Avenatti runs law firm like 'Ponzi scheme,' former client alleges in court filing

Michael Avenatti, attorney for porn actress Stormy Daniels, talks to reporters outside federal court in Los Angeles, Jan. 22, 2019. (Associated Press)

A former client of celebrity lawyer Michael Avenatti has accused him of running his law firm similar to a "Ponzi scheme," pocketing the client's money and allegedly trying to lend it back to him at a high interest rate.

In a claim filed with private arbitrator Judicial Arbitration and Mediation Services, Gregory Barela alleges Avenatti secured him a settlement and never gave him the money, but instead offered to lend it to him at 10 percent interest, the Daily Beast reported. Barela retained Avenatti for legal advice regarding an intellectual property dispute with an out-of-state company, according to court documents.

MICHAEL AVENATTI ORDERED BY JUDGE TO HAND OVER $4.85 MILLION IN BACK PAY TO ATTORNEY AT HIS FORMER LAW FIRM

“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,” says the claim, which also names two other lawyers at Avenatti’s firm.

Avenatti denied the allegations against him in a statement to the Daily Beast.

“These allegations are completely fabricated, bogus and fraudulent,” he said. “We have no idea where this is coming from or why someone would make up this ridiculous false story and deceive his attorneys.”

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The claims against him come as the high-profile attorney has faced scrutiny over his representation of former porn star Stormy Daniels and domestic abuse allegations. The State Bar of California closed its professional misconduct investigation last year into Avenatti’s role in purchasing Tully’s Coffee.