Must Reads: Michael Avenatti’s life of luxury hangs by a thread as IRS comes calling

Long before he was Stormy Daniels’ lawyer, well before he was accused of trying to shake down Nike for millions of dollars, Michael Avenatti was an Orange County plaintiff’s attorney living a luxe life adorned with fast cars, high-end properties and expensive jewelry.

He flew in a private jet, lived in a mansion overlooking the Pacific and rang up six-figure receipts at Neiman Marcus and other sumptuous retailers.

That his wealth might in fact be illusory, built on a flimsy and teetering financial foundation, slowly grew clear to some who knew Avenatti and hounded him for years in Bankruptcy Court and other venues in search of money he owed.

Suddenly, with his arrest Monday in Manhattan for allegedly scheming to extort $20 million from the sportswear giant, the rest of the world got a glimpse into the tangled life of the pugnacious litigator and, prosecutors assert, his reckless venality.

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Los Angeles attorney Michael Avenatti was arrested on federal charges of embezzling money from a client, defrauding a bank and attempting to extort millions of dollars from Nike in separate criminal cases filed in New York and Santa Ana.

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But as startling as the Nike allegations may be — attempting to strong-arm one of the most recognizable companies on the planet — the federal fraud charges simultaneously unsealed in California may be more revealing and could pose greater jeopardy to Avenatti and his freedom.

They exposed nearly a decade of alleged financial misdeeds on a vast scale, many of which have sporadically surfaced in courtrooms up and down the West Coast.

Avenatti continued on Tuesday to profess his innocence. “I feel terrible for my family,” he told CBS News. “I feel bad for my friends. Most people are sticking by me. They believe in me. They know what I’m all about.”

The 48-year-old counsel, who made his living by filing class-action lawsuits against big corporations, crashed into the nation’s consciousness a year ago as the representative of Daniels, an adult-film actress who sought to nullify a hush-money agreement stemming from an alleged 2006 sexual dalliance with Donald Trump.

But Avenatti’s notoriety — so far as federal investigators were concerned — long preceded his emergence as Daniels’ advocate and President Trump’s tormentor.

The nearly 200 pages of charging documents submitted by the Internal Revenue Service show that federal investigators started pursuing Avenatti for alleged tax violations a decade ago.

The first sign of trouble came in 2009 when, the IRS said, he reported $1.9 million in personal income but failed to pay $570,000 in taxes. The next year, the IRS said, Avenatti reported $1.2 million in income but skipped out on a $282,000 tax bill.

Since then, according to federal prosecutors, Avenatti has filed no personal income tax returns, even as he deposited $18 million into his bank accounts.

He also has filed no tax returns since then for Avenatti & Associates, a corporation that has recorded $38 million in deposits, the government says. Avenatti, who owns the firm, has often used it to pay personal expenses, including $176,500 to Exclusive Resorts, which bills itself as “the world’s elite private vacation club.”

“During these tax years, Avenatti generated substantial income and lived lavishly,” Remoun Karlous, an IRS criminal investigator, wrote in his sworn statement.

Among other big-ticket items: $217,000 at Neiman Marcus; $117,000 at Jewelers on Time, a luxury watch store; $277,236 to Porsche dealers; $100,000-a-month rent for a waterfront house on Lido Isle in Newport Beach; $39,762 in Ferrari lease payments; $123,825 in rent on his apartment in a luxury high-rise in Century City.

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Even as he flaunted his seeming wealth, prosecutors allege, Avenatti was spiraling deeper down a financial hole.

His tax avoidance appeared to escalate, according to the IRS, when Avenatti pursued a side business, buying Tully’s, a Seattle-based coffee chain, in 2013 for $9 million. By late 2015, Avenatti’s company, Global Baristas U.S., was withholding taxes from employee paychecks but — at his instruction — failing to send the money to the government, the IRS alleged.

Managers of the company told the IRS they were mortified; one called the move “unethical” and another said Avenatti’s “moral compass didn’t point north.”

The government placed a $5-million lien on the company and started garnishing its bank accounts. Avenatti allegedly ordered subordinates to stop using those accounts and open new ones that would be out of the government’s reach.

At the same time Global Baristas was pocketing the taxes withheld from employees, his law firm, Eagan Avenatti, allegedly did the same.

In 2017, the firm filed for bankruptcy. After it emerged a year later, Avenatti vowed Eagan Avenatti would pay nearly $900,000 it owed in taxes. It did not.

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Avenatti’s courtroom adversaries — and there are many — have long described him as an untrustworthy foe with a history of unpaid bills, delinquent taxes, scorched-earth feuds with fellow barristers and elaborate bank maneuvers to cover up assets from pleading creditors.

Now, the full weight of the U.S. government is backing up that portrayal in a criminal complaint lodged in federal court in Santa Ana. Perhaps the most stunning revelation: At the same time he became an internationally recognizable celebrity attorney, prosecutors allege, Avenatti was stealing $1.6 million that a client had won in a legal settlement.

If true, said Andrew Stolper, one of three lawyers who bolted Avenatti’s law practice in a 2015 dispute, his conduct “is as brazen as it is stupid.”

“You would think that someone with those skeletons in his closet would try to maintain a low profile,” Stolper said. “Stealing client money, not paying taxes. The question is why was he doing this? You don’t have to search very far to see that he was trying to support a lifestyle that was unsupportable.”

Michael Avenatti and Stormy Daniels, a former client, at the Adult Video News Awards in Las Vegas.

(Ethan Miller / Getty Images)

Avenatti did not respond to a request for comment.

If convicted in the tax and fraud cases, he faces up to 50 years in prison. Avenatti faces an additional 47 years in the Nike extortion case; he allegedly threatened to harm the company’s reputation by accusing Nike of improperly paying high school basketball prospects unless he, fellow Los Angeles attorney Mark Geragos and a client were paid millions of dollars.

To some who worked for Avenatti, the criminal charges were less startling than his emergence as a political hero — in certain circles, anyway — and leading avatar of the anti-Trump resistance. At one point, Avenatti pursued a short-lived run at the 2020 Democratic presidential nomination.

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Robert Sifuentez, a 36-year-old Seattle resident who was a barista and store manager for Tully’s from 2009 until the company collapsed last year, said he was first ordered to deposit cash from a store into an unfamiliar account in September 2017. “We were never given a reason why,” he said, “other than ‘Michael told us to.’”

The price of the deception, Sifuentez said, was borne by the little guy that Avenatti has always professed to champion.

“Tully’s shut down and that just cost hundreds of people their jobs, and we knew why,” Sifuentez said. “It was because he was stealing money from the company and driving it into the ground.”

Times staff writer James Queally contributed to this report.