A former client of Michael Avenatti is alleging the celebrity lawyer illegally withheld settlement funds in a “Ponzi-like” scheme and then repeatedly lied about it — a claim that Avenatti strenuously denied.
Text messages and email conversations between Avenatti and the client, exclusively obtained by Fox News this week, document the client’s persistent efforts for several months last year to locate and obtain the funds pursuant to a settlement agreement, which resulted from the client’s intellectual property dispute with an out-of-state company.
And financial documents reviewed by Fox News show that the money had been wired to an account designated by Avenatti on Jan. 5, 2018, but that Avenatti continued to dodge increasingly frantic questions from the client as to where the funds were.
The client, Gregory Barela, outlined the charges in a statement of claims against Avenatti filed with Judicial Arbitration and Mediation Services (JAMS), a private entity that, as opposed to a trial court, has jurisdiction over the complaint pursuant to the lawyer-client agreement between Barela and Avenatti.
The allegations in the statement, which were first reported by the Daily Beast, include that Barela relied on relatively modest “advances” of funds from Avenatti — who has represented adult-film star Stormy Daniels in her case against President Trump and recently opted against running for president in 2020 — to make ends meet while he awaited the settlement funds.
In March 2018, according to the statement of claims, Barela visited the Eagan Avenatti law firm in Newport Beach, Calif., to ask about the money — only to see two attorneys who work with Avenatti, John Arden and Ahmed Ibrahim, allegedly try to keep quiet about it.
“Mr. Barela saw Mr. Arden’s reflection in the glass wall of the conference room and observed Mr. Arden gesturing towards Mr. Ibrahim to stop discussing Mr. Barlea’s settlement payment,” the document asserts, after which “both Mr. Ibrahim and Mr. Arden … actively deceived Mr. Barela by not disclosing that the settlement payment had been received.”
In an email dated April 5, 2018, and reviewed by Fox News, Barela wrote to Avenatti that he would “like to discuss my options for collections” on the settlement funds. Ten days later, Barela again sought Avenatti’s advice on the “status” of the transfer, and “next actions” to take if the funds were not collected.
“I need 8K by Tuesday or I’m in deep sh**.”
On May 7, 2018, Barela wrote that if the company “does not pay soon,” he might “need a little help” financially from Avenatti. On May 15, Barela again asked if the company had “respond[ed] or paid.” Barela also noted in one conversation that he was planning to host a watch party at his home for an upcoming Avenatti appearance on “60 Minutes.”
After several advances of funds from Avenatti, on Oct. 10, 2018, Barela wrote, “I was hoping to have an update” on the settlement funds and “get our money.” He tells Avenatti, “I need 8K by Tuesday or I’m in deep sh**,” and on Oct. 22, he emailed a dire assessment.
“Michael, I was waiting for your call and I know you get busy,” Barela wrote on Oct. 22. “I send updates like this so you don’t have to dig up old emails. I know your [sic] under pressure so let’s discuss what you can or can’t do? … Just so you know I am in real financial trouble and am working on trying to get another loan. I am trying to use the [settlement] agreement to secure it. I need to know that we really have the ability to collect and timing to the best of you [sic] opinion.”
The email concluded by asking whether the company had “responded” and “if not what is our next action.”
Avenatti did not disclose that he had received the wire transfer in his conversations with Barela, according to Barela’s attorneys and a review of emails between Avenatti and Barela, stretching throughout most of 2018.
At one point, Avenatti wrote to Barela, “Let’s chat in the am. Working on a solution.” In another response, Avenatti wrote only, “Making progress,” without elaborating.
In November, Gregory Barela and his wife Talitha Barela hired the law firm Larson O’Brien LLP, which was co-founded by former U.S. District Court Judge Stephen G. Larson, to demand answers. Steven Bledsoe, a partner at the firm, told Fox News that Avenatti has since gone silent — and that he has the documents to prove wrongdoing.
Avenatti has “refused to provide an accounting concerning the settlement funds,” as required by California law, Bledsoe said. “Mr. Avenatti has had two months to answer the simple question of whether he received the initial settlement payment for Mr. Barela and he has refused to answer. In the meantime, the settling party has provided us with wire-transfer confirmations showing that they made the settlement payment into Mr. Avenatti’s client trust account, at Mr. Avenatti’s direction.”
The State Bar of California oversees attorney disciplinary proceedings in the state, and misappropriation of client funds is one of the most common reasons for attorneys to temporarily or permanently lose the ability to practice law. Officials at the California bar declined to confirm whether Barela’s allegation was under investigation, but a spokesman noted that the bar can begin such an investigation on its own, even without a referral by a purported victim. The bar last year closed a prior Avenatti investigation related to separate allegations.
“We did not file these claims lightly,” Larson told Fox News. “We understand that falsification of settlement documents and theft of client funds are very serious allegations. We conducted a two-month investigation into Mr. Barela’s claims and did not file the case until we had obtained documents that supported the allegations.”
But in a fiery statement to Fox News, Avenatti insisted Barela’s complaint was a complete fabrication. Barela, according to Avenatti, lacks credibility, in part because of legal troubles.
Court records obtained by Fox News show that Barela is on probation related to his work on a construction project without having proper licensing, and was ordered to pay nearly $50,000 in restitution.
Barela, along with several other defendants, was also sued in 2018 by a couple in Orange County, Calif., who alleged breach of contract and other civil violations related to a construction project. That proceeding and a related case are in progress, and no verdict has been rendered.
“We have no idea where this is coming from,” Avenatti told Fox News. He characterized Barela’s prior misconduct as “serious” and said he was unsure why he would invent a “ridiculous false story and deceive his attorneys.”
Avenatti maintained that neither he nor his law firm has ever “had any contact with Talitha Barela,” the co-plaintiff on the JAMS case, and that “we previously represented Mr. Barela in multiple matters and he has received 100 percent of what he is entitled to.”
“I am talking to Fox News now because I was contacted for comment after Barela made false and fraudulent claims against me and two other attorneys at the firm, all of whom have called the allegations baseless and bogus,” Avenatti said.
He continued: “Barela has received all information and documents and monies that he has ever been entitled to and any claim that he does not know where the money went or has not been provided documentation reflecting as much is false, bogus and nonsense. We represented Barela on multiple matters and incurred huge out of pocket costs on those matters, some of which we have never even been reimbursed for.”
Avenatti added that Barela “was never provided false information or documents nor was he ever improperly loaned any money — these allegations like all the others are bogus and baseless. … All three of the attorneys involved in this matter have vehemently denied the allegations and have found them to be unfounded. These allegations are completely fabricated, bogus and fraudulent.”
Avenatti declined to provide specific documentation corroborating his claim that he provided the settlement funds to Barela.
In response, Bledsoe countered, “Blaming the victim to deflect attention is not a new trick. Unfortunately for Mr. Avenatti, Mr. Barela has documentary evidence to support his claims.
“Mr. Avenatti has refused to provide us with a copy of the settlement agreement so that we can compare the payment dates to those that are in the settlement agreement we received from the settling party,” Bledsoe added.
Avenatti was previously cleared in a separate investigation by the California State Bar. Last November, bar officials said they did not have clear evidence of violations of the state’s ethics rules after a complaint related to Avenatti’s role in purchasing Tully’s Coffee several years ago through an entity called Global Baristas.
The complaint said Avenatti and Global Baristas faced a lien for unpaid federal taxes worth roughly $5 million, claiming taxes were withheld from workers’ paychecks but not paid to the government.
“The State Bar has completed the investigation of the allegations of professional misconduct reported by David Nold. We have determined that this matter does not warrant further action,” Joe Nunley, an investigator with the California State Bar, wrote in a letter to Avenatti’s attorneys. “Therefore, the matter is closed.”
Avenatti, at the time, declared that the complaint was “baseless” and sounded a victorious note.
“I said at the time that the accusations were politically motivated and baseless,” Avenatti tweeted. “And I was right. I was just cleared. #Basta.”
Fox News’ Brooke Singman contributed to this report.