8.1 million from a negotiated stock sale—and which he then largely kept for himself. It usually went like this: the counterparty would pay the settlement as instructed by Avenatti, with the expectation that Avenatti would deduct his fees and then pass the balance on to his client, whereupon the money would instead take a tortuous route through various Avenatti entities. He wired money to firm trust accounts, and his coffee company, and his auto racing company, and the holding company that owned his plane, and also a plane dealership, and his bankruptcy lawyers—but never to the client. He held the clients at bay by, variously, lying to them about when the settlement payments were due, lying about whether they had been paid, lying about whether he’d already paid the client, and dribbling out small “installments” as he was supposedly receiving them, sometimes even telling the clients that he was “advancing” money that the counterparties had failed to pay on time.


Needless to say, this is definitely an ethical breach and will make any future attempts to have himself temporarily admitted to practice out of state borderline impossible.

The most resonant of the cases is the first client-victim listed in the indictment. The client was paralyzed in an incident that, even as briefly described in the indictment, sounds an awful lot like police misconduct. I am admittedly guessing there, but whatever the case Los Angeles County settled the case for $4 million in January 2015. Avenatti probably had around $1 million of that coming to him, but over the next four years, not only did Avenatti keep virtually all of the money in the settlement, he also managed to screw his client out of his SSI disability payments. When the Social Security Administration was asking for information that would have exposed the lies Avenatti was telling his client, he just... didn’t answer their questions. The disability payments were cut off as a result.


What all of the crimes have in common is that they reek not of inherent rampant criminality but of a hustler’s utter desperation. There is an intermingling of events in the indictment—money Avenatti was stealing from clients sometimes went to pay the IRS or as a cash infusion to the coffee company. Avenatti wasn’t paying the coffee company taxes and kept moving its money from one bank to another to keep it safe from IRS liens. Avenatti was lying to the bank to get his law firm loans that, who knows, maybe really were at some point meant to allow him to catch up with his clients. One pot of money is just a fire extinguisher for whatever debt-conflagration was nearest and hottest. One starts to see him as a panicky gambler doubling down over and over, because he only needs to win once to get it all back.

Then again, the money he had was really mostly going to a million dollar home renovation, fancy watches and Porsches and a fucking plane and, well, you can see how you might very quickly end up in the hole and robbing Peter to pay Paul. This is clear even if, ethics-wise, sympathy-for-the-hustler evaporates when you absorb the ludicrous fancy-boy lifestyle all this fraud was propping up.


And then also there’s that guy in the wheelchair, who came to be there through some terrible mistake that Los Angeles County felt was $4 million of “our fault.” That man was owed millions of dollars and wanted to buy a house. Avenatti assured him that the money was coming and so the client let a purchase go into escrow. So there is that guy waiting for his settlement to come through, and then there’s Avenatti leaving him hanging on the closing date. He lost the house.

Clients 1 and 2 were still meeting with Avenatti in late March, and they were assured that payment was imminent. All of which has me wondering if Avenatti’s hamfisted Nike blackmail attempt wasn’t his last and most desperate play. Avenatti didn’t have much in his hand, there - how embarrassed would Nike be, really, about allegations that college recruiting is a dirty business? - and he found himself threatening the lawyer who spent years strongarming the critics of Theranos.


He was deep in the hole… but if he doubled down one last time, maybe all the problems go away and he’s back in the game. Basta.

Charles Star is a Brooklyn-based lawyer and podcaster-at-large. He tweets at Ugarles.

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