Michael Avenatti to be Sentenced for California Client Fraud

Michael Avenatti via Phillip Faraone_Getty Images for Politicon

Michael Avenatti in 2018

Michael Avenatti is to be sentenced Monday at 9 a.m. in Santa Ana, California, for a years-long financial fraud that victimized clients and included tax and bankruptcy crimes related to his law firm and failed coffee shop venture. You can follow the sentencing live on Twitter through reporter Meghann Cuniff.

It’s the potential end of a long cross-country trial court saga for the now-former California attorney, who has been in custody since turning himself in to federal authorities on Feb. 7 following his jury convictions in New York City for defrauding the client who propelled him to fame in 2018 through their legal battle against then-President Donald Trump, adult film star Stormy Daniels.

Avenatti, 51, is due to be released in January 2026 for those crimes as well as his attempted extortion of Nike, but federal prosecutors are asking for nearly 18 additional years in prison. Their 210-month recommendation is far from the six years Avenatti is seeking, which he wants to serve at the same time as his New York sentences instead of after.

But it’s also lower than what prosecutors say his Avenatti’s standard range under U.S. Sentencing Guidelines: Their calculated range is nearly 22 years to about 27 (262 to 327 months) if the judge finds Avenatti has accepted responsibility for his crimes, and 27 years to nearly 34 years if the judge rules he hasn’t.

“If defendant accepts responsibility for his conduct, the government submits that a sentence of 210 months (consecutive to any previously imposed sentences) is appropriate and necessary to achieve the goals of sentencing in this case,” according to the sentencing memorandum by Assistant U.S. Attorneys Brett Sagel and Ranee Katzenstein. “In the event that defendant does not accept responsibility for his offenses, the government recommends that a higher sentence be imposed.”

Senior U.S. District Judge James V. Selna, a 2003 George W. Bush appointee, must decide key issues such as the amount of money involved and whether Avenatti’s criminal convictions in New York should lengthen his sentence. A former longtime partner at O’Melveny & Myers LLP, Selna also must weigh whether Avenatti deserves several sentencing enhancements sought by prosecutors, including for abusing his position of trust as a lawyer, for the vulnerability of his victims and for the severe harm they suffered because of his crimes.

Highlighting the social medium that earned Avenatti online fame, prosecutors also want an obstruction of justice enhancement over a tweet Avenatti posted on Twitter in April 2019 that they argue threatened a victim and a witness.

Selna rejected Avenatti’s request to hold an evidentiary hearing to determine the total amount of money associated with his wire fraud crimes, writing in his order that each client victim testified during trial “and was cross-examined by Avenatti at length.”

“Thus, the necessary evidentiary hearing has already been conducted,” according to a Nov. 14 order. “There is no need for additional, repetitive inquiries.”

Sagel and Katzenstein say Avenatti should be punished for the full $12.35 million in settlement money he stole, regardless of any attorney fees he may have once been due. The amount of money they believe his clients are due isn’t nearly that much: $7.6 million, with another $3.2 million due the Internal Revenue Service. But they said in their most recent filing that the total loss amount for Avenatti’s wire fraud convictions, a crucial of sentencing for those crimes, should be the full amount of the settlements because Avenatti “lied to his clients about the settlements and settlement payments.”

(left to right) Assistant U.S. Attorney Ranee Katzenstein, Internal Revenue Service Special Agent James Kim, Assistant U.S. Attorney Brett Sagel and U.S. Treasury Special Agent Remoun Karlous after Michael Avenatti pleaded guilty to five crimes on Thursday, June 16, 2022. (Photo by Meghann M. Cuniff)

Avenatti is arguing the total loss amount is much lower — “less than $3.5 million” — and he appears to be prepared to argue that he’s unfairly been deprived of full access to all information regarding the costs and fees he incurred while representing the four client victims. He also notes that the so-called “offense level” of 39 that prosecutors and probation are starting with under U.S. Sentencing Commission Guidelines “is greater than that for selling or buying a child for production of pornography; second degree murder; trafficking in over 600 images of child pornography involving infants and depicting violence; and robbing a family of over $100 million at gun point.”

He’s also cited Elizabeth Holmes‘ recent 11-year sentence for defrauding investors in her health tech startup Theranos Inc., out of what a judge determined to be , including with his memo a chart listing details of Holmes’ crimes that don’t fit his such as a total loss amount in the hundreds of millions of dollars. Holmes, however, was never accused of spending Theranos investor money on herself, while prosecutors say Avenatti was spending millions on personal luxuries, including a Porsche, a Mercedes, improvements to luxury homes in Laguna Beach and Newport Beach’s Lido Isle, Nieman Marcus clothes and his doomed investment in the Seattle-based Tully’s Coffee chain, at the same time clients were due money they never received.

On Friday, Avenatti’s standby counsel, H. Dean Steward, filed 10 additional exhibits to supplement for his 44-page sentencing memorandum, which Avenatti revised at Selna’s order after his original memo exceeded Selna’s 50-page limit by 15 pages. The new exhibits include emails Avenatti sent from prison seeking additional information from prosecutors and the lawyers representing his victims. Avenatti says his request went unanswered, just as his repeated requests for a COVID-19 booster shot have gone nowhere, according to a message he sent prison staff that’s included in the Friday filing.

“This is at least the fourth written request I have made for the Covid-19 booster since August,” according to Avenatti’s Nov. 29 message. “Last week, I inquired in person with medical staff…as to when I could receive the booster. I was told the booster still was not available and there was no timetable as to when it would be made available to prisoners.”

Avenatti’s 2021 jury trial ended in Selna declaring a mistrial after prosecutors disclosed financial information from Avenatti’s seized law firm servers the judge said should have been released far sooner.

But after a quick loss at the 9th Circuit U.S. Court of Appeals, Avenatti pleaded guilty on his own accord in June to five felonies: four counts of wire fraud and one count of obstructing the due administration of the internal revenue laws, telling Selna he hadn’t been able to strike a deal with prosecutors after months of trying. Sagel and Katzenstein have since said they’ll dismiss his remaining six wire fraud charges, and they said they’ll dismiss the other tax and bankruptcy charges should the sentence imposed by Selna “addresses the full scope of defendant’s criminal conduct.”

“Such a sentence would obviate the need for a trial on the remaining counts,” according to a June 21 brief.

According to their Oct. 11 sentencing memorandum, the 210 months Sagel and Katzenstein want Selna to impose are for the four wire fraud charges, with prosecutors recommending 36 months for the IRS obstruction charge to be served concurrently.

Prosecutors are backed by the U.S. Probation Office on some recommendations but not others. The office issues its own sentencing recommendations in reports not available to the public that include detailed descriptions of a criminal defendant’s life and family history. The report for Avenatti agrees with prosecutors on key issues such as the total loss amount for the wire fraud convictions.

But it differs from prosecutors in the final sentencing recommendation, calling for a departure from the U.S. Sentencing Commission guidelines due to Avenatti’s “unstable and abusive childhood,” his work history as a lawyer prior to his crimes and his devotion to his children and positive influence on them.

The probation officer who interviewed Avenatti and wrote the report believes the work he did to obtain the settlements he stole should mitigate his crimes, but prosecutors note in their latest filing: “The victims certainly would not describe defendant’s actions as legal work on their behalf.” Avenatti voluntarily surrendered his law license with the California State Bar, though the online record still says his license is only temporarily suspended.

The probation report also does not support Avenatti’s New York convictions being fully factored into his criminal history as prosecutors do, recommending instead that he be sentenced under Criminal History Category II of the U.S. Sentencing Guidelines instead of category III. It says the New York cases “could have been combined into one criminal case,” but Sagel and Katzenstein 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.”

The probation report does, however, support enhancements prosecutors seek such as one for obstruction over a tweet Avenatti sent after an April 2019 Los Angeles Times article identified Avenatti’s former client Alexis Gardner and her former boyfriend Hassan Whiteside, an NBA player, as being referenced in Avenatti’s indictment anonymously, which prosecutors say was an attempt to threaten or intimidate Gardner and Whiteside as witnesses.

Prosecutors and probation also agree that other conduct supports the obstruction of justice enhancement, including for a subpoena Avenatti served on Barela’s wife in the courtroom when she was there to watch him testify. The move meant she was now a trial witness and couldn’t be in court for her husband’s testimony.

The probation report agrees each act alone supports the obstruction of justice enhancement prosecutors seek, and it agrees Avenatti’s perjury in two judgment debtor examinations related to his debt to a former law partner, Jason Frank, and his lie in his post-indictment California State Bar disciplinary hearing and a U.S. Bankruptcy Court hearing also support the enhancement, as does his forging of his former law partner Michael Eagan‘s signature in their firm’s bankruptcy case. Prosecutors revealed the forgery in their memo and included a transcript of a covert recording Eagan made of Avenatti confessing to the forgery in a phone call.

All told, probation’s recommended sentence is 188 months, or about 15 1/2 years. The recommendation that it be served the same time as his New York sentence shaves five years, with Avenatti’s release date moved from its current Jan. 27, 2026, to about 2036. Prosecutors’ recommendation wouldn’t have him out until later into 2043.

Probation revised its recommendation recently, reversing its original position that Avenatti deserved less time in prison because he’s accepted responsibility for his crimes. The new report cites Avenatti’s “disclosure of his sentencing positions” and says the probation officer assigned his case “is falsely denying relevant conduct for which he is accountable.” An example, the officer says, is Avenatti “objecting to the fact that he pleaded guilty to the omnibus clause of 18 U.S.C. § 7212(a) when he, in fact, pleaded guilty to this clause.” That prompted Avenatti to argue in a filing that he’d mistakenly believed he’d pleaded guilty to a different charge and withdrew his objection.

But prosecutors gave other examples in their Nov. 21 filing, including that Avenatti disputes his crimes caused “substantial hardship” to Gardner and two other client victims, Geoffrey Johnson and Greg Barela, and that he “frivolously contests that Johnson was a vulnerable victim, even though he is paraplegic and has psychological issues.” They also point to Avenatti’s claims that he doesn’t owe client victim Michelle Phan money and that she instead owes him money.

“Defendant’s sentencing submissions lack any support for his asserted valuation of the benefits Phan received and his claim that Phan owed defendant $4,387,500 — and now owes defendant $387,500.”

Phan is an international cosmetics entrepreneur whose friend Long Tran hired Avenatti amid his fame in 2018 to negotiate a departure package from Ipsy, the company she built as a rising YouTube star. As a lawyer, Avenatti had little experience in mergers and acquisitions, but he managed to secure a $37 million departure package for Phan, Tran and Phan’s sister in law that included $2.7 million for himself. Phan was due a total of $35 million, but she never received a final $4 million payment that she and Tran spent weeks trying to locate amid the height of Avenatti’s 2018 TV appearances.

Avenatti asked Selna to strike a victim impact statement submitted by Tran, arguing he wasn’t a true victim in the case, but the judge declined, writing in a Nov. 14 order, “Tran testified to the numerous lies which Avenatti told him. He also testified to the effects on his relationship with victim Michelle Phan and on his career.”

“Even if Tran were not a literal victim, consideration of his statement falls well within the bounds of permissible inquiry at sentencing,” the judge added.

Sagel and Katzenstein want Avenatti’s restitution to Phan set at $4 million. That’s also the total amount Avenatti secured for another client victim, Johnson, in a lawsuit against Los Angeles County, but Sagel and Katzenstein put his restitution to Johnson at just under $1.6 million after factoring in Avenatti’s standard 40 percent attorney fee, $543,062 in costs and $280,672 in small payments he made to Johnson over several years.

Barela, a Southern California businessman whom Avenatti secured a $1.6 million settlement, should be paid $633,341, prosecutors say.

The restitution request for Gardner, meanwhile, is due $1.47 million out of a $2.75 million settlement with Whiteside. Avenatti used $2.5 million of the money to buy a jet with another client, William Parrish, that federal authorities seized after Avenatti’s arrest in 2019. Avenatti agreed to forfeit it as part of his sentencing, but Parrish and others, including Gardner, are contesting the forfeiture and claiming their own stake in the plane. Selna has not yet addressed the dispute.

Avenatti was arrested in Manhattan in March 2019 on charges of attempting to extort Nike in negotiations over a youth basketball coach’s corruption claims. The case was filed in the Southern District of New York, and prosecutors there were also pursuing an indictment for Avenatti’s theft of money Daniels was due for her book Full Disclosure, which a grand jury returned a month later.

But at the same time, federal authorities in the Los Angeles-based Central District of California were in the midst of a much broader investigation into Avenatti’s defrauding of his clients and his tax and bankruptcy charges, so they rushed out a charging complaint after New York authorities told them of Avenatti’s looming arrest.

The April 10, 2019, indictment is attributed to the September 2018 Grand Jury. The case began as a civil tax investigation related to Avenatti’s ownership of the Tully Coffee’s chain through Global Baristas LLC. He collected payroll taxes that he never gave to the IRS, according to his indictment, and he went years without paying personal income taxes. Avenatti’s sentencing memo cites a “turf war” between Los Angeles and New York prosecutors described in a new book by former SDNY U.S. Attorney Geoffrey Berman.

Avenatti was allowed to leave jail on bail and await trial, but Selna signed an arrest warrant on Jan. 14, 2020, after prosecutors presented him with hundreds of pages detailing more financial crimes by Avenatti. Avenatti was arrested hours later at his California State Bar disciplinary hearing in Los Angeles.

Michael Avenatti appears in Orange County Superior Court in April 2022 for a civil case involving a 10-year fee dispute with former co-counsel and clients. (Photo by Meghann M. Cuniff)

After the COVID-19 pandemic hit, however, Selna granted Avenatti’s request to leave jail for home confinement, and Avenatti stayed at a longtime friend’s home in Los Angeles’ Venice area until surrendering at the Ronald Reagan Federal Building & Courthouse in Santa Ana after being allowed to fly home from New York upon his convictions in the Daniels case. Avenatti is appealing both his convictions in that case and his convictions in the Nike case in the 2nd Circuit U.S. Court of Appeals.

Avenatti had someone post to his Twitter account last July two letters seeking an investigation into the “likely misuse” of the IRS and U.S. Treasury Department by Trump in retaliation for Avenatti’s representation of Daniels, which prosecutors’ sentencing memo says is an example of Avenatti continuing to falsely blame others.

“Defendant knew that he had been the subject of three separate civil IRS audits and collection activities (including the collection activities he admitted obstructing when he pleaded guilty to count 19) between 2011 and 2017 and that an IRS revenue agent had made a criminal referral in early 2018, before defendant ever met or filed a claim on behalf of Stephanie Clifford [Stormy Daniels] against the former President,” the memo reads.

Avenatti will return to the Santa Ana federal courthouse Monday morning as an in-custody inmate. He’s incarcerated at the Terminal Island federal prison in San Pedro, near Long Beach, and he persuaded Selna last month to order him to remain there until early Monday instead of being moved to the Santa Ana jail for sentencing.

Reporter Meghann Cuniff will be covering Avenatti’s live on Twitter, and Law & Crime will have full coverage.

(Images: Top Avenatti photo via Phillip Faraone_Getty Images for Politicon; other photos by Meghann M. Cuniff/Law&Crime)

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