Did Michael Avenatti Stiff Beauty Vlogger Michelle Phan?
The criminal complaint against Michael Avenatti hints at potential bad blood between the lawyer and YouTube beauty mogul Michelle Phan.
While celebrity lawyer Michael Avenatti faces federal charges on two coasts, an IRS investigator indicated in court records that Avenatti may have improperly kept millions due to his clients, possibly including famous beauty vlogger Michelle Phan.
The 48-year-old Newport Beach attorney, best known for representing Stormy Daniels in her legal tangles with President Trump, was arrested in New York on Monday for allegedly trying to shake down Nike for up to $25 million. Avenatti was released on $300,000 bail and has denied any wrongdoing, telling CBS This Morning, “People make threats all the time in connection with trying to settle a case.”
In Los Angeles, prosecutors say Avenatti “defrauded” a client out of a $1.6 million settlement and “obstructed” IRS efforts to collect millions in unpaid taxes from himself and his businesses, which include defunct Seattle coffee company Global Baristas. He is charged with bank fraud and wire fraud for which he faces 50 years behind bars. If convicted in both cases, he could be sentenced to up to 100 years.
A footnote in the California criminal complaint reveals that Avenatti may have also run afoul of one of YouTube’s most famous beauty personalities.
An IRS investigator’s search warrant affidavit, attached to the complaint, claims Avenatti failed to pay a certain “M.P.” all of the money he collected for her in a business matter. Instead, he allegedly used some of M.P.’s money to pay law firm Eagan Avenatti’s tax bill.
On Monday afternoon, minutes after word spread of Avenatti’s arrest, Phan posted a cryptic meme on Twitter. “The best revenge is always to just happily move on and let karma do the rest,” the image read.
Phan’s own text included an emoji of champagne glasses clinking: “When karma finally comes through. You never disappoint.”
Ten minutes later, Phan tweeted, “I’m so grateful.”
Avenatti declined to comment on any dealings with Phan.
“I’m not going to comment on attorney-client matters at this time except to state that your recitation of the facts is not accurate, and I haven’t been charged with anything relating to this,” Avenatti told The Daily Beast in an email.
Phan, regarded as the first high-profile beauty vlogger with 8.8 million YouTube subscribers and 1.9 million followers on Instagram, didn’t return messages seeking comment. Her attorney also could not be reached.
The 31-year-old entrepreneur—the daughter of Vietnamese refugees and called “the Oprah or Martha Stewart of her generation” in one Nylon profile—posted her first YouTube makeup tutorial in 2007. She would become one of the site’s biggest success stories.
In 2013, Phan launched her Em Cosmetics makeup line with L’Oréal, which she bought back from the brand two years later. In 2016, she took a hiatus from social media and “peaced out” for her mental health. When she returned, Phan revived Em and left the beauty subscription service she co-founded, Ipsy.
The California complaint against Avenatti includes descriptions of alleged money transactions involving M.P., which match transactions from one of Avenatti’s client trust accounts to Michelle Phan, according to bank records subpoenaed in a separate case by Avenatti’s former colleague Jason Frank, who is trying to collect millions of dollars in unpaid compensation from him.
As The Daily Beast previously revealed, in a declaration filed in a different court case, Frank has accused Avenatti of hiding millions of dollars from a bankruptcy court by stashing them in secret client trust accounts, from which he allegedly wired his former girlfriend Mareli Miniutti thousands of dollars and paid Global Baristas’ debts.
Last May, a bankruptcy judge entered a $10 million judgment against Avenatti for failing to pay Frank a $4.85 million settlement. The settlement payout was required for Avenatti’s former firm, Eagan Avenatti, to be discharged from bankruptcy on March 15, 2018.
The government was also a creditor in the bankruptcy case.
Avenatti, his firm, and the United States reached a settlement over Eagan Avenatti’s $2.38 million tax bill in January 2018, the IRS affidavit states.
Under the terms of the deal, Eagan Avenatti agreed to pay more than $1.5 million to the U.S. Treasury within 10 days of the bankruptcy dismissal. A balance of $880,583 was due within 120 days of the dismissal.
The IRS received its initial payment on March 26, 2018, from a trust account for SulmeyerKupetz, the law firm representing Avenatti in the bankruptcy proceeding. (Avenatti and his firm, however, failed to make the additional payments, the IRS affidavit states.)
“Based on information I received from the Newport Beach Police Department and a preliminary review of the relevant bank account records,” an IRS investigator stated in the affidavit, “it appears that this payment was derived from money that Avenatti had received in trust for two clients, M.P. and L.T.”
“Avenatti represented M.P. and L.T. in connection with the divestment and separation from M.P.’s business. Under the engagement agreement, Avenatti was entitled to 7.5 percent of the approximately $35.6 million transaction amount (or approximately $2.67 million).”
The first transaction on M.P.’s behalf came in September 2017 in a wire to a client trust account at City National Bank. After Avenatti deducted his fee, he wired the remainder to M.P.
On March 14, 2018, Avenatti allegedly received a second, $8.14 million payment on M.P.’s behalf in the client trust account. “But Avenatti did not remit this entire sum to M.P. as he was required to do,” the IRS affidavit states. Rather, the next day, Avenatti allegedly transferred $3 million to an Eagan Avenatti client-trust account at California Bank & Trust.
According to the affidavit, Avenatti then transferred $2.82 million from this California Bank & Trust account to the SulmeyerKupetz trust account. On March 16, 2018, Avenatti’s attorney from SulmeyerKupetz filed a court document indicating he’d received $2.8 million to be distributed to the IRS and other creditors.
Meanwhile, payments to Michelle Phan and Long Tran, an associate of Phan’s who, public records show, has shared addresses with the beauty guru, are listed in Avenatti’s bank records, which were filed in exhibits as part of Frank’s civil case.
Indeed, Phan’s case was broached by Frank’s counsel during the March 22 judgment debtor exam in California. “The question in court was, ‘Did you steal money that belonged to Michelle Phan?’ and Avenatti denied stealing that money,” Frank’s attorney, Andrew Stolper, told The Daily Beast.
Avenatti opened a secret client trust account at City National Bank in September 2017 and deposited $899,795 from his personal bank account, Frank alleges in a recent court filing. He also allegedly deposited $29 million from a third party, Personalized Beauty Discovery Inc., which is the San Mateo, California corporation doing business as Ipsy, a makeup subscription service co-founded by Phan in 2011.
From March 20 to May 1, 2018, Avenatti allegedly wired over $1 million from this undisclosed City National Bank account to an Eagan Avenatti client trust account, Frank’s declaration states.
Avenatti then transferred the remaining $4 million to a clearing account at Boston Private Bank & Trust Company—emptying the coffers just before Avenatti’s first settlement payment to Frank was due on May 14, 2018, Frank claims in court filings.
In September 2017, Phan announced she was leaving Ipsy and that her company, Divinium Labs, would acquire the online makeup site EM Cosmetics from the company.
A review of bank records filed in Frank’s case shows Avenatti received $27.4 million from Personalized Beauty Discovery Inc. on Sept. 18, 2017, along with two other payments of $984,750 and $475,000.
Avenatti then allegedly paid colleagues of Phan: Long Tran received $899,795 and Pratigya Phan got $439,375. (Pratigya, Phan’s sister-in-law, is also a YouTube makeup star and goes by Promise Tamang.) Phan was paid $4.7 million, according to bank records filed by Frank. In October 2017, Avenatti wired $20 million to Phan’s company, Divinium Labs, LLC.
On March 14, 2018, Personalized Beauty sent another transfer of more than $8.2 million to Avenatti’s client trust account.
The records filed in Frank’s case show he then wired $3 million to Eagan Avenatti the next day.
On March 20 and 22 of last year, Avenatti allegedly transferred a total of $294,206 to his firm, followed by $110,000 on March 28. In four transactions between April 4 and April 17, 2018, he wired a total of $589,940 to Eagan Avenatti.
And on April 23, he allegedly paid Long Tran $147,972.
It’s unclear whether Avenatti paid Phan all of the $8 million.
According to the California complaint, “Avenatti did not remit the entire sum to M.P. as he was required to do.”
Phan is not the only client of Avenatti’s who may have had trouble receiving their money from the hard-charging lawyer.
As the Daily Beast previously reported, former client Greg Barela has claimed that Avenatti withheld a hefty settlement—the $1.6 million mentioned in the federal case—and operated his firm like a “Ponzi scheme.” Avenatti allegedly told Barela that a third party had failed to make payments even as he pocketed the money for his own purposes, prosecutors claim.
And at a debtor’s exam last week, Avenatti testified under oath about a $4 million payment for a client named Geoffrey Johnson. According to reports, Johnson is a paraplegic man who tried to kill himself in a Los Angeles County jail. While Avenatti said Johnson received all the money he was owed from a personal injury suit, bank records allegedly show Johnson has only received monthly payments of $1,900. These payments have totaled no more than a couple of hundred thousand dollars over the last three years, the AP reported.