Michael Avenatti is being accused of secretly keeping money from one of his clients after getting the client a settlement, spending the money on himself, then telling the client that the funds from the settlement had not been received yet. The client, Gregory Barela, said Avenatti “was operating his law firm in a Ponzi scheme like manner.”
According to The Daily Beast, Barela filed a statement of claims with Judicial Arbitration and Mediation Services (JAMS), a private arbitration organization, arguing that after Avenatti pocketed the money from the settlement, he turned around and offered to lend some of the funds back to Barela with 10% interest.
The claim, which was shown to The Daily Beast by Barela’s attorney, states, “Avenatti was operating his law firm in a Ponzi scheme like manner, taking settlement proceeds received for clients to pay off debts, pay the other individual Defendants’ salaries and bonuses, and fund his lavish lifestyle, while telling clients that the settlement proceeds had not been received or would be received at a later date.”
The Daily Beast reports that according to the statement from Barela’s attorney, Avenatti and a third party reached a settlement for Barela, but in January 2018 the third party deposited money into an account from which Avenatti would transfer the funds to Barela, and Avenatti later informed Barela the money had never been deposited, prompting months of worry for Barela and repeated queries of Avenatti as to the whereabouts of the money. Eventually, according to Barela, Avenatti made the offer of a loan, but Barela had now decided to hire attorneys who found out from the third party that they had already paid Avenatti.
Steven Bledsoe, who represented Barela, told The Daily Beast: “Mr. Barela hired our firm to investigate what happened to the settlement payment that he was supposed to have received early last year. As part of our investigation, we contacted the lawyer for the settling party and he gave us a copy of the unaltered settlement agreement and the wire-transfer confirmation showing that his client made the settlement payment to the bank account specified by Mr. Avenatti five days before it was due.”
Avenatti denied any wrongdoing, telling The Daily Beast, “These allegations are completely fabricated, bogus and fraudulent. We have no idea where this is coming from or why someone would make up this ridiculous false story and deceive his attorneys. Until recently when we demanded to be relieved as counsel, we previously represented Mr. Barela in multiple matters and he has received 100 percent of what he is entitled to. We have never had any contact with Talitha Barela.” Talitha Barela is Gregory Barela’s wife and co-plaintiff.
According to Gabriel J. Chin, a professor of law at the University of California, Davis, likened a lawyer keeping settlement funds to stealing, asserting to The Daily Beast, “They’re guilty of theft. They’ve stolen that money … The lawyer has the money for a particular purpose, but if they use it for something other than that purpose, then they’ve stolen it.” He added, “When you get money on behalf of a client, you hold it in trust for that client. And if there’s one thing that they teach you in ethics class, in law school, it’s that you don’t commingle your own funds and client funds.”
On Wednesday, Los Angeles Superior Court Judge Susan Lopez-Giss ruled that a temporary restraining order against Avenatti, filed by his ex-girlfriend, actress Mareli Miniutti, should remain in place, as reported by The Daily Beast. Miniutti’s attorney, who hails from New York, is finishing the paperwork to represent her in California. Last November, Avenatti was arrested on suspicion of domestic violence after he was reported by Miniutti.
On Tuesday, attorneys for President Trump and Michael Cohen argued that the lawsuit filed by porn star Stormy Daniels against Trump and Cohen should be dismissed, as they agreed that the non-disclosure agreement signed by Daniels could be torn up. Avenatti rejected the idea, asserting that he wanted a signed agreement saying Trump wouldn't sue Daniels.