STATE BAR OF CALIFORNIA OFFICE OF CHIEF TRIAL COUNSEL MELANIE J. LAWRENCE, No. 230102 INTERIM CHIEF TRIAL COUNSEL AMN ANTHONY J. GARCIA, No. 171419 ASSISTANT CHIEF TRIAL COUNSEL ANAND KUMAR, No. 261592 SUPERVISING ATTORNEY ELI D. MORGENSTERN, No. 190560 SENIOR TRIAL COUNSEL \OOOQONUI 845 South Figueroa Street Los Angeles, California 90017-2515 Telephone: (213) 765-1334 STATE BAR COURT 10 HEARING DEPARTMENT - LOS ANGELES 11 12 l3 In the Matter of: Case No. MICHAEL JOHN AVENATTI, APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT; MEMORANDUM OF POINTS AND AUTHORITIES; DECLARATION OF GREGORY BARELA; DECLARATION OF STEVEN E. BLEDSOE; DECLARATION OF DAVID J. SHEIKH; DECLARATION OF JOY NUNLEY No. 206929, 14 15 VVVVVVVVVVVVVVV 16 17 (OCTC Case N0. l9-TE—1 67 1 5) l8 A Member of the State Bar. [Bus. 19 & Prof. Code § 6007(c)(2); Rules Proc. of the State Bar, Rule 5.225, et. seq.] 20 WARNING! 21 WITHIN TEN DAYS FROM THE DATE OF SERVICE OF THIS APPLICATION, YOU MUST FILE A VERIFIED RESPONSE AND REQUEST A HEARING AS PROVIDED IN RULE 5.227 OF THE RULES OF PROCEDURE OF THE STATE BAR. IF YOU FAIL TO TIMELY FILE A VERIFIED RESPONSE AND REQUEST FOR HEARING, YOUR RIGHT TO A HEARING WILL BE WAIVED PURSUANT TO RULE 5.227 OF THE RULES 0F PROCEDURE OF THE STATE BAR OF CALIFORNIA, AND ANY PREVIOUSLY SCHEDULED HEARING(S) WILL BE CANCELLED. 22 23 24 25 26 27 28 /// -1- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-167 15 TO THE HEARING DEPARTMENT OF THE STATE BAR COURT, RESPONDENT MICHAEL JOHN AVENATTI, AND ELLEN ANNE PANSKY, RESPONDENT’S COUNSEL: PLEASE TAKE NOTICE THAT the Office of Chief Trial Counsel 0f the State Bar of \OOOQQUI#DJNu—A California (“State Bar”), by and through Senior Trial Counsel Eli D. Morgenstem, hereby petitions the Court for an Order enrolling respondent Michael involuntary inactive Code member of the State John Avenatti (“respondent”) as an Bar of California pursuant to Business and Professions section 6007(c)(2). Business and Professions Code section 6007(c)(2) provides that the State Bar Court order the involuntary inactive enrollment of an attorney if it finds (1) the attorney has caused or is may that: causing substantial harm to the attomey’s clients or the public; (2) there is reasonable probability that the State in a disciplinary proceeding; Bar will prevail on the merits and NNNp—w—tp—aHv—Awt—ap—at—A (3) there is a reasonable probability that the attorney will The State Bar attaches committed the following acts to this Application clear and convincing evidence that respondent of misconduct which caused, and respondent’s client, Mr. Gregory Barela, for which there Bar will prevail in a disciplinary (1) be disbarred. is is causing, substantial harm to a reasonable probability that the State proceeding and respondent will be disbarred: on December 28, 201 7, respondent provided Mr. Barela with a fabricated settlement agreement; (2) between January status 5, 201 8, and March 14, 201 8, respondent concealed the 0f Mr. Barela’s settlement funds and intentionally and dishonestly misappropriated nearly $840,000 of Mr. Barela settlement funds for respondent’s own personal (3) use; between March 10, 201 8, and November 201 8, respondent repeatedly responded to Mr. Barela’s inquiries concerning the status of his settlement fimds -2- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. l9-TE-16715 with lies and evasions; (4) respondent never provided Mr. Barela with an accounting of Mr. Barela’s settlement funds despite Mr. Barela’s multiple requests; and (5) to date, respondent still owes Mr. Barela approximately $710,000. \OOOVONUI-bUJNu—n Further, despite the State Bar’s request, respondent has not provided the State Bar with a substantive response—let alone a defense—to these charges nor any evidence to refute the allegations. Accordingly, as explained in detail in sections IV and V herein, the Standards for Attorney Sanctions for Professional Misconduct and the relevant case law provide that disbarment is the appropriate level of discipline for respondent’s misconduct. Moreover, there are criminal matters pending against respondent in the United States Court for the Southern District of New York and the United States District Court for the District Central District of California involving bribery and embezzlement of client funds.‘ Accordingly, the State Bar respectfully submits that each factor required by Business and Professions that: (1) Code section 6007(c)(2) is established by clear and convincing evidence. Namely, respondent has caused substantial harm to Mr. Barela and respondent’s other clients; NNNN—Ip—Ap—tv—It—IHb—AHp—Ir—I (2) there is a reasonable probability that the State proceeding; and (3) there is Bar will prevail on the merits in a disciplinary a reasonable probability that respondent will be disbarred. gfigafiwmaooWQQMAmNHO 1 For example, on March 24, 201 9, the United States Attorney for the Southern District of United States ofAmerica v. Michael John Avenatti, United States District Court, Southern District of New York, case number 1:19-mj-02927-UA-1 filed charges against respondent alleging that respondent tried to extort millions of dollars from Nike, Inc., the apparel company. New York, in a matter titled , On April 10, 2019, the United States Attorney for the Central District of California filed a 36-count Indictment against respondent charging him with, among other things, the embezzlement 0f client funds from four different clients, including the embezzlement of Mr. Barela’s funds, in a matter titled United States ofAmerica v. Michael John Avenatti, United States District Court, Central District of California (Southern Division), case number SA CR 19- 00061 (JVS). On May 22, 2019, the United States Attorney for the Southern District ofNew York filed an indictment against respondent charging him with, among other things, embezzlement of client funds involving a fifih different client, in a matter titled United States ofAmerica v. Michael John Avenattz', United States District Court, Southern District of New York, case number 19 Cr. 374. -3- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case N0. 19-TE-16715 Therefore, the State Bar respectfully submits that an Order enrolling respondent involuntarily inactive is warranted. The State Bar hereby waives hearing on this application and requests that this matter be submitted upon the pleadings filed herein. However, should respondent file a response \OWVQMAMN—a contesting the within application pursuant to rule 5.227 of the Rules of Procedure of the State Bar, the State Bar hereby requests a hearing in this matter. The State Bar has not yet filed a notice of disciplinary charges, and there are no pending notice of disciplinary charges against respondent as of the date of this application. This application is based on the attached Memorandum of Points and Authorities, attached Declarations of Gregory Barela, Steven E. Bledsoe, Esq., David J. the Sheikh, Esq., and Joy Nunley, the exhibits attached to these declarations, and the records referenced herein of which the State Bar has requested this Court to take Judicial Notice. Respectfully submitted, TH STA E BAR OF CALIFORNIA HIEF T AL COUNSEL Q CE DATED: June 3, 2019 By: Eli D. Morgenyern Senior Trial Counsel NNNNNNNNNI—Iflr—‘HHb—‘r—‘h—t—c—a OONGMAWNHOOOOfl$MQWNHO -4- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case N0. 19—TE-16715 MEMORANDUM OF POINTS AND AUTHORITIES N Business I. And Professions Code Section 6007(c112) Identifies The Factors To Be Considered By The Court In Determining Whether To Issue Authoriz'gg The Transfer Of An Attornev To An Order Involuntarv Inactive Status; An_d Rule 5.231 of the Rules of Procedure of the State Bar of California Establishes The \OOOQONUI-bw State Bar’s Burden Of Proof Business and Professions Code section 6007(c)(2) provides as follows: The State Bar Court may order the involuntary inactive enrollment of an attorney if it finds, based on all the available evidence, including affidavits: 10 (A) The attorney has caused or is causing substantial harm to the attomey’s clients or the public. 11 12 (B) There 13 a reasonable probability that the chief trial counsel will on the merits of the underlying disciplinary attorney will be disbarred. 14 15 matter, and the Pursuant to Rule 5.23 1 (B) ofthe Rules of Procedure ofthe State Bar of California, the 16 State 17 by 18 is prevail Bar must prove each factor required by Business and Professions Code section 6007(c)(2) clear II. and convincing evidence. Rule 5.226 Of The Rules Of Procedure Of The State Bar Of California Outline 19 The Reguirements 0f An AQQIication For Involuntafl 20 Pursuant To Business 21 And Professions Code Section Inactive Enrollment 6007ch§21 Rule 5.226(A) of the Rules of Procedure of the State Bar of California provides, in 22 relevant part that, in order to begin a proceeding under Business and Professions 23 6007(c)(2) in State Bar Court, the State Bar must file with the Clerk of the State Bar Court a 24 verified application with supporting documents. 25 Rule 5.226(C) provides that the “application must 26 that the 27 public as required under” Business and Professions member’s conduct poses a state section with particularity facts showing substantial threat of harm to the Code Code member’s section 6007(c)(2). clients or the The application 28 -5- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE—16715 must be supported by declarations, transcripts, or requests for judicial notice. Rule 5.226(D) provides that when there AWN is no pending disciplinary proceeding, as the is case here, the application itself must: (1) cite the statutes, rules, or court orders allegedly violated, or that warrant involuntary inactive enrollment; and (2) state the particular acts or omissions that constitute the alleged violation or violations, or that form the basis for warranting involuntary inactive oooflmm enrollment. Statement of Facts Demonstrating Respomjglt’s Migcondgct Poses III. Threat 10 The 11 Of Harm To facts set forth His Clients A Sgbstagti_al And The Public below are derived from the attached: (1) Declaration of Gregory 12 Barela, and the exhibits attached thereto; (2) Declaration of Steven E. Bledsoe, and the exhibits 13 attached thereto; (3) Declaration David 14 Declaration of Joy Nunley, and the exhibits attached thereto. J. Sheikh, and the exhibits attached thereto; and (4) A. Background Facts 15 On July 16 8, 2014, Mr. Gregory Barela entered into a fee agreement to employ respondent 17 and his law firm, Eagan Avenatti, LLP, to represent him in an 18 the Settling Party? (Declaration of Gregory Barela, hereinafter, “Barela Declaration,” 19 Exhibit 20 contingency fee of 40 percent of any settlement recovery obtained on Mr. Barela’s behalf to be 21 paid from the 22 flz, 23 1 intellectual property dispute attached thereto.) Pursuant to the fee agreement, respondent initial and Exhibit 1 was 112, with and entitled t0 receive a disbursement of settlement funds by the Settling Party. (Barela Declaration, attached thereto.) Respondent filed a lawsuit in federal court on Mr. Barela’s behalf against the Settling 24 Party alleging multiple causes of action. Thereafter, the Settling Party and Mr. Barela entered 25 into arbitration. (Barela Declaration, 113.) 26 27 28 2 The corporation is not identified by name due to the confidentiality of the settlement agreement. -5- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 On December 20, 2017, respondent, on behalf of Mr. Barela, and Mr. David the Settling Party’s attorney, agreed to a final AWN the Settling Party agreeing to pay a total installments. According to the terms UI to compromise and settlement of the J. Sheikh, arbitration, with of $1 .9 million to Mr. Barela, in four annual of the agreement in principle, the first payment to be paid Mr. Barela was in the amount of $ 1 .6 million, with three subsequent annual payments of $100,000 each. (Declaration of David Between December J. 22, 201 7, and Sheikh, hereinafter, “Sheikh Declaration,” 114.) December 28, 201 7, respondent and Mr. Sheikh \DOOQQ negotiated a written settlement agreement on behalf of their respective clients. settlement agreement required the Settling Party to make an initial The final written payment of $1 .6 million by 10 January 10, 201 8, and three additional payments 0f $ 1 00,000 by January 10 of 2019, 2020, 2021, ll respectively, for a total of $1 .9 million. (Sheikh Declaration, 12 B. Respondent’s Agreement 13 On December 28, l4 to 2017, December 1l5.) 28, 201 7 Presentation 0f Fabricated Settlement Gregorv Barela at respondent’s request, Mr. Barela met with respondent at his 15 law firm’s offices 16 agreement that respondent had negotiated with the Settling Party on Mr. Barela’s behalf. (Barela 17 Declaration, The 18 in Newport Beach, California, in order to sign a purported settlement 114.) settlement agreement that respondent presented to Mr. Barela on December 28, 201 7 19 to sign required the Settling Party to 20 and three additional payments of $100,000 by March 10 of 2019, 2020, 2021, respectively, for a 21 total 22 in 23 make an initial payment of $1 .6 million by March of $1 .9 million. Respondent also told Mr. Barela March of each year. (Barela Declaration, Unbeknownst to 115, that the settlement and Exhibit 2 attached 10, 201 8, payments were payable thereto.) Mr. Barela on December 28, 201 7, the actual settlement agreement 24 negotiated 25 payment of $1.6 million by January 26 January 10 of 2019, 2020, 2021, respectively. (Barela Declaration, 27 of the January payment dates because the version of the settlement agreement that respondent by respondent on Mr. Barela’s behalf required the 10, Settling Party to make the initial 201 8, and the three additional payments of $100,000 by 116.) Mr. Barela was unaware 28 -7- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 provided to him on December 28, 201 7 to sign included the falsified March payment dates. (Barela Declaration, 117.) On December 28, 2017, respondent emailed only the signature page for the settlement agreement, bearing Mr. Barela’s signature, to Mr. Sheikh. (Sheikh Declaration, 116.) C. Respondent’s Concealment of the Receipt and Intentional Misappropriation of Mr. Barela’s Settlement Funds \OOONQUI-P Afier Mr. Barela signed the he would receive in total after settlement agreement, he asked respondent how much money paying respondent’s contingency fee and costs. Respondent represented to Mr. Barela that respondent believed that the costs were between $100,000 and 10 $125,000, but that his office manager/paralegal was conducting a final accounting of costs. 11 Based on these representations, respondent 12 of the settlement proceeds. (Barela Declaration, On December 29, 13 told Mr. Barela that he would receive over $1 million 118.) 201 7, Mr. Sheikh emailed respondent a fully executed settlement 14 agreement with Mr. Barela’s and the Settling Party’s signatures, which included the actual 15 payment schedule 16 clients with the January that respondent On January 2, 17 payment and Mr. Sheikh had negotiated on behalf of their respective dates. (Sheikh Declaration, 117, and Exhibit account and providing wiring instructions for the Settling Party to 19 according to the settlement agreement. (Sheikh Declaration, On January 3, attached thereto.) 201 8, respondent sent an email to Mr. Sheikh specifying the client 18 20 1 make trust the settlement payments 118.) 201 8, Mr. Barela requested an accounting of costs from respondent. 21 Respondent received the request. However, respondent never provided Mr. Barela with the 22 requested accounting. (Barela Declaration, On January 5, 23 24 by wire 25 Declaration, 26 and Exhibits 27 118.) 201 8, the Settling Party made the initial transfer to the client trust account specified The 119; 1 $1.6 million settlement payment by respondent on January 2, 201 8. (Sheikh Declaration of Joy Nunley, hereinafter, “Nunley Declaration,” 1N7, 8, and 10, and 2 attached thereto.) initial $1.6 million settlement payment was wired into an account at City National 28 -8- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. l9-TE-16715 Bank, account no. xxxxx5566.3 The account is titled, (BAR Settlement)” (“Barela CTA”). Account and Exhibit 2 attached “Michael J. Avenatti Attorney Client Trust (Nunley Declaration, 117, and Exhibit 1, at p. 7, thereto.) After receiving the $1 .6 million settlement installment payment on January 5, 201 8, at no \OOOflQUI-kLHN—t time thereafter did respondent ever notify Mr. Barela that respondent received the initial $ 1 .6 million settlement payment on his behalf from the Settling Party or provide Mr. Barela with an accounting concerning those funds. (Barela Declaration 1149.) Pursuant to the fee agreement, respondent was entitled to receive $760,000 total $1 .9 million) as his fees 1 2, and Exhibit initial $1 .6 settlement installment. (Barela Declaration, attached thereto.) Mr. Barela’s portion of the was $840.000 installment $840,000 1 from the in the Barela (40% of the less respondent’s costs. initial $1.6 million settlement Respondent was required to maintain CTA until respondent produced an accounting of costs and Mr. Barela authorized respondent to withdraw the costs. Mr. Barela never authorized respondent t0 disburse any portion of Mr. Barela’s portion of NNN—A—tp‘v—nv—A—nt—nn—n—ap—A the initial $1.6 million 1150.) At all payment to any person or relevant times, Mr. Barela planned to use a portion of his settlement proceeds to finance business ventures that he had started. (Barela Declaration, Mr. Barela never authorized respondent gfigfl'fifiw—ochQMAmw_—o initial $ 1 .6 entity other than himself. (Barela Declaration, million payment for respondent’s to use 111 1.) any portion of Mr. Barela’s portion of the own personal Respondent never issued a check from the Barela use. (Barela Declaration, 1151 CTA made payable to himself or his law firm in the amount of his contingency fee of $760,000, or otherwise disbursed one lump sum to .) himself or his law firm. (Nunley Declaration, 1N7, 8, 9, 10, that amount and Exhibit in 1, at pp. 7-21, 25-35, and Exhibits 2-3 attached thereto.) Instead, respondent made numerous withdrawals from personal use. (Nunley Declaration, attached thereto.) Prior to 3 The full 1[10, and Exhibit 1, at the Barela pp. 7-21, 25-35, and Exhibits 2-3 making any disbursement 0f settlement funds account number is CTA for his own to, or for the benefit of, omitted for privacy reasons. -9- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 Mr. Barela, and without his knowledge or consent, respondent intentionally and dishonestly misappropriated $839,390.27 entitled to Mr. Barela by disbursing to himself and other third parties nearly the entirety of Mr. Barela’s settlement proceeds for his a. The balance b. By January 8, \OOONQUI-bWNi—i in the Barela cashier’s use: CTA prior to the January 5, 201 8 wire transfer was $0. 201 8, the balance in the Barela to respondent’s own personal CTA decreased to $924,089.25, due use of funds from Mr. Barela’s settlement recovery to purchase a check in the sum of $61 7,840.44 to pay Edward Ricci, a Florida attorney. By January (i.e., 10, 2018, the balance in the Barela CTA decreased to $760,036.25 within five days afler receipt of Mr. Barela’s funds, respondent failed to maintain the balance in the Barela By March 9, By March CTA required to be preserved for Mr. 201 8, the balance in the Barela 10, Barela). CTA decreased to $4,621 .73. 201 8—the date that Mr. Barela anticipated respondent would receive the first installment of the settlement funds—respondent had already disbursed t0 himself or other third parties approximately $835,378.27 (i.e., 99% NNNn—H—A—r—tp—AHu—ap—AH of the $840,000 respondent was required By March 14, to maintain in the Barela 201 8, the balance in the Barela CTA). CTA decreased to $609.73. Accordingly, respondent intentionally and dishonestly misappropriated $839,390.27 ($840,000 - $609.73) of Mr. Barela’s settlement funds for his personal use. (Nunley Declaration, 1W7, 8, 9, and 10, and Exhibit 1, own at pp. 7-21 , 25-35, and Exhibits 2-3 attached thereto; Barela Declaration, flSO-Sl.) D. Between March 10, 201 8. and December 201 8, Respondent Engaged in a Course of Deceit by Repeatedly Lying in Response to Mr. Barela’s Inquiries about the Initial $1 .6 Million Settlement Payment Pursuant t0 the fabricated settlement agreement that respondent provided to Mr. Barela on December 28, 2017, Mr. Barela anticipated March 10, 201 8. (Barela Declaration, that the first settlement payment would occur on 118.) -10- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case N0. 19-TE—16715 At no time between January 5, 201 8, and March 10, 2018, or respondent notify Mr. Barela 0f respondent’s receipt of the payment or the terms of the December \OWQQUI-hb-DNH 3, actual settlement agreement. initial at any time thereafler, did $1 .6 million settlement Between March 10, 201 8 and 201 8, respondent actively misrepresented to Mr. Barela the status of his settlement funds by repeatedly causing Mr. Barela to believe that respondent had not yet received Barela’s funds due to the Settling Party’s refusal to remit funds to respondent or Mr. Barela as required pursuant to the settlement agreement, as follows: On the morning 0f March stating that he 10, 201 8, Mr. Barela sent a text message to respondent “was just thinking Party]?” (Barela Declaration, On March 12, 201 8, is this 119, a big day from our friends and Exhibit 3 attached at [Settling thereto.) Mr. Barela sent a text message to respondent containing his account information in order to enable respondent to send Mr. Barela a wire transfer of his portion of the $1 .6 million payment. (Barela Declaration, 1H O, and Exhibit 4 attached thereto.) Npr—HHt—Ap—wah—a On March there 13, 201 8, Mr. Barela sent another text message to respondent asking was “any word on that wire from respondent to let 14, Mr. Barela asked him know and sought an update regarding his payment. (Barela Declaration, On March [Settling Party]?” 111 1, if and Exhibit 5 attached settlement thereto.) 2018, Mr. Barela sent a text message to respondent stating, “Hi Michael[,] just checking in on the [Settling Party] issue. I’ve been going pretty deep and credit cards and a little updates?” (Barela Declaration, loan to keep both businesses going. 111 1, and Exhibit 6 attached did not respond in writing. (Barela Declaration, On March 19, thereto.) Any Respondent ‘fll 1.) 201 8, Mr. Barela sent a text message to respondent telling respondent that Mr. Barela wanted to be “aggressive with [Settling Party] this week” and asked respondent to let him know the Settling Party. (Barela Declaration, 111 2, if respondent heard anything from and Exhibit 7 attached thereto.) .11- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 o On March 21, from 201 8, Mr. Barela sent a text message to respondent, “Any word [Settling Party]?” (Barela Declaration, 1113, Respondent received the text and Exhibit 8 attached message but did not respond thereto.) in writing. (Barela Declaration, 1H 3.) o \OOOQQUIAWNu—t On March 22, 201 8, Mr. Barela sent a text message t0 respondent asking, “Did they step up with the transfer? If not what are we doing next?” (Barela Declaration, 1114, and Exhibit 9 attached thereto.) Respondent did not respond in writing to the text message. (Barela Declaration, 1114.) o On March 23, 201 8, message that facing financial burdens, Mr. Barela sent respondent a text he needed help and was worried. Respondent replied Mr. Barela’s text message, figure this out. stating, to “Greg-don’t worry. Let’s chat tmrw. Michael.” (Barela Declaration, 111 We will and Exhibit 10 attached 5, thereto.) During NNNu—t—Ap—np—nr—tp—Au—Ay—t—Ag—A this time period in March 201 8, while respondent did not respond in writing to the texts described above, respondent did orally assure Mr. Barela that he was working to obtain the proceeds of the settlement agreement. Respondent stated that he had no idea what was going on with the settlement payment. Respondent stated that he had spoken with counsel for the Settling Party, and that counsel for the Settling Party was in disbelief that the Settling Party had not made the initial $1 .6 million settlement payment. Respondent further stated that he genuinely believed that counsel for the Settling Party did not know or understand why the Settling Party had not made the payment. At some point during this time period, respondent informed Mr. Barela that another lawsuit would need to be filed in order to force the Settling Party to payments. (Barela Declaration, In that i) 11] make the 6.) one of their March 2018 phone conversations, respondent falsely informed Mr. Barela respondent had spoken with Mr. Sheikh, counsel for the Settling Party, respondent that Mr. Sheikh was in disbelief that the Settling Party had not million settlement payment, iii) settlement ii) Mr. Sheikh told made the initial respondent genuinely believed that Mr. Sheikh did not $1.6 know 0r -12- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 understand to ALAN why the Settling Party had not made the payment, and be filed in order to force the Settling Party Declaration, 1] 1 make the would need settlement payments. (Barela 6.) In fact, at was to iv) another lawsuit no time in March 2018, or in disbelief that the Settling Party at any time, did Mr. Sheikh say to respondent had not made the initial that he $1 .6 million settlement payment, or words to that effect. (Sheikh Declaration, 1[10.) Given \OOOQQUI that Mr. Barela had relied on receiving his portion of the payment by March 201 8, Mr. Barela was facing a initial $1.6 million dire financial situation. (Barela Declaration, 1[1 7.) 10 In April 201 8, Mr. Barela sent respondent multiple text messages and emails, expressing 11 concern due to his financial vulnerability and urgent need for the settlement funds. Respondent 12 received the text messages and emails but continued to conceal from Mr. Barela the true status of 13 his settlement 14 telephone and in-person that respondent was working to obtain the proceeds of the settlement 15 agreement, including statements to Mr. Barela that respondent would file a separate lawsuit in 16 federal court 17 Declaration, 1122.) Furthermore, respondent agreed to provide and did provide a $60,000 18 “advance” loan to Mr. Barela to be repaid by Mr. Barela from the $1.6 million settlement 19 payment 20 fimds. Instead, respondent continued to orally assure on Mr. Barela’s behalf to enforce payment pursuant to the settlement. (Barela that respondent received but continued to conceal, as follows: 0 On April 2, 201 8, Mr. Barela emailed respondent asking for a loan. Mr. Barela 21 was 22 was “out of pocket about 250k 23 24 Mr. Barela over the in the early stages of setting up two businesses and he told respondent that he for both businesses.” (Barela Declaration, 1]] 7 and Exhibit 11 attached thereto.) o During the evening of April 2, 201 8, Mr. Barela sent a text message to respondent 25 asking whether there was any word from the Settling Party regarding the 26 settlement payment. Later that 27 on the telephone and respondent assured Mr. Barela on the same evening, Mr. Barela spoke with respondent call that he was 28 -13- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 working to make sure the Settling Party would make the settlement payment soon as possible. Respondent also agreed to as provide an advance of money to Mr. Barela while he was purpofiedly seeking payments from the Settling Party. MAWN (Barela Declaration, text do message is o During the evening of April 7.) to respondent stating, On April 3, he was able 111 7, and Exhibit 12 attached to advance him “any amount that he could “probably send 11 13 attached thereto.) o On 201 8, Mr. Barela sent a April 5, Whatever you can for the call. No worries.” thereto.) 201 8, Mr. Barela sent respondent a text message asking him whether 10 12 “Thanks again 2, appreciated.” Respondent replied to the text, “All good. (Barela Declaration, \OOOVQ 111 if at all?” Respondent responded a wire tmrw.” (Barela Declaration, 111 8, and Exhibit 2018, Mr. Barela sent an email to respondent with his bank 13 information in order to allow respondent to 14 money respondent had agreed 15 also stated that he 16 Party. (Barela Declaration, 17 thereafier, Mr. Barela received a wire transfer of $60,000 from respondent. 18 (Barela Declaration, 19 CTA, 20 there 21 $1.6 million settlement payment. 22 I wanted 1[1 9.) to advance to 111 9, a wire transfer The wire of $60,000, the Mr. Barela. In the email, Mr. Barela and Exhibit 14 attached transfer did not on the Settling thereto.) Shortly emanate from the Barela CTA was $609.87 by March were no deposits made into the Barela 15, make to discuss his options for collections as the balance in the Barela On April that 14, 2018, and CTA after the transfer of the initial Wunley Declaration, 1110.) 201 8, Mr. Barela sent another email to respondent asking respondent 23 about the status of the settlement 24 asked about steps to take against the Settling Party 25 Mr. Barela told respondent that he needed a plan as soon as possible as he was 26 facing financial difficulties. (Baréla Declaration, 1120, and Exhibit 15 attached 27 thereto.) money from Respondent did not respond the Settling Party. Mr. Barela also if the money was in writing to the email. not collected. Instead, during a 28 -14- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 telephone call, respondent assured Mr. Barela that respondent was filing another claim against the Settling Party in federal court in Los Angeles, California, and they were waiting for a response. A o On April 22, 201 8, (Barela Declaration, 1122.) Mr. Barela sent an email to respondent asking Party responded. (Barela Declaration, 1121, if the Settling and Exhibit 16 attached thereto.) Again, on April 25, 2018, and April 26, 2018, Mr. Barela sent text messages to respondent asking whether there was any word from the Settling Party. (Barela \OOONQM Declaration, 1 21, and Exhibit 17 attached thereto.) Respondent did not respond in writing to the email and text messages. (Barela Declaration, 1121 .) 10 In May 201 8, Mr. Barela continued to send respondent emails expressing concern due to 11 his financial vulnerability 12 emails but continued to conceal from Mr. Barela the true status of his settlement funds. Instead, 13 respondent continued to orally assure Mr. Barela over the telephone and in-person that 14 respondent was working to obtain the proceeds 0f the settlement agreement, and provided an 15 additional $3 0,000 “advance” to Mr. Barela to be repaid by Mr. Barela 16 $1.6 million settlement installment that respondent received but continued to conceal, as follows: 17 0 On May 7, and urgent need for the settlement fimds. Respondent received the from his portion of the 201 8, Mr. Barela sent another email to respondent asking him what the 18 next actions were against the Settling Party. Mr. Barela also told respondent, “If 19 [Settling Party] does not 20 (Barela Declaration, 1123, and Exhibit 18 attached thereto.) Respondent received 21 the email. 22 23 o On May 15, pay soon I may need a little help in the next two weeks.” 2018, Mr. Barela sent an email to respondent explaining that since Mr. Barela planned on collecting the settlement in March and had not seen any of 24 it, 25 now facing a difficult 26 [Settling Party] 27 Declaration, 1124, and Exhibit 19 attached thereto.) Respondent received the email he was losing credibility with his other business ventures and his wife, and was financial position. Mr. Barela asked respondent, “Did respond or pay? Ifno[,] what are we filing this week?” (Barela 28 -15- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 but did not respond in writing. Instead, respondent and Mr. Barela had a telephone conversation wherein respondent t0 ageed to provide another “advance” Mr. Barela on the $1.6 million settlement payment. (Barela Declaration, 1B4.) On May 22, 201 8, Mr. Barela sent an email to respondent containing wiring instructions for an additional loan respondent responded, “Got it. from respondent. On May 22, 201 8, Thanks.” (Barela Declaration, fl25, and Exhibit 20 \OOOQQU’IA attached thereto.) On May 25, 201 8, respondent provided an additional $30,000 “advance” to Mr. Barela to be repaid by Mr. Barela from his portion of the $1 .6 million settlement 10 installment that respondent received but continued to conceal. (Barela 11 Declaration, 1126.) 12 In June 201 8, respondent continued to conceal fi'om Mr. Barela the true status of his 13 settlement funds and reassure Mr. Barela that respondent 14 the settlement agreement. During this time frame, respondent stated to Mr. Barela that whenever 15 he needed an advance of money, 16 because the Settling Party matter was not resolved and he did not 17 Declaration, 1 28), as follows: 18 o On June 25, to let was working to obtain the proceeds him know, and he would wire money to Mr. know when it of Barela, would be (Barela 201 8, Mr. Barela sent an email to respondent containing a list of 19 reminders for the week, including a reminder about filing a lawsuit against the 20 Settling Party for failing to 21 1127, 22 On June 27, 23 $30,000 to Mr. Barela. (Barela Declaration, 24 0n June 29, 25 respondent’s law finn, Eagan Avenatti, LLP, and asked for a copy of the sigIed 26 settlement agreement, 27 representatives. pay the $ l .6 million due and Exhibit 21 attached to him. (Barela Declaration, thereto.) 201 8, respondent advanced, or caused to be advanced, an additional 1I29.) 201 8, Mr. Barela sent an email to the office manager/paralegal which included the sigmtures from the at Settling Party’s 28 -16- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 I When Mr. Barela went to their office a day or two later to get a fully executed copy of the settlement agreement, the office manager/paralegal came into the room with a document, which respondent reviewed before manager/paralegal handed \OOOQQUIADJN—n it to the office Mr. Barela. The document that the office manager/paralegal gave Mr. Barela was a falsified copy of the settlement agreement (i.e., bearing the March payment dates) with a copy of the fiJlly executed signature page from the actual settlement agreement. (Barela Declaration, On August 15, 113 0.) 201 8, Mr. Barela sent an email to respondent asking about initiating a lawsuit against the Settling Party for failing to abide and failing to make the by the terms of the $1 .6 million payment. (Barela Declaration, 113 1 settlement agreement , and Exhibit 22 attached thereto.) On September 10, 201 8, Mr. Barela sent respondent an email with wire instructions for an additional advance. (Barela Declaration, On NNNn—s—tn—nu—hdep—AHp—I September 11, 1132, and Exhibit 23 attached thereto.) 201 8, respondent provided an additional $6,000 “advance” loan to Mr. Barela to be repaid by Mr. Barela from the $ 1 .6 million settlement installment that respondent received but continued to conceal. (Barela Declaration, 1B3.) Between October Mr. Barela the true working status to obtain the 201 8 and November 5, 201 8, respondent continued to conceal from of his settlement funds and re-assure Mr. Barela proceeds of the settlement agreement. During sent approximately seven due 10, combined to his financial vulnerability text this that respondent was time frame, Mr. Barela messages and emails to respondent expressing concern and urgent need for the settlement funds. In at least two of the correspondences, Mr. Barela requested copies of pleadings filed in the lawsuit respondent had purported to have filed to enforce the settlement agreement on Mr. Barela’s behalf. Respondent received the emails but continued to conceal from Mr. Barela the true status of his settlement funds, as follows: -17- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. l9-TE-l6715 On October on the 10, status 201 8, Mr. Barela sent respondent an email asking for an update of collecting the settlement proceeds from the Settling Party. Mr. Barela also asked for more financial help, requesting an additional advance t0 “keep moving.” (Barela Declaration, On October l4, 1134, and Exhibit 24 attached thereto.) 201 8, Mr. Barela sent an email to respondent asking if the \OOOQQUIAMNH Settling Party had responded and what the next steps were being taken payment. Mr. Barela the second payment stated, “It will in March . . . to ensure be one year in December and they will Can we discuss a go forward handled?” Mr. Barela also asked respondent for “a copy 0f the strategy last till owe this is thing that we filed.” (Barela Declaration, ‘fi35, and Exhibit 25 attached thereto. Respondent did not respond in writing to Mr. Barela’s October 14, 2018 email. (Barela Declaration, 1139.) On October him NNt—dp-d—Ap—In—Ir—Iv—Au—Iflp—t that 17, 201 8, Mr. Barela sent a text message to respondent expressing to Mr. Barela was in financial hardship and asking for another advance. (Barela Declaration, 1136, and Exhibit 26 attached thereto.) On October 19, 201 8, Mr. Barela sent a text message to respondent asking respondent if Mr. Barela could borrow money. (Barela Declaration, 113 7, and Exhibit 27 attached thereto.) Respondent did not respond in writing to Mr. $E88§88~oowqom¢mnz~o Barela’s October 17, 2018 0r October l9, 2018 text messages. (Barela Declaration, 1137.) On October 22, 201 8, Mr. Barela sent an email to respondent again stressing the financial troubles Mr. Barela was facing. Mr. Barela told respondent that he was working on trying to get a loan from a third-party creditor and was trying to use the settlement agreement to secure payment and what the next action it. Mr. Barela again asked for an update on the steps would be. Mr. Barela also asked for copies 0f all the paperwork related to the alleged filing against the Settling Party so that Mr. Barela could use it to secure a personal loan. (Barela Declaration, -18- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 1138, and Exhibit 28 attached thereto.) Respondent did not respond Barela’s October 22, 201 8 email. (Barela Declaration, On to Mr. 1138.) October 28, 201 8, Mr. Barela sent respondent a text message again highlighting Mr. Barela’s dire financial situation. (Barela Declaration, 1139, and \OOOVQUI&UJNt—‘ Exhibit 29 attached thereto.) On October 28, 201 8, Mr. Barela sent respondent another text message again asking respondent t0 forward the documents that had been filed against the Settling Party so that Mr. Barela could use (Barela Declaration, On 1139, them to secure a personal loan. and Exhibit 29 attached thereto.) October 29, 201 8, Mr. Barela sent another text message same day, respondent replied that he would call Mr. Barela to respondent. On the shortly. Later that same day, because Mr. Barela had not heard back from respondent, Mr. Barela sent respondent another text message. Respondent replied, “Let’s chat in the am. Working on a solution.” Mr. Barela responded by again stressing his financial NNHH—Ap—tflrdflr—‘H—A difficulties. (Barela Declaration, 1139, On October 30, text and Exhibit 29 attached thereto.) 201 8, Mr. Barela followed-up with respondent by sending him a message that stated “any word.” Respondent replied that he was “making progress.” (Barela Declaration, 1140, and Exhibit 30 attached thereto.) $888§88_oomqom4;wm_o On October 3 1, 201 8, Mr. Barela sent a text message to respondent with wire information for an additional advance. (Barela Declaration, 1141 , and Exhibit 31 attached thereto.) On November 5, 201 8, respondent provided an additional and final $4,000 “advance” loan to Mr. Barela to be repaid by Mr. Barela from the $1.6 million settlement installment that respondent received but continued to conceal. (Barela Declaration, 1142.) Between April 5, 201 8, and November 5, 201 8, respondent provided a total of five “advance” loans to Mr. Barela totaling $130,000, to be repaid by Mr. Barela from the $1 .6 -19- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE—167 l 5 million settlement installment that respondent received but continued to conceal. (Barela Declaration, 1143.) None of the wire transfers emanated from respondent has not made any the Barela CTA. To date, UJN further payments or In the latter part of 2018, Mr. Barela restitution to Mr. Barela. began searching for a creditor to loan him approximately $100,000 in order to operate his business, using the settlement agreement and promise by the Settling Party to pay as collateral. (Barela Declaration, 1144.) Afier respondent \OOOQONUI# heard of Mr. Barela’s search for a loan, respondent dissuaded Mr. Barela from seeking a loan from a third party, and instead promised Mr. Barela that he would be able to provide a loan of $100,000 by January 15, 201 9, 10 Respondent told Mr. Barela 11 (Barela Declaration, 1144.) 12 At the time Mr. Barela did not know 14 of $100,000 by January E. 16 17 In an interest rate between 8-10%. (Barela Declaration, “hang tight” that respondent told 13 15 to at until January 15, 2019, and “don’t ask again.” Mr. Barela to “hang that respondent 1144.) tight” until January 15, 2019, was expecting another payment from the Settling Party 10, 2019. (Barela Declaration, 1144.) Mr. Barela’s November 2018 Discovery of Respondent’s Deceitgggding the Fabricated Settlement Agreement, Receipt of the $ 1 .6 Million Settlement Installment. and Subsequent Lies to Mr. Barela November 201 8, Mr. Barela employed Larson O’Brien, LLC to represent him with his 18 efforts to collect the 19 executed by Mr. Barela and the Settling Party on December 28, 2017. (Declaration of Steven E. 20 Bledsoe, hereinafter, “Bledsoe Declaration,” 21 At the time proceeds due to him pursuant to the terms of the settlement agreement that 113.) he employed Larson O’Brien, 22 Mr. Steven E. Bledsoe, a partner 23 agreement that respondent had provided to him 24 requiring the Settling Party to 25 three additional 26 of $1 .9 million (Bledsoe Declaration, at LLC (the “firm”), Mr. Barela presented Larson O’Brien, with a copy of the fully executed settlement make an initial (i.e., the fabricated settlement agreement), payment 0f $ 1 .6 million by March 10, 201 8, and payments of $100,000 by March 10 of 2019, 2020, 2021, respectively, for a 114.) 27 28 -20- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. l9-TE-l6715 total On November 115, and Exhibit 15, 201 8, Mr. Bledsoe sent an email to Mr. Sheikh. (Bledsoe Declaration, attached thereto; Sheikh Declaration, 1112, and Exhibit 2 attached thereto.) In 1 the email, Mr. Bledsoe explained that Mr. Barela had employed the efforts to collect U] $1 .6 million payment that was due on March 10, to: (i) confirm 201 8; and (ii) that the Settling Party invited Mr. Sheikh to call him. (Bledsoe Declaration, 115; made the provide Mr. Bledsoe with a copy of the wire transfer confirmation. In the email, Mr. Bledsoe provided his \OOONQ in connection with his on the proceeds from the December 28, 201 7 settlement agreement with the and Mr. Bledsoe asked Mr. Sheikh Settling Party, firm cell Sheikh Declaration, phone number and 1112.) On November 16, 201 8, Mr. Bledsoe and Mr. Sheikh had a telephone conversation. 10 (Bledsoe Declaration, 116; Sheikh Declaration, 11 Mr. Bledsoe explained 12 Party did not 13 agreement. (Bledsoe Declaration, 14 copy of the settlement agreement provided 15 payment to make to 111 3.) During the telephone conversation, Mr. Sheikh that respondent had advised Mr. Barela that the Settling the initial $ 1 .6 million 116; payment due under Sheikh Declaration, to the terms of the settlement 1113.) Mr. Bledsoe also stated that the Mr. Barela by respondent provided for the be made by the Settling Party on March 10, 201 8. (Bledsoe Declaration, 116; initial Sheikh 16 Declaration, 17 provided for the 18 Party 19 these discrepancies, Mr. Bledsoe emailed Mr. Sheikh a copy of the settlement agreement that 20 respondent had presented to Mr. Barela 21 Declaration, 22 made 111 the 3.) Mr. Sheikh explained to Mr. Bledsoe initial $1 .6 million payment 116; payment at that time. Sheikh Declaration, On November 17, to (Bledsoe Declaration, 111 (i.e., Sheikh Declaration, 1113.) Given 3.) 2018, Mr. Bledsoe sent Mr. Sheikh a 24 November 25 Declaration, 1114, and Exhibit 3 attached thereto.) In his 26 partially 16, 116; that the Settling the fabricated settlement agreement). (Bledsoe his email to agreement actually be made in January 201 8, and 23 message that the settlement letter via email as a follow-up to Mr. Sheikh on November 15, 201 8, and their telephone conversation on 201 8. (Bledsoe Declaration, 117, and Exhibit 2 attached thereto; Sheikh November 17, 2018 letter, Mr. Bledsoe memorialized the November 16, 201 8 telephone conversation, and requested that 27 28 -21- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-l6715 Mr. Sheikh provide him with: N (i) a true and correct copy of the settlement agreement executed by the Settling Party and Mr. Barela; million settlement payment (ii) made by the confirmation with respondent’s law (Bledsoe Declaration, \OOOQOUI-bw 117, a copy of the wire transfer confirmation for the $1 .6 Settling Party in January 201 8; firm concerning 0r confirming and Exhibit 2 attached thereto; to trust account. (Bledsoe Declaration, (iii) Sheikh Declaration, and Exhibit 3 attached 10 Mr. Barela signed the 11 On November On November thereto.) letter. 17, and Exhibit 2 attached 17, 2018, thereto; 1114, make all Mr. Barela under the settlement agreement by wire transfer 117, any written the settlement payment. attached thereto.) Finally, Mr. Bledsoe requested that the Settling Party payments due and and Exhibit future to the firm’s client Sheikh Declaration, 1H4, Mr. Bledsoe and (Bledsoe Declaration, 1W, and Exhibit 2 attached thereto.) 201 8, Mr. Bledsoe also sent respondent a letter via email. (Bledsoe 12 Declaration, 13 attached thereto.) 14 connection with his efforts to collect 0n the proceeds from the December 28, 201 7 settlement 15 agreement with the Settling Party, and Mr. Bledsoe asked respondent 16 representations that respondent 17 initial 18 correct 19 Mr. Barela; and 20 the initial $ 1 .6 million 21 Mr. Bledsoe and Mr. Barela signed the 22 thereto; 23 respond to the 24 118, and Exhibit 3 attached thereto; and Barela Declaration, In the letter, Mr. Bledsoe explained that Mr. Barela made to Mr. copy of the settlement agreement and any and Exhibit 32 had employed the firm to: (i) fee agreement (ii) payment provided make the promptly provide a true and between respondent and 1145, in the settlement agreement. letter. (Bledsoe Declaration, and Exhibit 32 attached On November 1 8, thereto.) and Exhibit 17, was sent, respondent made multiple telephone made 201 8, 3 attached Respondent did not and did not provide the requested accounting. (Bledsoe Declaration, After the letter in confirm any provide an immediate accounting in the event that the Settling Party and Barela Declaration, letter 1145, Barela that the Settling Party had failed to $1 .6 million payment due under the settlement agreement; (iii) 3 calls to 118.) Mr. Barela. (Barela 25 Declaration, 1145.) Respondent also sent an email to Mr. Barela asking Mr. Barela to call 26 respondent as soon as Mr. Barela received the email. (Barela Declaration, 27 attached thereto.) Additionally, respondent sent a text message to Mr. Barela asking, 1 45, and Exhibit 33 “What 28 -22- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 is this all about? Pls call On November me ASAP.” 19, (Barela Declaration, and Exhibit 34 attached 201 8, Mr. Bledsoe sent an email to respondent attaching a Mr. Barela requesting that respondent (ii) 1 45, the balance of any funds paid by transfer: (i) all thereto.) letter from paper and electronic files to the firm; and the Settling Party to the firm’s client trust account. (Barela Declaration, 1146, and Exhibit 35 attached thereto; Bledsoe Declaration, In a separate email, 1[9.) \OOOVQUI#UJN Mr. Bledsoe provided respondent with the firm’s wire transfer information. (Bledsoe Declaration, November 119; l9, Barela Declaration 2018 email attaching Mr. Barela’s Declaration 146; Bledsoe Declaration, On November 20, 10 11 Declaration, 1 1 Respondent did not respond 1146.) 5, letter to Mr. Bledsoe’s 0r Mr. Bledsoe’s separate email. (Barela 119.) 201 8, Mr. Sheikh sent Mr. Bledsoe a and Exhibit 4 attached thereto; letter via email. Bledsoe Declaration, 111 0, (Sheikh and Exhibit 3 12 attached thereto.) In the 13 by telephone on November 14 Mr. Barela and the Settling Party required the Settling Party 15 January 10, 201 8, and the Settling Party did so by wire transfer on January 16 purported settlement agreement that Mr. Bledsoe emailed to him during their 17 201 8 telephone conversation was not a true and correct copy of the settlement agreement; and 18 (iii) 19 201 8. (Sheikh Declaration, letter, l6, Mr. Sheikh repeated what he told Mr. Bledsoe when they spoke 201 8; namely that: (i) the settlement he had never seen the document before he received 111 5, and Exhibit 4 attached it agreement executed by make to the initial 5, payment by 2018; (ii) the November 16, from Mr. Bledsoe on November thereto; Bledsoe Declaration, 1]] 0, 20 Exhibit 3 attached thereto.) 21 proposed amendment to the settlement agreement that reflected his request for the filture 22 payments owed pursuant 23 account instead of the trust account desiglated by respondent. (Sheikh Declaration, 24 Exhibit 4 attached thereto; Bledsoe Declaration, 1110, and Exhibit 3 attached thereto.) 25 On November 21, In the letter, Mr. Sheikh also requested that to the settlement agreement be made to 201 8, Mr. Sheikh sent Mr. Bledsoe a 26 of the settlement agreement attached 27 attached thereto; Bledsoe Declaration, fll to it and Exhibit 4 attached client trust 1[15, and with a true and correct copy via email. (Sheikh Declaration, 1, and Mr. Bledsoe prepare a Mr. Bledsoe’s firm’s letter 16, 1 ] thereto.) 6, and Exhibit 5 Later that same day, 28 -23- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. l9-TE-l6715 Mr. Bledsoe showed Mr. Barela the true and correct copy of the fully executed settlement agreement that Mr. Bledsoe had received from Mr. Sheikh (i.e., the actual settlement agreement). (Barela Declaration, 1147, and Exhibit 36 attached thereto.) This was the first time that Mr. Barela had ever seen the true and correct copy of the fully executed settlement agreement the actual settlement agreement). (Barela Declaration, 1147.) The true and correct (i.e., copy of the \DOOQOUIALHNH fully executed settlement was due by January 10, agreement provides that the initial settlement payment of $1 .6 million 201 8, with the subsequent payments due by January 10 of the following three years. (Barela Declaration, 1147, and Exhibit 36 attached thereto.) On November 27, 201 8, Mr. Sheikh provided Mr. Bledsoe with a copy of the confirmation of the January (Sheikh Declaration, 111 7; 5, 201 8 wire transfer of the $1 .6 million settlement agreement. Bledsoe Declaration, 1112, and Exhibit 5 attached thereto; Barela Declaration, 1148.) On December 3, on November 17, 201 8, 201 8, Mr. Bledsoe sent respondent a he had sent respondent a representations that respondent made to Mr. letter letter asking him via email reminding to: (i) him that confirm any Barela that the Settling Party had failed to make the NNN—u—Au—IHr—t—AHHp—nr—t initial $1 .6 million correct payment due under the settlement agreement; copy of the settlement agreement and any Mr. Barela; and (iii) promptly provide a true and between respondent and provide an immediate accounting in the event that the Settling Party the initial $1 .6 million W3, and fee agreement (ii) payment provided made in the settlement agreement. (Bledsoe Declaration, Exhibit 6 attached thereto.) Mr. Bledsoe further stated that respondent had neither responded to Mr. Bledsoe’s November 17, 201 8 letter nor Mr. Barela’s November 19, 201 8 letter requesting that respondent transfer Mr. Barela’s files and client funds to the firm. (Bledsoe Declaration, 1113, and Exhibit 7 attached thereto.) Finally, Mr. Bledsoe invited respondent resolve the matter without court intervention. (Bledsoe Declaration, thereto.) Respondent did not respond to the letter. 111 3, (Bledsoe Declaration, to and Exhibit 6 attached 111 3.) Pursuant to Mr. Sheikh’s request, Mr. Bledsoe prepared an addendum to the settlement agreement. (Bledsoe Declaration, 1114.) On January 3, 2019, Mr. Barela and the Settling Party -24- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 sig1ed the addendum which provided that the Settling Party under the settlement agreement to new counsel’s client and Exhibit 37 attached thereto; Sheikh Declaration, Declaration, fill 4, and Exhibit 7 attached On January would pay all future payments due trust account. (Barela Declaration, 1152, 1[1 8, and Exhibit 6 attached thereto; Bledsoe thereto.) 15, 2019, the balance in the Barela CTA was $0.00. (Nunley Declaration, \OOOVOUIAUJN— 1[1 0, Exhibits 1 and 2 attached thereto.) In January 201 9, Mr. Bledsoe submitted a State against respondent. (Bledsoe Declaration, January 5, 201 8, respondent received the 111 5.) initial from the Settling Party. (Barela Declaration, Bar complaint on behalf of Mr. Barela Respondent never notified Mr. Barela that on $1 .6 million settlement payment on his behalf 1149.) In fact, respondent concealed and failed to disclose to Mr. Barela that he had received the initial $ 1 .6 million settlement payment from the Settling Party. (Barela Declaration, 1149.) Respondent F. On March 24, NNNat—It—IHO—tp—dp—Iv—Ip—An—t Is Being Criminally Prosecuted for Serious Allegations 2019, the United States Attorney for the Southern District of New York and for the Central District of California coordinated to unrelated charges. (Nunley Declaration, 111114, 15, arrest respondent at the and Exhibit 6 attached same time thereto.) for The United States Attorney for the Southern District arrested respondent in connection with charges filed in the matter titled United States Southern Distn'ct ofAmerica Inc., the Michael John Avenatti, United States ofNew York, Case Number number 1:19-mj-02927-UA-1 charges Nike, v. District Court, 1:19-mj-02927-UA-1. The complaint filed in case that respondent tried to extort millions of dollars from apparel company. (Nunley Declaration, 1114, and Exhibit 4 attached thereto.)4 The United States Attorney for the Central District of California arrested respondent in 4 Pursuant to rule 5.104(H)(2)(e) of the Rules of Procedure of the State Bar and Evidence section 452(d), the State Bar requests this Coun to take judicial notice of Exhibit 4 attached to Ms. Nunley’s Declaration, a true and correct copy of the complaint Code filed in United States ofAmerica Michael John Avenatti, United States District Court, Southern District of New York, case number 1:19—mj-02927-UA-1. (Rules Proc. 0f the State Bar, Rule 5.104(H)(2)(e) [the State Bar Court may judicial notice of non-certified records that have been copied from the federal court website, Public Access to Court Electronic Records (i.e., PACER)]; Evid. Code, § 452(d) [Judicial notice may be taken 0f “Records 0f (l) any court 0f this state or (2) any court of record of the United States or of any state of the United States.”) v. -25- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-1 6715 connection with charges filed in the matter N titled United States ofAmerica v. Michael John Avenatti, United States District Court, Central District of California (Southern Division-Santa Ana), case number 8:19-mj-00241. (Nunley Declaration, 1H]14,15, and Exhibit 6 attached thereto.) from a \OOOQQUIADJ loan. The complaint filed client, in case number 8: 19-mj ~00241 charges respondent with embezzling specifically Mr. Barela, and deffauding a bank (Nunley Declaration, On April 10, 1114, and Exhibit 5 attached John Avenatti, United States District 10 8: 11 among other charges, embezzled 12 Mr. Barela. (Nunley Declaration, 14 10, fill On May 22, 6.) 1116, and Exhibit 7 attached fill 7, 18 Cr. 374. 19 5 24 25 26 27 CR that respondent, thereto.)7 201 9 the United States Attorney for the Southern District of New York filed John Avenattz', United 23 Michael thereto.)6 and Exhibit 8 attached 17 22 v. 201 9, case number 8:19-mj-00241 was merged into case number 8:19-cr- an indictment against respondent in a criminal matter 21 United States ofAmerica The indictment charges 16 20 titled funds belonging t0 four of his former clients, including 00061 and terminated. (Nunley Declaration, 15 thereto.)5 Court (Southern Division-Santa Ana), case number 19-cr—00061 (JVS). (Nunley Declaration, On April false tax returns t0 obtain a 201 9, the United States Attorney for the Central District of California filed an indictment against respondent in a criminal matter 13 by using titled United States ofAmerica States District Court, Southern District of (Nunley Declaration, 1119.) The indictment charges New York, case that respondent, v. Michael number CR 19- among other Pursuant to rule 5. 1 04(H)(2)(e) of the Rules of Procedure 0f the State Bar and Evidence section 452(d), the State Bar requests this Court to take judicial notice of Exhibit 5 attached to Ms. Nunley’s Declaration, a true and correct copy of the complaint filed in United States ofAmerica v. Michael John Avenatti, United States District Court, Central Distn'ct of California (Southern Division-Santa Ana), case number 8:19-mj—00241. Code 6 Pursuant to rule 5.104(H)(2)(e) of the Rules of Procedure of the State Bar and Evidence section 452(d), the State Bar requests this Court to take judicial notice of Exhibit 7 attached t0 Ms. Nunley’s Declaration, a true and correct copy of the indictment Code ofAmerica v. Michael John Avenatti, United Santa Ana), case number CR 8: 19-cr-00061 (JVS). States States District Coun filed in United (Southern Division- 7 Pursuant to rule 5. 104(H)(2)(e) of the Rules of Procedure of the State Bar and Evidence section 452(d), the State Bar requests this Court to take judicial notice of Exhibit 8 attached t0 Ms. Nunley’s Declaration, a true and correct copy of the docket for United States of America v. Michael John Avenatti, United States District Court (Southern Division-Santa Ana), Code case number CR 8:19-cr—00061 (JVS). 28 -26- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 charges, embezzled funds belonging to a fifih client. (Nunley Declaration, 1119, and Exhibit 9 attached thereto.)8 G. Respondent Has Not Provided Any Substantive Response Denying the Allegations or Evidence to Refute the Allemons during the State Bar’s Investigation On February 27, 201 9, State Bar Investigator Joy Nunley sent Ms. Ellen Pansky, \OOOVQUIADJNH respondent’s attorney, a letter via U.S. Mail and email asking Ms. Pansky t0 respond to the allegations of misconduct being investigated 19-0-10483 by no On March later by the State Bar in connection with Case than March 15, 201 9. (Nunley Declaration, 14, 2019, Ms. Pansky sent Ms. Nunley a letter 1]] ] .) via U.S. Mail and email requesting an extension of time to respond to Ms. Nunley’s February 27, 2019 letter to 22, 2019. Ms. Nunley agreed On March 21, to the extension. (Nunley Declaration, 201 9, Ms. Pansky sent Ms. Nunley a letter Number March 1112.) via U.S. Mail and email requesting an additional extension of time to respond to Ms. Nunley’s February 27, 2019 letter to April 1, 2019. Ms. Nunley agreed to the extension. (Nunley Declaration, On March 29, 2019, Ms. Pansky sent Ms. Nunley a letter via 1113.) U.S. Mail and email. NNNu—hn—Au—AHHWHH—Ar—n (Nunley Declaration, 111 5, and Exhibit 6 attached thereto.) In the letter, Ms. Pansky stated, among other things: “As am sure you are also well aware, Mr. Avenatti was arrested New York last Monday, and he is being charged in criminal proceedings in both New York and California. As he was compiling information for me t0 use to provide the response due t0 your office, I in his computers and files were seized by the authorities, and he also is now precluded from communicating with his assistant. Consequently, it is not possible for him to provide me with the information and materials needed t0 complete my letters 0f explanation.” (Nunley Declaration, 5, and Exhibit 6 attached thereto.) 111 8 Pursuant t0 rule 5. 1 04(H)(2)(e) of the Rules of Procedure of the State Bar and Evidence section 452(d), the State Bar requests this Court to take judicial notice of Exhibit 9 attached to Ms. Nunley’s Declaration, a true and correct copy of the indictment filed in United States ofAmerica v. Michael John Avenatti, United States District Court, Southern District of Code New York, case number CR 19-Cr. 374. -27- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 At no time has respondent provided a substantive response—or defense—or any contradictory evidence to the allegations of misconduct investigated connection with case number 19-0-1 0483. (Nunley Declaration, Resgondent’s Misconduct Constitutes Multiple IV. Professions Code and the 1]] by the State Bar in 6.) VMons of thgfilsmess mg Former and Current Rules of Professional Conduct \DOOQQUI&UJNH As stated above, when there is no pending disciplinary proceeding, as is the case here, an application for an order of inactive enrollment pursuant to Business and Professions Code section 6007(c)(2) must: (1) cite to the statutes and rules violated; and (2) state the particular acts or omissions that constitute the alleged violations. The State Bar respectfully submits that the facts set forth above demonstrate that respondent committed the following acts 0f moral turpitude and violated the Business and Professions Code and 1. the former and current Rules of Professional Business and Professions fabricated settlement agreement Code section 6106: Conduct as follows: By presenting Mr. on December 28, 201 7 (Barela Declaration, 115, Barela with a and Exhibit 2 attached thereto) which contained erroneous payment dates for the settlement payment schedule, NNNNn—Au—I—awwn—A—np—tr—tp—I and which respondent knew and caused to be fabricated, respondent committed an act of moral turpitude, dishonesty, or corruption in violation 2. of Business and Professions Code section 6106; Former Rules 0f Professional Conduct, Mr. Barela of the January 5, rule 4-100(B)(1): 201 8 wire transfer of $1 .6 million into the Barela Declaration, 1[54), representing the initial settlement payment owed Party, respondent failed to notify his client promptly, or at in violation By failing to notify to CTA (Barela Mr. Barela by the Settling any time, of the receipt of client funds of rule 4-100(B)(1) of the former Rules of Professional Conduct; 3. Former Rules of Professional Conduct, $840,000 on behalf of Mr. Barela and 2 attached in the Barela rule 4-100(A): By failing to maintain CTA (Nunley Declaration, 1110, and Exhibits thereto), respondent failed to maintain client fimds in trust in Violation of rule 4-1 00(A) 0f the former Rules of Professional Conduct; -23- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. l9-TE-16715 1 Business and Professions Code, section 6106: 4. misappropriating approximately $839,390. 1 3 ($840,000 funds by March 14, 201 8 (Nunley Declaration, 1]] 0, - By intentionally and dishonestly $609.87) of Mr. Barela’s settlement and Exhibits and 2 attached 1 thereto), respondent committed an act of moral turpitude, dishonesty, or corruption in violation of \OWQQUIALBN—t Business and Professions Code section 61 06; Business and Professions 5. 0r about March 2018 that: (i) section 6106: By orally stating to respondent had no idea what was going on With the settlement payment of $ 1 .6 million; Settling Party Code had not made the (ii) initial the Settling Party’s counsel settlement payment; and (iii) was Mr. Barela in initial in disbelief that that the respondent genuinely believed that Settling Party’s counsel did not know or made the when respondent knew false, respondent committed an act involving moral turpitude, dishonesty, or corruption in payment (Barela Declaration, violation of Business and Professions 6. 1]] Code Business and Professions 0r about March and Party to make the 6), Code April 201 8 that a lawsuit knew settlement that the statements were section 6106: that the statements would need to By orally stating to be filed in order payment (Barela Declaration, false, Settling Party had not were section 61 06; NNp—ap—Ir—Ap—Ar—Iflr—Ihdr—H initial why the understand 11111 Mr. Barela in to force the Settling when respondent 6, 22), respondent committed an act involving moral turpitude, dishonesty, or corruption in violation 0f Business and Professions Code section 61 06; gfigfifiBB—‘ochQMAWNHO 7. Business and Professions Code section 6106: By stating to Mr. Barela dun'ng a telephone conversation on 0r about April 2, 201 8 that he would provide an “advance” of money to Mr. Barela while respondent was purportedly seeking payments from the Settling Party (Barela Declaration, that on January CTA, 5, 111 7), when respondent knew that the statement 201 8, the Settling Party wired the $ 1 .6 million was initial false because he knew payment into the Barela respondent committed an act involving moral turpitude, dishonesty, or corruption in violation of Business and Professions 8. Code Business and Professions or about June 201 8 that section 6106; Code section 6106: By orally stating to Mr. when Mr. Barela needed an “advance” of money to let Barela in respondent know, -29- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-167 1 5 because the Settling Party matter was not resolved and respondent did not be (Barela Declaration, 1128), when respondent knew that the statement know when it would was false, respondent committed an act involving moral turpitude, dishonesty, or corruption in violation of Business h and Professions Code section 61 06; 9. Former Rules of Professional Conduct, Professional Conduct, rule 1.15(d)(4): \OOO\IO\UI rule 4-100(B)(3) By failing to render an appropriate accounting to Mr. Barela despite Mr. Barela’s requests that he do so on or about January Declaration. {[8), November and on or about December 19, 3, 201 8 (Barela Declaration, 201 8 (Bledsoe Declaration, 1145, 111 3, 11 of Professional Conduct, rule 4-1 00(B)(3 ), and failed to promptly, or 12 client for 13 1.15(d)(4); 10. 201 8 (Barela and Exhibit 6 attached respondent failed to render an appropriate accounting to his 14 3, and Exhibit 32 attached thereto) 10 whom the attorney he holds and Rules of client, in violation at thereto), of Former Rules any time, account funds, in violation of Rules of Professional Conduct, rule Former Rules of Professional Conduct, rule 4-100(B)(3) and Rules of 15 Professional Conduct, rule 1.15(d)(7): 16 initial 17 as requested 18 Barela was entitled to receive, in violation of former Rules 0f Professional Conduct, rule 19 4-100(B)(4), and Rules of Professional Conduct, rule 1.15(d)(7). 20 to a By failing to pay Mr. Barela his entire portion of the $1.6 million settlement payment, respondent failed to promptly, or at any time, distribute, by Mr. 11. Barela, undisputed client funds in the possession of respondent that Mr. Rules of Professional Conduct, rule l.l6(e)(1): By failing to release Mr. 21 Barela’s client file to 22 201 8 (Barela Declaration, 23 201 8 (Bledsoe Declaration, 24 or at any time, release the client file to the client, in violation of Rules of Professional Conduct, 25 rule 1.16(e)(1). him despite Mr. Barela’s request that he do so on or about 1146, 1]] November and Exhibit 35 attached thereto) and on or about December 3, and Exhibit 6 attached 19, 3, thereto), respondent failed to promptly, 26 27 28 -30- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 The Factors Reguired Bv V. Established As mmess A&l Professions Coc_le Section 6007“)!” Are By Clear And Convincing Evidence discussed above, the State Bar Court has the authority to issue an order enrolling an attorney as an involuntary inactive the factors required member of the State by Business and Professions Code, Bar if the State Bar establishes that all section 6007(c)(2) are established by KOOONONUIAWNw clear and convincing evidence. Thus, in order to successfully involuntary inactive convincing evidence member of the move the Court for an State Bar, the State Order enrolling respondent as an Bar must demonstrate with clear and that: (1) respondent’s conduct caused significant harm to Mr. Barela; (2) there is a reasonable probability that the State a disciplinary trial; (3) respondent will Bar Afier receiving Mr. on the merits at and be disbarred. A. Resgondent’s Conduct Caused Significant Financial NNNr—du—‘y—prdp-au—A—nv—Iy—a will prevail Barela’s initial settlement payment of $1 .6 million on January 201 8, respondent intentionally and dishonestly misappropriated $839,390.27) of Mr. Barela’s portion of the initial Harm To Mr. Barela all 5, but $609.87 ($ 840,000- settlement payment by March 14, 201 8. Respondent’s misappropriation essentially deprived Mr. Barela of the use of his entire portion of the $1 .6 million initial settlement any funds to payment Mr. Barela, fi'om any source, only under the guise of an “advance.” for three months. until April 5, That 201 8, at is, respondent did not disburse which time respondent did so (Barela Declaration, 1119.) Assuming arguendo that respondent receives credit for making restitution of $130,000 to Mr. Barela, in the form of the five “advances” he provided to Mr. Barela, respondent deprived and continues to deprive Mr. Barela of approximately $710,000 ($840,000-$ 1 30,00). (Barela Declaration, depriving Mr. Barela of his portion of the significant client harm. (In the Matter initial 1143.) By settlement payment, respondent caused ofBlum (Review Dept. 2002) 4 Cal. State Bar Ct. Rptr. -31- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 403, 409, 413 [significant client harm for six-month delay in distributing $5,61 8 in medical malpractice settlement proceeds].) Moreover, at the time that Mr. Barela was anticipating receiving his portion of the was facing “a dire financial $1 .6 million payment, Mr. Barela two business ventures (Barela Declaration, W1 1 , situation” in order t0 initial finance 15, 17, 20, 23, 24, 34, 36, 37, 38, 39, his and 44), \DOOflOxUI-hWNfl which respondent knew and took advantage of by overreaching, including seeking to charge Mr. Barela 8-10% interest for an “advance” against the very settlement funds that were due to be paid t0 Mr. Barela by the Settling Party by January 10, 201 9. (See In the Matter ofJohnson (Review Dept. 1995) 3 Cal. State Bar Ct. Rptr. 233, 243-244 [“The essence of a fiduciary or confidential relationship confidence is is that the parties reposed and do not deal on equal tenns, because the person who accepts that trust and confidence is in whom trust and in a superior position to exert unique influence over the dependent party.”], citations and quotation marks omitted.) The Supreme Court has long recogfized unfortunate.” (Recht v. State that the right to practice Bar (1 933) 21 8 law “is not a license to Cal. 352, 355; see also McKnight v. mulct the State Bar (1991) 53 Cal.3d 1025, 1037-1038.) NNNNu—l—tr—tr—pr—ar—Ay—ap—av—t There is also circumstantial evidence that respondent’s conduct caused and continues to cause significant harm to the public. The United States Attorney for the Southern District of New York has charged respondent with attempting to extort millions of dollars from Nike. The gflgfifiuroHoxoooqomawNHo charges are pending. (Nunley Declaration, States Attorney for the Southern District embezzlement from a client. 1114, and Exhibit 4 attached thereto.) The United of New York has also charged respondent with (Nunley Declaration, 1]] 9, and Exhibit 9 attached thereto.) And, the United States Attorney for the Central District of California has charged respondent with, among other things, embezzlement of client Mr. Barela. (Nunley Declaration, 1114, funds from several other clients, including and Exhibit 5 attached thereto.) Those charges are also pending. Accordingly, while the criminal charges are pending, the fact that felony charges have been initiated in four cases against respondent corroborates the State Bar’s contention that respondent has caused substantial harm to other clients and the public as well. -32- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 The State Bar Has Provided Evidence that Clearly and Convincinglx Proves B. m There AWN is a Reasonable Probabilitv that the State Bar Will Prevail on the Merits Neither the Business and Professions California define “reasonable probability.” California defines “reasonable cause” to \OOOQQUI that Code nor the Rules of Procedure of the State Bar of However, the Rules of Procedure of the State Bar of mean “a situation that would lead a person of ordinary care and prudence to believe, or entertain a strong suspicion, that something is Proc. of the State Bar, Rule 5.4(45).) Additionally, pursuant to In the Matter ofMesce (Review Dept. 1994) 2 Cal. State Bar Ct. Rptr. 658, 662 [declarations and transcript true.” (Rules deemed sufficient 10 evidence to establish “reasonable probability” that the State Bar would prevail 11 merits for purposes of enrolling attorney involuntarily inactive under Business and Professions 12 Code at trial on the section 6007(c)].) To l3 the extent that reasonable cause and reasonable probability are similar concepts, the Bar respectfillly submits 14 State 15 of ordinary care and prudence to believe, or 16 has committed serious misconduct, including, but not limited 17 Mr. Barela with an altered and fabricated settlement agreementg; (2) misappropriating nearly 18 $840,000”); and (3) repeatedly lying to Mr. Barela and blaming others to conceal his misconduct. 19 Notwithstanding all that the evidence attached to this application would lead a person at least entertain a strong suspicion, that to: (1) respondent knowingly providing of respondent’s other serious misconduct, the State Bar’s clear and 20 convincing evidence of respondent’s intentional and dishonest misappropriation of $839,390. 1 3 21 ($840,000 22 determine that there 23 trial - $609.87) of Mr. Barela’s settlement funds is is a sufficient basis alone for this Court to a reasonable probability that the State Bar will prevail on the merits at and that respondent will be disbarred. 24 25 26 9 Barela Declaration, Declaration, '0 27 115, 7, 11115-7,47; Bledsoe Declaration, 1W4, 8, 10, 11; Nunley Declaration, and Exhibits 1-3 attached and Sheikh 12-16. Barela Declaration, 111150-5 1; 1110, thereto. 28 -33- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 With that the mere respect to misappropriation, fact that the balance in v. State amount required important to note that the Supreme Court has held an attomey’s amounts deposited and purportedly held (Paloma it is trust in trust supports a conclusion Bar (1984) 36 Cal.3d 785, 795-796 to be held account has fallen below the in trust supports [fact that total of of misappropriation. balance of CTA fell below finding of willful misappropriation]; Giovanazzi v. \OOONGU’I-hWN State Bar (1980) 28 Ca1.3d 465 [same].) Significantly, respondent has not denied any wrongdoing or presented any contradictory evidence to the State Bar. The combination of the State Bar’s evidence and respondent’s lack of denial of that evidence, support a conclusion that respondent intentionally misappropriated 10 nearly $840,000 of Mr. Barela’s settlement funds. A Reasonable Probabilig That Resgondent Will Be Disbarred ll C. There 12 The Standards Is for Attorney Sanctions for Professional Misconduct “set forth a means for 13 determining the appropriate disciplinary sanction in a particular case and to ensure consistency 14 across cases dealing with similar misconduct and surrounding circumstances.” (Rules Proc. of 15 State Bar, 16 to 17 which include: protection of the public, the courts and the 18 highest professional standards; and preservation of public confidence in the legal profession. 19 (See tit. IV, Stds. for Atty. Sanctions for Prof. Misconduct, std. 1.1. A11 further references Standards are to this source.) std. 1.1; 20 In re Morse (1995) The Standards help fulfill the legal profession; entitled to “great weight” 21 “whenever possible” 22 92, quoting In re 23 fil. 24 eliminating disparity and assuring consistency, that 25 discipline for instances of similar attorney misconduct. (In re 26 If a 27 to 1.) in determining level Brown (1995) 12 Adherence of discipline. (In re Silverton is at and should be followed (2005) 36 Cal.4th 81, Cal.4th 205, 220 and In re Young (1989) 49 Cal.3d 257, 267, to the standards in the great majority recommendation maintenance of the 11 Cal.4th 184, 205.) Although not binding, the standards are 1 primary purposes of discipline, the high end or how the recommendation was reached. is, of cases serves the valuable purpose of the imposition of similar attorney Naney (1990) 51 Cal.3d 186, 190.) low end of a Standard, an explanation must be given (Std. 1.1.) “Any disciplinary recommendation that 28 -34- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. l9-TE-16715 as deviates from the Standards must include clear reasons for the departure.” (Std. 1.1; Blair Bar (1989) 49 Cal.3d 762, 776, State In determining whether to fn. 5.) impose a sanction greater or less than that specified in a given standard, in addition to the factors set forth in the specific standard, consideration to the v. be given is to primary purposes of discipline; the balancing of all aggravating and mitigating \OOOQQUIAUJNH circumstances; the type of misconduct at issue; whether the client, public, legal system or profession was harmed; and the member’s willingness and responsibilities in the future. (Stds. 1.7(b) The State and ability to conform to ethical (c).) Bar respectfillly submits the evidence attached to this application shows that respondent committed multiple acts of moral turpitude and Violations of the former and current Rules of Professional Conduct. Standard 1.7(a) requires or more acts where a respondent “commits two of misconduct and the Standards specify different sanctions for each severe sanction must be imposed.” misconduct that is The most severe act, the most sanction applicable to respondent’s alleged found in Standard 2.1(a), which applies to respondent’s intentional and dishonest misappropriation of $839,390.13 ($840,000 NNNr—dr—Au—IHHv—Ap—‘t—Ir—t—A - $609.87) of Mr. Barela’s settlement funds. Standard 2.1(a) provides that disbarment is the presumed sanction for intentional or dishonest misappropriation of entrusted funds, unless the amount misappropriated is insignificantly small 0r sufficiently compelling mitigating circumstances clearly predominate. The amount State at issue quite clearly is Bar (1989) 49 Cal.3d not insignificantly small: the contrary 114, 128 is true. (See Chang v. [Supreme Court finding misappropriation of over $7,000 to be significant].) The Supreme Court has consistently stated that misappropriation generally warrants disbarment in the absence of clearly mitigating circumstances. (Kelly Cal.3d at p. 656; Waysman v. State v. State Bar, supra, 45 Bar (1986) 41 Cal.3d 452, 457; Cain Cal.3d 956, 961 .) Moreover, “[a]n attorney keep them permanently, and answers the who v. State Bar (1979) 25 deliberately takes a client’s funds, intending to client‘s inquiries with lies and evasions, is deserving of -35- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 more severe discipline than an attorney without acts of deception.” (Edwards v. who has acted negligently, without intent to deprive and State Bar (1991) 52 Cal.3d 21, 38.) Here, respondent deliberately and intentionally misappropriated nearly $840,000 belonging t0 Mr. Barela. Given that respondent: \OOOQQUI#WN.—n him (ii) to access (i) fabricated a settlement agreement to enable Mr. Barela’s funds for approximately two months unbeknownst to Mr. Barela, has not refunded approximately $710,000 entitled to Mr. Barela and repeatedly lied to Mr. Barela to conceal his misappropriation of the funds, the evidence clearly and convincingly trial would show that respondent deliberately took Mr. Barela’s funds, while intending to at keep them permanently at a time when respondent knew Mr. Barela was experiencing financial I difficulties and while deceiving nine months. Mr. Barela regarding the status of his funds for approximately (See In the Matter ofSpaith (Review Dept. 1996) 3 Cal. State Bar Ct. Rptr. 511 [Review Department recommending that an attorney with no prior record of discipline in 19 years 0f practice be disbarred for intentionally misappropriating approximately $40,000 from a NNn—nn—Apd—u—AH—n—ap—Ar—l client and intentionally misleading the status of the funds].) At the time client over a period of approximately a year as to the that respondent misappropriated application, respondent had been an attorney Supreme Court has imposed disbarment on involving a single misappropriation. Mr. Barela’s funds as alleged in for nearly 17 years. this (Nunley Declaration, The 114.) attorneys with no prior record of discipline in cases The Supreme Court has also imposed disbarment on gfia’a’EBB—oomqamgw~_o attorneys with no prior record 0f discipline in cases involving a single misappropriation. (See, e.g., Kaplan v. State Bar (1991) 52 Cal.3d 1067 prior record of discipline was disbarred funds over an 8-month period]; [attorney with over 11 years of practice and for misappropriating approximately $29,000 in Chang v. State Bar (1989) 49 Cal.3d 114 even if a member has n0 Std. 1.8(c) [“Sanctions may be imposed, firm [attorney misappropriated almost $7,900 from his law firm, coincident with his termination and was disbarred]; see also law no by that firm, including disbarment, prior record of discipline.”].) -36- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. l9-TE-1 6715 In closing, “[t]he wilful misappropriation of client funds State Bar (1990) is theft. [Citation.].” 51 Cal.3d 2 1 5, 221 .) “In a society where the use of a lawyer is (Howard v. often essential to vindicate rights and redress injury, clients are compelled to entrust their claims, money, and property to the custody and control of lawyers. In exchange for their privileged positions, lawyers are rightly expected to exercise extraordinary care and fidelity in dealing with and property belonging to their clients. [Citation] Thus, taking a client's violation of the moral legal standards applicable to all individuals in society, money is money not only a \OOOQONUIA and most serious breaches of professional trust that a lawyer can commit.” In light of the applicable Standard and the case law, there 10 not certainty, that respondent will be disbarred if there VI. 11 a trial one of the (Ibid.) a reasonable probability, to this application clearly 13 (1) Respondent has caused, and l4 (2) There 15 at l6 (3) based on the facts stated herein. is is causing, substantial harm to that: Mr. Barela; a reasonable probability that the State Bar will prevail on the merits a disciplinary There is and convincingly establishes trial; and a reasonable probability that respondent will be disbarred for 17 intentionally misappropriating approximately $840,000 belonging to Mr. 18 Barela. 19 if Conclusion The evidence attached 12 is is it is Thus, the State Bar has proven each factor required by Business and Professions Code 20 section 6007(c)(2). 21 The 22 inactive 23 / / / 24 / / / 25 / / / 26 / / / 27 / / / State Bar respectfully submits member of the State that an Order enrolling respondent as an involuntary Bar is therefore warranted. 28 -37- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. 19-TE-16715 The N State Bar respectfully requests respondent as an involuntary inactive Professions Code that the State member 0f the Bar Court issue an Order enrolling State Bar pursuant to Business and section 6007(c)(2). Respectfully submitted, THE TA E AR OF CALIFORNIA \OWVONUIADJ DATED: June 3, 2019 By IEli D. Morgenskm Senior Trial Counsel 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -38- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. l9-TE-16715 VERIFICATION I, the undersigned, certify that Inactive Enrollment that the statements and know its made therein I have read the foregoing Application for Involuntary content. are true I and am informed and believe and on that basis allege correct. ©00NO\UI#UJNv—n I am a Senior Trial Counsel for the Office of Chief Trial Counsel of the State Bar of California, a party to this action I and am authorized to make this verification for and on its behalf. declare under penalty of perjury under the laws of the State of California that the foregoing is true and Executed on correct. this 3'd day of June, 2019, at Los Angel Eli D. Morgenflem Declarant NNNNNNNNNp—‘t—I—ar—‘w—HH—au—t OOQOM-mel—‘OQOOQQUIAWNH‘O -39- APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT, OCTC Case No. l9-TE-16715 DECLARATION OF GREGORY BARELA STATE BAR OF CALIFORNIA OFFICE OF CHIEF TRIAL COUNSEL MELANIE J. LAWRENCE, N0. 230102 INTERIM CHIEF TRIAL COUNSEL ANTHONY J. GARCIA, N0. 171419 ASSISTANT CHIEF TRIAL COUNSEL ANAND KUMAR, No. 261592 SUPERVISING ATTORNEY ELI D. MORGENSTERN, No. 190560 SENIOR TRIAL COUNSEL \DW\10\M4>WN 845 South Figueroa Street Los Angeles, California 90017-2515 Telephone: (213) 765-1334 STATE BAR COURT HEARING DEPARTMENT — LOS ANGELES 10 11 12 In the Matter of: ) 13 MICHAEL JOHN AVENATTI, ) No. 206929, ) Case No. ) DECLARATION OF GREGORY BARELA 14 15 A Member of the I, 16 ) Gregory Baxela, declare: 1. 17 § State Bar. A11 statements made herein are true and correct, and are based 0n 18 knowledge unless indicated as based on information or 19 informed and believe them to be 20 statements 2. 21 22 23 24 made true. If necessary, and as to those statements, I am could and would competently testify t0 the herein. On July 8, 2014, I employed Michael John Avenatti (“respondent”) and firm, Eagan Avenatti, LLP, to represent Party.‘ I belief, my personal me in an intellectual property his law dispute with the Settling A true and correct copy of the fee agreement that I signed on July 8, 2014 is attached t0 this Declaration as Exhibit 1 25 26 1 27 28 The corporation is not identified by agreement, discussed below. name due to the confidentiality of the settlement 1 DECLARATION OF GREGORY BARELA ND Respondent filed a lawsuit in federal court on 3. alleging multiple causes of action. Thereafier, the Settling On December 28, 2017, 4. at his request, I my behalf against the Pafiy and I Settling Party entered into arbitration. met with respondent at his law firm’s offices in Newport Beach, California, in order to sign a purponed settlement agreement that ©WQQM$WN~ respondent had negotiated with the Settling Party on my behalf. The settlement agreement that respondent presented 5. to sign required the Settling Party to to me on December 28, 2017 make an initial payment of $1,600,000 by March 10, 2018, and three additional payments of $100,000 by March 10 of 2019, 2020, 2021 respectively, , total of $1,900,000. Respondent also told March of each year. a settlement payments were payable in A true and correct, though redacted, copy 0f the partial settlement agreement that respondent provided to as me that the for me on December 28, 201 7 is attached t0 this Declaration 25mg. Unbeknownst to me 0n December 28, 201 7, and 6. November 21 201 8, , the actual settlement agreement negotiated required the Settling Party to make the initial the three additional payments of $100,000 7. I at any time before on or about by respondent 0n payment of $1 ,600,000 by January my behalf 10, 201 8, and by January 10 of 2019, 2020, 2021, respectively. was unaware of the January payment dates because the version 0f the settlement NNNNNNNr—I—nr—an—sp—th—nfl—‘H agreement that respondent provided to me on December 28, 2017 to sign included the falsified agaUI$WNHOOWQQUI4§UJNWO March payment dates. After 8. I signed the settlement agreement, would receive in total represented to me that he believed that the costs his I asked respondent afier paying respondent’s contingency fee and costs. how much money I Respondent were between $1 00,000 and $125,000, but that office manager and paralegal was conducting a final accounting of costs. Based on these representations, respondent told proceeds. On January 3, 2018, I me that I would receive over $1 ,000,000 0f the settlement requested an accounting of costs. Respondent never provided me with the requested accounting. Pursuant t0 the settlement agreement that respondent 2 DECLARATION OF GREGORY BARELA - jg) provided to me on December 28, 201 7, I anticipated that the first settlement payment would occur 0n March 10, 201 8. On 9. that I morning 0f March the “was just thinking copy 0f my March 10, is this 2018 On March 10. l sent a text a big day from our friends text 12, 201 8, 10, message 201 8, I is message t0 respondent at [Settling Party]?” A true and correct attached to this Declaration as Exhibit sent a text message to stating 3. my account respondent containing me a wire transfer 0f my portion 0f the information in order to enable respondent to send Kow‘xlO‘w $1,600,000 payment. A true and correct copy 0f my March 12, 201 8 text message is attached t0 this Declaration as Exhibit 4. 10 On March 11. 13, 201 8, I sent another text message was t0 respondent asking if there me know and sought an 11 “any word 0n that wire from 12 update regarding 13 message 14 $1 ,600,000 for business ventures that 15 respondent stating, “Hi Michael“ just checking in 0n the [Settling Party] issue. I’ve been going 16 pretty deep 17 true 18 Exhibit 19 is my [Settling Party]?” settiement payment. and credit cards and a I little 14, On March 19, 201 8, I 21 heard anything from the Settling Party. 2018 text 0n March message t0 is 23 my March 24 13. 25 [Settling Party]?” 26 Declaration as Exhibit 27 message. 2018 text 201 8 text 14, 201 8, I sent a text Any message updates?” t0 A attached t0 this Declaration as my March message 14, 201 8 text message. t0 respondent telling let A true and correct copy 0f my March 7. 13, planned to use a part of my portion 0f the loan t0 keep both businesses going. attached to this Declaration as Exhibit 19, I With [Settling Party] this week” and asked respondent t0 t0 be “aggressive is 5. started. sent a text 20 message had Respondent did not respond in writing 12. let A true and correct copy 0f my March attached t0 this Declaration as Exhibit and correct copy 0f my March 6. asked respondent to I him that I wanted me know if he 19, 201 8 text Respondent did not respond in writing t0 message. On March 21, 201 8, I sent a text message to respondent, “Any word from A true and correct copy 0f my March 21, 2018 text message is attached t0 this 8. Respondent did not respond in writing t0 my March 2 3 DECLARATION 0F GREGORY BARELA 1 , 201 8 text h . N$ On March 22, 14. Settling Party. la.) b not what are I again checked in regarding the settlement payment from the A true and correct copy of my March 22, next?” attached t0 this Declaration as Exhibit March 22, 2018 that I 9. 201 8 text message is Respondent again avoided responding in writing to 2018, facing financial burdens, needed help and was worried. Respondent replied worry. Let’s chat tmrw. March If my text message. On March 23, 15. \DOQVONUI I message to respondent asking, “Did they step up with the transfer? sent a text we doing 2018, We wiil figure this out. my text message, to Michael.” 23, 201 8 text message exchange with respondent is sent Respondent a text message I “Greg-don’t stating, A true and correct copy 0f my attached to this Declaration as gm m. During 16. time period in this March 201 8, while Respondent did not respond writing t0 the texts described above, Respondent did orally assure in me that he was working to obtain the proceeds 0f the settlement agreement. Respondent stated that he had no idea what was going 0n with the settlement payment. Respondent stated the Settling Party, Party had not and made that counsel for the Settling that Company was Pafly had not made informed make me At some point during the payment. that another lawsuit know would need to be filed or understand this why the time period, Respondent in order t0 force the Settling Pafiy to the settlement payments. Given 17. by March 2018, I asking for a loan. I in disbelief that the Settling the initiai $1 ,600,000 settlement payment. Respondent further stated that he genuinely believed that counsel for the Settling Party did not Settling he had spoken with counsel for that I had relied 0n receiving was facing a I was dire financial situation. in the early stages was “out 0f pocket about 250k 2018 email sent a text is my portion 0f the 0n April 2, $1,600,000 payment initial 2018, I emailed respondent 0f setting up two businesses and for both businesses.” I told respondent that A true and correct copy of my April 2, attached to this Declaration as Exhibit 11. During the evening of April 2, 2018, message t0 respondent asking whether there was any word from the Settling Party regarding the settlement payment. Later that same evening, I spoke with respondent on the 4 DECLARATION OF GREGORY BARELA j) 2i? I me on the telephone and respondent assured Party would b) make the settlement provide an advance 0f money to payment me “Thanks again for the call. worries.” with respondent is make sure the Settling Respondent also agreed to while he was purportedly seeking payments from the During the evening of April N0 he was working t0 as soon as possible. Settling Party. “All good. call that 2, 2018, Whatever you can do is I sent a text message to respondent stating, appreciated.” Respondent replied to the text, A true and correct copy of my April 2, 2018 text message exchange attached t0 this Declaration as Exhibit 12. OOOOQOth On April 18. able t0 advance is I sent respondent a text if at all?” message asking him whether he was Respondent responded that that he couid “probably A true and correct copy of my April 3, 201 8 text message exchange with attached to this Declaration as Exhibit 13. On April 19. 2018, me “any amount send a wire tmrw.” respondent 3, t0 allow respondent t0 5, 201 8, sent an email t0 respondent with make a wire advance to me. In the email, the Settling Party. I I transfer 0f $60,000, the also stated that I wanted my bank information in order money respondent had agreed t0 my options for collections 0n to discuss A true and correct copy of my April 5, 2018 email is attached to this Declaration as Exhibit 14. Shortly thereafter, I received a wire transfer 0f $60,000 from respondent. On April 20. 15, 201 8, I sent another email t0 respondent asking 0f the settlement money from the Settiing Party. Settling Party if the possible as email is I money was not coliected. was facing financial difficulties. I I him about the status also asked about steps t0 take against the told respondent I needed a plan as soon as A true and correct copy of my April 15, 2018 attached to this Declaration as Exhibit 15. Respondent did not respond in writing t0 my April 15, 2018 text message. 21. responded. On April 22, 2018, I sent an email t0 respondent asking if the Settling Party A true and correct copy 0f my April 22, 2018 email Exhibit 16. Again, 0n April 25, 201 8, and April 26, 2018, asking whether there was any word from the Settling I Pany. is attached t0 this Declaration as sent text messages to respondent A true and correct copy of my April 5 DECLARATION 0F GREGORY BARELA r\ ;_£> j 25, 2018, and April 26, 2018 text messages are cumulatively attached t0 this Declaration as Exhibit 17. Respondent did not respond in writing. 22. During the April 201 8 time period, while Respondent did not respond to any of my text messages in writing, he assured me over the phone and in-person that he was working t0 OW‘JONU‘hbJNt—t force the Settling Party to make the settlement payment. This included his statements to Respondent would be filing a separate lawsuit 23. email I may need a little is payment of the settlement. On May 7, 201 8, I sent another email to respondent asking him what the next actions were against the Settling Party. soon in federal court t0 force me that I also told respondent, “If [Settling Party] does not pay A true and correct copy of my May 7, 20] 8 help in the next two weeks.” attached to this Declaration as Exhibit 18. 24. On May 15, collecting the settlement in 201 8, I sent an email to respondent explaining that since March and had not seen any of it, I was planned on losing credibility with my wife, and was now facing a difficult financial position. other business ventures and respondent, “Did [Settling Party] respond or pay? If no[,] what are and correct copy of my I May Respondent did not respond 15, 201 8 email in writing to is we I filing this week?” my asked A true attached to this Declaration as Exhibit 19. my May 15, 201 8 email. Instead, respondent and I had NNNNNNa—t—IHI—Au—dwr—iwwr—n a telephone conversation wherein respondent agreed to provide another advance to me 0n the settlement payment. 25. On May 22, 201 8, I sent an email to respondent an additional advance from respondent. true and correct copy 0f my On May 22, May 22, 201 8 containing wire instructions for 201 8, he responded, “Got email exchange with respondent is it. Thanks.” A attached to this Declaration as Exhibit 20. 26. On May 25, 201 8, respondent advanced, 0r caused to be advanced, an additional $30,000 to me. 27. On June 25, 201 8, I sent an email to respondent containing a list of reminders for the week, including a reminder about filing a lawsuit against the Settling Party for failing to pay 6 DECLARATION OF GREGORY BARELA /bb the $1,600,000 due to A true and correct copy 0f my June 25, 2018 email is attached to this me. Declaration as Exhibit 21. During 28. maven) advance 0f money, t0 timeframe, respondent stated to this let me that whenever I him know, and he would wire money know when matter was not resolved and he did not it to needed an me, because the Settling Party would be. On June 27, 2018, respondent advanced, or caused t0 be advanced, an additional 29. $30,000 to me. \DWNJO\ On June 29, 30. 2018, I sent an email to the office manager/paralegal at respondent’s law firm, Eagan Avenatti, LLP, and asked for a copy of the signed settlement agreement, which 10 included the signatures from the Settling Party’s representatives. 11 day 0r two 12 manager/paralega} 13 office manager/paralegal handed 14 manager/paralegal gave 15 which contained March payment 16 later to get a fully 31. came room with a document, which respondent reviewed before it to me was a falsified copy 0f the 15, 201 8, I sent an email to respondent asking about initiating a 18 and 19 email 20 is the $1,600,000 payment. On September additional advance. 22 Declaration as Exhibit 23. 33. 15, 201 8 10, 201 8, I sent respondent an email with wire instructions for an On September 11, 2018, respondent advanced, or caused to be advanced, an additional $6,000 to me. 25 26 A true and correct copy of my August A true and correct copy of my September 10, 201 8 email is attached t0 this 21 24 by the terms 0f the settlement agreement attached to this Declaration as Exhibit 22. 32. 23 fully executed settlement agreement, dates. lawsuit against the Settling Party for faiiing to abide make the me. The document respondent and the office 17 failing to a executed copy of the settlement agreement, the office into the On August WhenI went to their office 34. status On October 10, 201 8, I sent respondent an email asking for an update of collecting the settlement proceeds from the Settling Party. I also asked for on the more 27 28 7 DECLARATION 0F GREGORY BARELA w t . A true and correct copy of financial help, requesting an additional advance to “keep moving.” my October 10, 2018 email On October 35. is attached to this Declaration as Exhibit 24. I4, 201 8, sent an email t0 respondent asking if the Sertiing Party I had responded and what the next steps were December and they strategy till this is to ensure owe the second payment will handled?” I in payment. March also asked respondent for “a A true and correct copy of my October 2018 email 14, is . . . I stated, “It will Can we discuss copy of the last be one year in a go forward thing that we filed.” attached to this Declaration as \DOONON Exhibit 25. Respondent did not respond in writing to On October 36. 10 was 11 17, 12 in financial hardship 2018 text message is sent a text I message and asked for another advance. 14, 201 8 email. 19, 201 8, sent a text I message A true and correct copy of my October to respondent asking borrow money. 14 Declaration as Exhibit 27. Respondent did not respond in writing t0 either 15 or October 19, 2018 text messages. On 38. October 22, 201 8, I 19, 201 8 text troubles I was facing. 18 party and was trying to use the settlement agreement to secure 19 the 20 paperwork related to the alleged filing against the Settling Pany so 21 personal loan. 22 Declaration as Exhibit 28. Respondent did not respond to told respondent that payment and what the next action message him is could if I attached to this my October 17, steps I was working on trying would it. I t0 get a loan from a third- again asked for an update on be. Ialso asked for copies that l of all the could use it to secure a A true and correct copy of my October 22, 2018 email is attached to this On October 28, 201 8, my October 22, 2018 email. my dire 23 39. 24 financial situation. 25 respondent to forward the documents that had been filed against the Settling Party so that 26 use them to secure a personal loan. 27 respondent. 28 201 8 sent an email to respondent again stressing the financial 17 I I A true and correct copy of my October 13 16 him that to respondent expressing to attached to this Declaration as Exhibit 26. On October 37. 17, 201 8, my October 0n October 28, I sent respondent a text 201 8, On I message again highiighting sent respondent another text message again asking October 29, 201 8, I sent another text message On the same day, respondent replied that he would call me shortly. 8 DECLARATION OF GREGORY BMELA I could to Later that same R - /Kl) day, because Respondent stressing I had not heard back from respondent, replied, “Let’s chat in the my financial difficulties. sent respondent another text message. I am. Working on a solution." I responded by again A true and correct copy 0f my October 28, 201 8 text messages, and a true and correct copy 0f my October 29, 2018 text message exchange with respondent are cumulatively attached t0 this Declaration as Exhibit 29. \OOOHONU‘IALNNH 40. message On October 30, 2018, that stated correct 0f I followed—up with respondent by sending him a text “any word.” Respondent replied that he A true and was “making progress.” my October 30, 2018 text message exchange with respondent is attached t0 this Declaration as Exhibit 30. o—I r—A b—t 5—- I-v-a r—v- u—a y-«A O - N 41. for an additional advance. 42. l sent a text 43. On November 5, 201 8 text message is l. 2018, respondent made, or caused to be made, an additional and Between April 5, 201 8, and November 44. In the latter part of 2018, I 5, 201 began searching approximately $100,000 in order to operate fl \O promise by the Settling Party 21 , 8, respondent “advanced” me a total of $1 30,000. fl O t0 respondent with wire information A true and correct copy of my October 3] H 00 ‘5‘) message final $4,000 advance to me. Ui O\ 2018, attached t0 this Declaration as Exhibit 3 W nb On October 3 1, loan, he dissuaded to pay as me from seeking my business, collateral. using the settlement agreement and After respondent heard 0f my search for a a loan from a third party, and instead promised be able t0 provide a loan 0f $100,000 by January 15, 2019, Respondent told 45. Respondent a made t0 me t0 “hang tight” On November letter via me that the 17, until 2018, had at an interest rate me he wouid between 8-10%. January 15, 2019, and “don’t ask again.” my new attorney Steven E. Biedsoe and email asking him Settling Party me for a creditor to loan to: (1) failed t0 confirm any make the settlement agreement; (2) promptly provide a true I sent representations that respondent the initial $1,600,000 payment due under and correct copy of the settlement agreement and any fee agreement between respondent and me; and (3) provide 9 DECLARATION OF GREGORY BARELA an immediate o . /% accounting in the event that the Settling Party the settlement agreement. made A true and correct copy of our November this Deciaration as Exhibit 32. After that letter was me. Respondent also sent an email asking calls t0 the initial $1,600,000 sent, me to A true and correct copy 0f respondent’s November 17, payment provided 2018 17, letter is in attached to Respondent made multiple telephone call him as soon as 2018 email as Exhibit 33. Additionally, respondent sent a text message to me is I received the email. attached to this Declaration asking, “What is this all \OOOVCNM-b about? Pls message call letter 11 letter, t0 A true and correct copy of respondent’s November On November me from 201 8, 19, 201 8 text my new counsel sent an email t0 respondent attaching a requesting that he transfer all paper and electronic files to my new counsel. also requested that respondent transfer the balance of any funds paid I 17, attached t0 this Declaration as Exhibit 34. is 46. 10 me ASAP.” my new counsel. A true and correct copy 0f my November 19, 201 8 by the letter to my new counsel 13 attached to this Declaration as Exhibit 35. In the cover email, 14 respondent with the wire transfer information. Respondent did not respond to 15 201 8 In my Settling Party respondent is provided my November 19, letter. 16 On November 21, 47. my new counsel 201 8, at the request of my new counsel, counsel for the Settling with a true and correct copy of the fully executed settlement 17 Party provided 18 agreement. Later that same day, 19 fully executed settlement 20 was the 21 agreement. The true and correct copy of the fully executed settlement agreement provides that 22 the initial 23 due by January 10 Ofthe following three years. The true and 24 the fully executed settlement agreement 25 first time that provided 27 January 28 I had ever seen the true and correct copy 0f the is am informed and believe that, 201 8 to the client trust fully executed settlement 10, 201 8, with the correct, subsequent payments though redacted, copy 0f attached t0 this Declaration as Exhibit 36. subsequently, counsel for the Settling Party my new counsel proof 0f the $1 ,600,000 5, copy of the agreement that he had received from the Settling Party’s counsel. This payment 0f $1 ,600,000 was due by January 48. 26 I my new counsel showed me the true and correct payment that the Settling Party account specified by respondent. I am also 10 DECLARATION 0F GREGORY BARELA made on informed and k / 61> believe that counsel for the Settling Pany confirmed with my new counsel that there were no versions 0f the settlement agreement exchanged between respondent and the Settling Party that AWN included settlement payment dates in March. Respondent never notified 49. me that on January 5, 201 8, he received the $1 ,600,000 settlement payment on my behalf fiom the Settling Party. concealed and failed to disclose to me that he had received the initial ©00-JC\UI payment from the Settling Party. Respondent has never provided initial In fact, respondent $1 ,600,000 settlement me with an accounting concerning those fimds. 50. 10 never authorized respondent to disburse any portion of my portion 0f the initial $1 ,600,000 payment to any person or entity other than myself. 51. 11 12 I I never authorized respondent to use any portion 0f my portion of the $1,600,000 payment for his On January 3, 52. 13 own personal initial use. 2019, the Settling Party and] signed an addendum to the settlement l4 agreement which provided that the Settling Party wouid pay 15 settlement agreement to 16 addendum 17 53. all future payments due under the my new counsel’s client trust account. A true and correct copy of the to the settlement agreement is attached to this Declaration as Exhibit 37. During respondent’s representation of me, on August 16, 201 8, I pleaded guilty to 18 a felony criminal charge of commingling 0f funds and a misdemeanor criminal charge of 19 operating without a contractor’s license. 20 of probation, which 21 reduced to a misdemeanor. Respondent was fully aware of my pending criminal case, and, 22 fact, 23 advised I me to if successfully On September was sentenced to four years compieted, would result in the felony criminal charge being in plead guilty. declare under penalty of perjury under the laws of the State of California that the and correct and that 24 foregoing 25 Irvine,Califomia. is true this Declaration is executed this 2L“ day of May, 2019, at A y? 26 é f: Gre'mfia 27 28 18, 201 8, I 11 DECLARATION OF GREGORY BARELA EXHIBIT 1 EAGAN AVENATTI, LLP 450 Newport Center Drive, 2nd Floor Newport Beach, CA 92660 (949)706-7000 July2, 2014 ATTORNEY-CLIENT FEE CONTRACT (CONTINGENCY) This ATTORNEY-CLIENT FEE CONTRACT (this "Agreement") is the written fee contract that California law requires lawyers to have with their clients. It is between Eagan Avenatti, LLP (the "Attorney") on the one hand and Greg Barela and Eco Alliance, LLC (the "Client'') on the other. 1. CONDITIONS. This Agreement will not take effect, and Attorney will have no obligation to provide legal services, until Client returns a signed copy of this Agreement. 2. SCOPE OF SERVICES. Client is hiring Attorney to represent Client in the matter of Client's affrrmative claims relating to Client's intellectual property rights in hardscape underlayment processes/technology. Attorney will provide those legal services reasonably required to represent Client and take reasonable steps to inform Client of progress and to respond to Client's inquiries. In addition, Attorney may at any time and at its discretion retain outside counsel, whose legal fees will be deducted from the fees received by Attorney. Attorney will represent Client in any court action until a settlement or judgment, by motion, arbitration or trial, is reached, and in connection with any appropriate post-trial motions. Client and Attorney agree that any legal services provided on behalf of Client in connection with any appeal relating to Client's claims shall be covered by a separate agreement, the terms of which are subject to future negotiation. 3. CLIENT'S DUTIES. Client agrees to be truthful with Attorney, to cooperate, to keep Attorney infanned of developments, to abide by this Agreement. a.nd to pay hjllg fw costs on tjme -t:> ~ 4. LEGAL FEES, COSTS AND BILLING PRACTICES. Attorney will receive a contingency fee of forty percent (40%) of the Recovery (defined below). "Recovery" will include any cash; the fair market value of any property, stock, note, partnership interest, carried interest, stock option, bUEiness accommodation or agreement, loan, and funding; and other consideration received in connection with the settlement, judgment, or other resolution of any of Client's claims as referenced above, including but not limited to any jury award, arbitration award, award of attorneys' fees, discovery sanctions, other monetary sanctions, and/or similar awards which an opposing party is required to pay to Client If payment of all or any part of the amount to be received will be deferred (such as in the case of an annuity, a structured settlement, or periodic payments), the "Recovery" for purposes of calculating the Attorney's fees, will be the initial lump-sum payment plus the present value, as of the time of the binding resolution, of the payments to be received thereafter. The attorney's fees will be paid out of the initial lump-sum payment If the payment is insufficient to pay the attorney's fees in full, the balance will be paid from subsequent payments of the Recovery before any distribution to Client. In the event of discharge or withdrawal of Attorney as provided in Paragraph 10, Client agrees that Attorney shall be entitled to be paid by Client, upon binding resolution of Client's claims, whether by settlement, judgment or arbitration award in favor of Client, a reasonable fee for the legal services provided by Attorney to Client. .]. 5. NEGOTIABILITY OF FEES. The rates set forth above are not set by law, but were negotiated between Attorney and Client 6. COSTS, DISBURSEMENTS AND EXPENSES. Attorney will advance all out-of-pocket litigation and trial costs and expenses. "Costs and expenses" include filing and court fees, investigation expenses, process fees, investigation fees, graphic art and filming fees, PowerPoint fees, computer animation fees, expert fees, deposition costs, photocopying charges, mock trials or focus groups, jury fees, computerized research, jury trial consultant fees, telephone toll charges, travel costs, mail messenger and other delivery charges, postage and any other necessary expenses in this matter. Client authorizes Attorney to incur all reasonable costs and to hire any investigators, consultants or expert witnesses reasonably necessary in Attorney's judgment. Upon resolution or settlement of Client's claims, Client agrees to fully reimburse Attorney from Client's portion of the Recovery that portion of the costs and expenses previously advanced by Attorney. INSURANCE COVERAGE. Attorney maintains errors and omissions insurance coverage applicable 7. to the services to be rendered to client 8. ARBITRATION. Any dispute arising under this Contract or in connection with Attorney's services hereunder, including any claim by Client against Attorney for malpractice or other tort claim or any dispute regarding attorneys' fees, shall be resolved by binding arbitration before JAMS located in Orange County, California. Such arbitration shall he conducted in accordance with the arbitration rules and procedures of JAMS then in effect. Client acknowledges that he has been fully advised of all of the possible consequences of arbitration including but not limited to: a. If a malpractice action arises from this Agreement, neither Client nor Attorney will have the right to a .lury trial. b. Both parties retain the right to retain counsel to prepare their respective claims and/or defenses for the arbitration hearing. c. Client can choose or hire an attorney who may not request or whose retainer agreement does not contain an arbitration provision. RELATED UNKNOWN MATTERS. Client represents that Client does not know of any related legal 9. matters that would require legal services to be provided under this Agreement If such a matter arises later, Client agrees that this Agreement does not apply to any such related legal matters, and a separate Agreement for provision of services and payment for those services will be required if Client desires Attorney to perform that additional legal work. 10. DISCHARGE AND WITHDRAWAL. Client may discharge Attorney at any time, upon written notice to Attorney, and Attorney will immediately after receiving such notice cease to render additional services in a manner that avoids foreseeable prejudice to Client. Such a discharge does not, however, relieve Client of the obligation to pay any costs incurred prior to such termination, and Attorney has the right to recover from Client the reasonable value of Attorney's legal services rendered from the effective date of the Agreement (Paragraph 14) to the date of discharge. Attorney may withdraw from representation of Client (a) with Client's consent, or (b) upon court approval, or (c) if no court action has been filed, upon reasonable notice to Client 11. LIEN. Client hereby grants Attorney a lien on any and all claims or causes of action that are the subject of Attorney's representation under this Agreement. Attorney's lien will be for any sums owing to Attorney for any unpaid costs or attorneys fees under this Agreement. The lien will attach to any recovery Client may obtain, whether by arbitration award, judgment, settlement or otherwise. The lien created herein is considered an adverse interest within the meaning of Rule of Professional Conduct 3-300 and requires Client's informed written consent. In accordance with that Rule, Attorney advises Client that it may seek the advice of an independent lawyer of Client's choice, and that Client need not sign this Agreement until it has had a reasonable opportunity to seek that advice. By signing this Agreement, Client consents to the Attorney's Lien described ·2· herein. CONCLUSION OF SERVICES. When Attorney's services conclude, other than by discharge or 12. withdrawal, all unpaid charges will immediately become due and payable. After Attorney's services conclude, Attorney will, upon Client's request, deliver Client's file to Client, along with any Client funds or property in Attorney's possession. 13. DISCLAIMER OF GUARANTEE. Notbin2 In this Aweement and nothin2 in Attorney's statements to Client before or after the signing of this Agreement will be construed as a promise or 20arantee about the outcome of Client's matter. Attorney makes uo such promises or guarantees. There can be no assurance that Client will recover any sum or sums in this matter. Attorney comments about the outcome of Client's matter are expressions of opinion only. 14. EFFECTIVE DATE AND AMENDMENT. This Agreement will take effect when Client has performed the conditions stated in Paragraph 1. The date at the beginning of this Agreement is for reference only. Further, this Agreement may only be amended by way of a writing signed by the Attorney and the Client. "Attorney" EAGAN A VENA TTI, LLP Michael J. A venatti Thave read and understood the foregoing terms and agree to them. By signing this Agreement, I acknowledge receipt of a fully executed duplicate of this Agreement. ~'Client" Date: _l_-_S_·_I'-_ 1 __ Eco Alliance, LLC By: Date: -3- I. g-l~ EXHIBIT 2 This Confidential Settlement Agreement ("Agreement") is entered into as of December 20, 2017, bY and between Greg Barela, an individual who resides at 2801 Alton Parkway. Apt. 402, Irvine, California 92606 ("Barela"), and dlb/a a Colorado limited liability company with its principal p~ce of business at Barela and are collectively referred to as the "Parties." Recitals Barela and are parties in an arbitration pending before Magistrate Judge Boyd N. Boland (Ret.) styled Greg Bs:rela v. JAG Arbitration No. 2015-1031A (the "Arbitration"). In the Arbitration, Barela asserted claims for correction ofinventorship of U.S. Patent No. 8,662,787; a declaration that Barela is a co·owner with of U .S. Patent No. 8,662,787; trade secret misappropriation; and unjust enrichment. disputed Barela's claims. On December 20, 2017, Barela and agreed to a final compromise and settlement of the Arbitration and all disputes between then;t. Specifically, the Parties entered into a binding and enforceable agreement setting forth the terms and conditions of their final compromise and settlement, and further agreed to enter into a formal written agreement by December 29, 2017. This Agreement formally sets forth the terms and conditions of the Parties' agreed·to final compromise and· settlement of the Arbitration and all disputes between them. Defipitions For purposes of this Agreement, the following terms have the following meaniil.gs: 1. A Party's "Affiliate" means an entity or individual that Controls, is Controlled by, is Controlling, or is under common Control with respect to the Party. 2. "Asserted Trade Secret" means: All trade secrets that were or could have been asserted by Barela in the Arbitration, including but not limited to the Paver Invention. 3. " Patent Rights" means: (a) U.S. Patents Nos. 8,662,787; 8,827,590; 8,967,905;.D645,169; 8,236,392; 8,353,640; D637,318; and 7,244,477; and (b) all provisional applications, parent applications, continuations, continuations-inpart, divisionals, e:x;tensions, renewals, substitutions, reissues, reexaminations, inter partes reviews and foreign counterparts of any of the patents identified in (a). 4_ ''Control" (including, with correlative meanings, "Contr<>ls," "Controlled .by" and "Controlling") means the power to direct or to cause the direction of the management and policies of an entity or an individual, directly or indirectly, whether through ownership of voting secUrities, by contract, or otherwise. With respect to a corporation, limited liability company, partnership or other entity, control includes direct or indirect ownership of at least fifty-one percent (51%) of the voting stock, limited liability company interest, partnership interest or other voting interest (or equivalent interest) .in such corporation, limited liability company, partnership or other entity. 5. "Released Pr<>ducts" means: All products involving any of the Patent Rights created, designed, made, used, offered for sale, distributed, sold; or imported by, for, or under license from or any predecessor, Successor or Mfiliate of Released Products include, but are not limited to, Underlayment products sold under the name PaverBase®. 6. "Successor" means a Third Partythat: (a) acquires substantially all the assets of either Party; or (b) acquires all .or a portion of business relating to the Patent Rights and/or the Released Products; or (c) results from a reconstruction. amalgamation, merger, consolidation or reorganization of or with 7. "Third Party" means any entity or individual other than Barela or "Underlayments" mea ns underlayments for use with pavers, patio stones and other paving element s for pedestrian andlor vehicle traffic. 8. warranties and Representations 9. Barela, on behalf of himself and his predecessors and Affiliates, warrants and represents that he has the authority to enter into and be bound by this Agreement. 10. Barela. on behalf of himself and his predecessors and Affiliates. warrants and represents that he is una ware of any claim by a Third Party against related to the Asserted Trade Secret, the Patent Rights or the Released Products. \ 2 11. on behalf of itself and its predecessors and Affiliates, warrants .and represents that it has the authority to enter into and be bound by this Agreement. Pavments to Barela 12. will pay the total sum of One Million Nine Hundred Thousand U.S. Dollars (USD 1,900,000) to Barela as follows: a. The sum of One Million Six Hundred Thousand U.S. Dollars (USD 1,600,000) will be paid by to Barela on March 10, 201S;and b. The sum of One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on March 10, 2019; and c. The sum of One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on March 10, 2020; and d. The sum of One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on March 10, 2021. 13. The payments specified in paragraph 12 are subject to Barela's (including his predecessors, Successors, assigns, heirs and Affiliates) ongomg compliance with the Agreement. 14. Each of the payments specified in paragraph 12 shall be made by wire· transfer to a trust account specified in an email from Barela's counsel (Michael Avenatti) to counsel (David Sheikh) on or before January 3, 2018. Waiver and Releases 15. Barela, on behalf of himself and his predecessors, Successors, assigns, heirs and Affiliates, hereby waives, releases and forever discharges all claims to any rights or interest in or to the Patent Rights and the Released Products including, without limitation, the ability or right to challenge, directly or by assisting a Third Party, to the inventorship, validity or enforceability of any of the Patent Rights, including any lawsuit, protest, opposition, interference, post·grant review, reexamination, inter partes review or the like in any court or governmental agency anywhere in the world. 16. Barela, on behalf of himself and his predecessors, Successors, assigns, heirs and Affiliates, hereby releases including its predecessors, Successors, assigns, heirs and Affiliates, from any and all claims, liabilities, demands and causes of action, whether or not now known, suspected or claimed, which Barela ever had, 3 now has or claims to have, regarding the Patent Rights and/or the Released Products, including any such claims that were or could have been asserted in a court; in the Arbitration, or in any other proceeding. 17. on behalf of itself and its predecessors, Successors, assigns, heirs and Affiliates, hereby releases Barela, including his predecessors, Successors, assigns, heirs and Affiliates, from any and all claims, liabilities, demands and causes of action, whether or not now known, suspected or claimed, which ever had, now has or claims to have, regarding the Patent Rights and/or the Released Products, including any such claims that were or could have been asserted in a court, in the Arbitration, or in any other proceeding. Confidentiality 18. The Parties hereby agree that this Agreement and its terms and conditions are and will remain confidential. The Parties further agree that they will not disclose, provide, or produce this Agreement or its terms and conditions publicly or to any Third Party. If a Party is asked about the outcome of the Arbitration, such Party cannot disclose the existence of this Agreement or the Agreement's terms and conditions. The Parties shall only disclose that the dispute between Barela and has been resolved. Notwithstanding the foregoing: a. Either Party may disclose this Agreement to its attorneys and accountants provided that such attorneys and accountants are bound by confidentiality obligations commensurate with this provision. b. Either Party may disclose this Agreement and its terms and conditions as may be required by law, regulation. subpoena, or order of an arbitrator, a court, or other adjudicator of competent jurisdiction. If this disclosure is made during the course of litigation, the disclosure must be limited to the litigating parties' outside counsel and the arbitrator, court, or other adjudicator of competent jurisdiction. c. Either Party may disclose this Agreement and its terms and conditions to the extent necessary to enforce this Agreement before a court or other adjudicator of competent jurisdiction. d. may privately state and conflrm the fact that all disputes between and Barela have been resolved in the context of confidential discussions with its business partners and suppliers. 4 e. may disclose this Agreement and its terms and conditions to its contract manufacturer/supplier, JSP, its professional advisors, its board of directors, released Third Parties, and existing and potential investors, acquirers and purchasers, provided that such entities or individuals are bound by confidentiality obligations commensurate with this provision. The Parties acknowledge and agree that this confidentiality provision is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree ~hat it would be impossible, impractical or extremely difficult to fix the actual damages suffered by reason of a breach of this provision, and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100·,000) shall be presumed to be the amount of damages sustained by reason of each such breach, without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. Non-Dis,paragement 19. Each Party (including each Party's respective officers, directors, employees, predecessors, Successors, assigns, heirs and Affiliates) agrees not to make any false, negative, critical or disparaging statements, implied or express, written or oral, concerning the other Party (including the other Party's officers, directors, employees, predecessors, Successors, assigns, Affiliates and licensees) or the products, services or business operations of the other Party (including the other Party's predecessors, Successors, assigns, heirs, Affiliates and licensees). Each Party (including each Party's respective officers, directors, employees, predecessors, Successors, assigns. heirs and Affiliates) further agrees to do nothing that would damage the business reputation or good will of the other Party (including the other Party's officers, directors, employees, predecessors, Successors, assigns, heirs, Afflliates and licensees); provided, however, that nothing in this Agreement shall prohibit either Party's disclosure of information that is required to be disclosed in compliance with applicable laws or regulations or by order of an arbitrator, a court, or other adjudicator of competent jurisdiction. For the avoidance of doubt, this provision prohibits Barela (including his predecessors, Successors, assigns, heirs and Affiliates) from asserting, stating, or suggesting that Barela is an inventor or joint Patent Rights, that the Patent Rights or the inventor of any of the Released Products use or incorporate any trade secrets or other intellectual property of Barela, that Barela contributed in any way to the Patent Rights or the Released Products. or that Barela has any rights or interest in any of the Patent Rights or the Released Products. The Parties acknowledge and agree that this 5 non-disparagement provision is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree that it would be impossible, impractical or extremely difficult to fix the actual damages suft'ered by reason of a breach of this provision, and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100,000) shall be presumed to . be the amount of damages sustained by reason of each such breach, without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. Re~lution of the Arbitration 20. Upon execution of this Agreement by both Parties, the Parties will voluntarily dismiss, with prejudice, all claims and defenses made against each other in the Arbitration. Each Party will pay its own fees, costs, and expenses, including attorneys' fees. Each Party will have the right to apply to the Judicial Arbiter Group, Inc. for a refund of its share of the arbitration fees that were deposited to reserve the Arbitration hearing dates. Notices 21 . Any notices required by this Agreement shall be made by email and express mail delivery or courier, signature required, postage pre-paid as follows: For For Barela: Greg Barela clo Michael Avenatti, Esq. 520 Newport Center Drive Suite 1400 Newport Beach, CA 92660 Email: rna vena ttj(i'li.eaganavena tt1.col!l With a copy to: David J. Sheikh Lee Sheikh Megley & Haan 111 West Jackson Boulevard, Suite 2230 Chicago, illinois 60604 Email: dsheikh(t'yleesheikh.com 6 Miscellaneous 22. Nothing in this Agreement shall be deemed to create or constitute a partnership, agency, employer-employee or joint venture relationship between Barela and 23. The Parties acknowledge that they were represented by their respective counsel in connection with their settlement and this Agreement. This Agreement shall be interpreted according to its fair construction and shall not be construed against either Party. 24. This Agreement represents the entire agreement between Barela and with respect to the subject matter of this Agreement, and supersedes all prior agreements, proposals, or understandings, whether written or oral, between Barela and This Agreement may not be modified, changed, amended, supplemented or rescinded except pursuant to a written instrument duly executed by Barela and 25. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned or transferred by any Party without the prior written consent of the other Party. 26. This Agreement is governed by, and construed in accordance with, the laws of the State of Colorado. 27. If any provision or portion of a provision of this Agreement is held by an arbitrator, a court, or other adjudicator of competent jurisdiction to be invalid under any applicable statute or rule of law, such arbitrator, court or other adjudicator is authorized to modify such provision to the minimum extent necessary to make it valid, and the remaining provisions or portions of provisions of this Agreement shall in no way be affected or impaired thereby. 28. This Agreement may be executed by Barela and in separate counterparts and exchanged electronically, with the same effect as if Barela and had sign-ed the same instrument. Ba:rela and hereby acknowledge their agreement and consent to the terms and co_n ditions set forth above through their respective signatures by a duly authorized representative of each party: 7 GREG BARELA d/b/a By: __ ____ Pressd' ent President Its: - - - - - - - - - - - - - - - Its: R 28 Dec2017 Dec 2017 Date: - - - - - - - - Date: Date: Date:--------- 8 _ % . . l l i t u l l m- , . 5 8 t 2 5 5 ,..._ . . . 2 l : } t e ~ i r -------------- 1 . . . . ! 5 i 3 . to.:- w 1 1 8T'Z 1 v r I ---------~-----· ---~-------' • EXHIBIT 3 Good morning. I was just thinking is this a big day from our friends at Hi Michael. Here is my account information for the wire. I would like to use the conference room a few times this week. what is your schedule like because I would like you for at least one of the big meetings with the White Cap guys and the roofing company. At least just show your face say hi shake hands and then you can go if that's okay. I know you're super busy so I'm trying to work it all out I have the guys in town from Colorado from the roofmg company. Thanks + a Batch 1 Text Messages EXHIBIT 4 Good morning. I was just thinking is this a big day from our friends at Hi Michael. Here is my account information for the wire. I would like to use the conference room a few times this week. what is your schedule like because I would like you for at least one of the big meetings with the White Cap guys and the roofing company. At least just show your face say hi shake hands and then you can go if that's okay. I know you're super busy so I'm trying to work it all out I have the guys in town from Colorado from the roofmg company. Thanks + a Batch 1 Text Messages EXHIBIT 5 When are you hom Just checking in to see how your weeks looking? I'm going to do a call and I wanted to see if you could get on it with us in the team just to get caught up. I'm going to put together the agenda is there any time you could squeeze Us in before Friday? Also any word on that wire from Let me know good luck with all going on. Hi Michael just checking in on the issue I've been going pretty deep and credit cards and a littl loan to keep both businesses g Any updates? + a Batch I Text Messages EXHIBIT 6 When are you hom Just checking in to see how your weeks looking? I'm going to do a call and I wanted to see if you could get on it with us in the team just to get caught up. I'm going to put together the agenda is there any time you could squeeze Us in before Friday? Also any word on that wire from Let me know good luck with all going on. Hi Michael just checking in on the issue I've been going pretty deep and credit cards and a littl loan to keep both businesses g Any updates? + a Batch I Text Messages EXHIBIT 7 Good morning Michael I'm going to be sending you an email in a moment with a couple meetings we need to set up. We need to talk about the entity and a few other things as well. I want to talk to you about the intellectual property and review the possibilities I've got some input on that from a few people. Also want to make sure we're aggressive with this week let me know if you hear anything thanks. PS don't forget I have Kenny Thompson tomorrow. I know you're busy. But will try you at 7 my time as discussed. Thanks. i Thanks Batch I Text Messages EXHIBIT 8 Good evening Michael. Any word from Michael is there an empty off1ce I could use tomorrow instead of the conference room there's just two of us I wanted to be a little more intimate and make it look a little stronger for me? It would only between 11 :30 and 12:30. i Yes -Judy can assist. p + Batch I Text Messages yI EXHIBIT 9 I know you're busy but checking Did they step up in on with the transfer? If not what are we doing next? Hope all is well. Thanks Michael. Watching everything unfold. Big stuff. Great meeting today and will send you a few cool things tomorrow. Good luck this weekend with 60 minutes. We are going to have a watch party for you here at my home. This is so big with QX. You are doing great job and keep it up. When can we talk again? Let me know what works for you. Greg + Batch 2 Text Messages EXHIBIT 10 We need to talk. Let me know what works. Need help ..... . Going to be in big shit in the next 10 days. i Okay Can I call you tomorrow? I am so worried. Meaning I am going to be in big shit. I am very worried. Greg -don't worry. Let's chat tmrw. We will f1gure this out. Michael Batch 2 Text Messages EXHIBIT 11 Greg Barela Greg Barela Monday, April 2, 2018 1:26 PM Michael J. Avenatti Thanks! from: lent To: Subject Hi Michael, Thanks again for taking the time to meet! l talked with Tallie my wife and if we can get 112k that would be best if possible for the next 60 days. But what ever you can do is great. l am putting another 8k today and need 1Ok right after for the new biz. I am out of pocket about 250k right now for both businesses. l have about 40k due to Waypoint and I am working on collections. Most of it is on credit cards and minimum payments are huge. I am working on the rest of the information for the formation of the company and the equity for the team. Things are really moving fast and we need to get set up as soon as possible. I will have projections and the plan by the end of the week. To-Do's: I. Set up new corp. 2. Equity partners list. Need to discuss how vesting works and %? 3. Capital required for start 2 mil. If it is going to take more then 24 months then more cash will be required and depending on our direction we need to discuss. But we must move quickly. 'ior wire: Bank of America Waypoint PPG, LLC Routing: 026009593 Account#: 6040 Best regards, Greg Barela 949-769-1679 "Proudly Representing" Rl 1 EXHIBIT 12 Good evening. Sent you an email. Things are progressing quickly. Are word from Thanks again for the calL Whatever you can do is so appreciated. It is going back into the business and I am so happy to have you as part of us. G i All good. No worries Thanks I believe and all chips are in. + Batch 2 Text Messages EXHIBIT 13 Last note for the day. Are you able to wire me any amount if at all? I am trying to keep things moving best as as possible. I will have a update email to you in Two days and will try only to hit you up every 3 days as needed in email. I feel bad to bother you with as busy as you are. Thanks Michael. i I can probably send a wire tmrw Thank you and sorry to trouble you. Wire happing? Let we know when you can? In a little trouble come Friday. Thanks. G Batch 2 Text Messages EXHIBIT 14 Gmail Greg Barela Wire and 1 message Greg Barela To: Michael Avenatti Thu, Apr 5, 2018 at 9:16AM Michael, I made commitments after our meeting on Saturday and committing SDk that Monday or Tuesday. I am going to be in trouble by Friday. Please make this happen today. I also would like to discuss my options fOr collections on For wire: Bank of America Waypoint PPG, LLC Routing: 026009593 Account Greg Barela 949-769-1679 040 EXHIBIT 15 gregb@quixsupply.com ·\From: Sent: To: Subject: gregb@quixsupply.com Sunday, April 15, 2018 7:50AM 'Michael J. Avenatti' Sunday call Good morning Michael. Here are a few things to discuss. Michael Avenatti: Old business: 1. Status of 2. Next actions if not collected. (Need a plan as fast as possible. 250k out of pocket based on settlement.) I arn good for 60 days form time of advance on cash flow now. QuiXSupply 1. Corporation status? 2. Equity plan and vesting strategy with %? a. Michael Avenatti b. Steve Ross c. Jason Schneider d. John Balsz e. Rick Armstrong f. Brian Newberry g. Allen Wong 3. Investment strategy? I have several options, but I think you have an idea of what we should do? Finical plan will be complete shortly and it appears to be 2 mil. We need to engage Spark6 asap. 4. Meeting with IP lawyer? This is supper important. My Updates; Business plan almost complete Financial almost complete Test App complete Important meetings and relationships underway: SoftBank- Steve Spohn Thompsons - Kenney Thompson Plastic Cash International- Brian Newberry CW Driver- Karl Kreutziger Spark6- Team The Blue Book- Richard Johnson Jeff Wallace- Bay area seed investor Brian Etter- President of HD Supply 1 EXHIBIT 16 gregb@quixsupply.com gregb@quixsupply.com Sunday, April22, 2018 2:15PM 'Michael J. Avenatti' RE: Sunday call From: Sent To: Subject: Hi Michael, I know how busy you were last week and figured I would wait till the weekend to check in. I have 4 things to check in on: 1. 2. 3. 4. Did respond? Next action if not? Status of QuiX Corp. Set up yet? IP lawyer available for a discussion? Thanks and good luck with all underway. Greg From: Michael J. Avenatti Sent: Monday, Apri116, 2018 1:44AM To: gregb@quixsupply.com Subject: Re: Sunday call Morning Greg. I can chat this am around 8 your time. Good? Michael J. Avenatti, Esq. Eagan Avenatti, LLP 520 Newport Center Drive. Ste. 1400 Newport Beach. CA 92660 Tel: (949) 706-7000 The preceding email message (including any attachments) contains information that may be confidential, protected by the attorney-client or other applicable privileges, or constitutes non-public information. It is intended to be conveyed only to the designated recipient(s). If you are not an intended recipient of this message, please notify the sender by replying to this message and then delete it from your system. Use, dissemination, or reproduction of this message by unintended recipients is not authorized and may be unlawful. When is a good time to call tomorrow? 1 EXHIBIT 17 Any word from today? G I know you're so busy but wanted to check in and see if responded? Are you back this week? Wanted to visit if you are. If not when would be a good time to talk? I would like to have the team on a call to bring you up to date on all activities. Your involvement helps me keep them confident that things are progressing. Thanks and happy hunting! G + Batch 2 Text Messages EXHIBIT 18 Greg Barela ···from: ~ent: Greg Barela Monday, May7, 2018 6:36PM Michael J. Avenatti action list ro: Subjec:t: Hi Michael. Here is the short list: next action. Status of QuiX Corp Equity plan and vesting strategy with %? o Michael Avenatti o Steve Ross o Jason Schneider o John Balsz o Rick Armstrong o Brian Newberry o Allen Wong o Jon Freeman Cash partner for investment. IP lawyer. ASAP Meeting with Citi Bank and Master Card. Business plan almost complete Financial almost complete Test App complete I am scheduling a meeting with the team on Thursday. I would like 10 minutes of your time then. Working on scheduling the credit card meeting and will keep you posted. If does not pay soon i moy need a little help in the next two weeks. Thanks for everything as always! Best regards, Greg Barela 949-769-1679 ·~roudly Representing" 1 EXHIBIT 19 Greg Barela -~rom: ;em: ro: Subject: Attachments: Greg Barela Tuesday, May 15,2018 5:44PM Michael J. Avenatti let's talk as soon as you can! App Flow.pdf Michael, I will be quick with my message because I know you are on a crazy schedule. I do need to figure out how to proceed on many fronts and I am losing credibility with my team and wife. As discussed I thought and planned on us having collected the settlement in May. So 1am in a bad position now. I do appreciate the advance but I am going to be in trouble on the l st of June. I made commitments based on the settlement date. I am funding both business and holding on by a shoe string. Please let me know where we are with the following: Did respond or pay? 2. !f no what are we filling this week? QuiX: I. 2. 3. 4. 5. 6. IP need this meeting this week or first of next week. Please find the attached. Corporation set up and appointment of corporate officers? Need paperwork for Rick. Equity plan and agreements? Capital investment on the raise. Your date for the Citi Bank meeting middle of June? Conference call with the team and or meeting? The business plan is being put in a magazine format with the financials. You are going to be very surprised on the progress and I believe very impressed. I wish you the best and look forward to getting this done! Best regards, Greg Barela 949-769-1679 'roudly Representing" 1 EXHIBIT 20 Greg Barela o'from: Michael J. Avenatti Tuesday, May 22, 2018 2:07PM Greg Barela Judy K. Regnier Re: Wire ent To: Cc: Subject: Got it. Thanks. Michael J. Avenatti, Esq. The preceding email message (including any attachments) contains information that may be confidential, protected by the attorney-client or other applicable privileges, or constitutes non-public information. It is intended to be conveyed only to the designated recipient(s). If you are not an intended recipient of this message, please notify the sender by replying to this message and then delete it from your system. Use, dissemination, or reproduction of this message by unintended recipients is not authorized and may be unlawfuL On May 22, 2018, at 1:55 PM, Greg Barela wrote: Hi MichaeL I will be putting an email together on our meeting to follow up on. But I wanted to give you new wire instructions for the 60k. Talitha A Barela B of A Routing #: 026009593 Account#:0 132 Thanks! Best regards, Greg Barela 949-769-1679 "Proudly Representing" 1 EXHIBIT 21 gregb@quixsupply.com gregb@quixsupply.com Monday, June 25, 2018 4:49 PM 'Michael J. Avenatti' 'Judy K. Regnier' Greg Barela list from: Sent: To: Cc: Subject: Per our discussion and your request here is the Jist of reminders for the week: l. 2. 3. 4. 5. Advance on Tuesday for 30k. Judy same account as last time. Thanks! Review list for equity and plan. Sent over the weekend. filling for Tuesday. l .6 million due. IP meeting asap. Meeting with you and Brian Newberry as soon as you can. QuiX new President. I hope to chat the next few days to review the short Jist. Thanks! Best regards. Greg Barela 1949-769-1679 Ul SUPPLY 1 EXHIBIT 22 gregb@quixsupply.com Subject gregb@quixsupply.com Wednesday, August 15, 2018 6:02 PM 'Michael J. Avenatti' Greg Barela list. Tomorrow is my big scary day! Hi MichaeL Tomorrow is my day in court and I will keep you posted. I am nerves but will have my wife call you if it goes bad. Here is the list we discussed: Old business: filling you said would happen Wednesday. Yes or No? I am short 14k for this week. I borrowed 80k and have a short period of time to pay back. Can you help me with the 14? This is the hottest one for me. QuiX Staff agreements. The money raise with Wags.com. Any updates? Beta test contractor agreement. I have a very powerful CEO/President meeting with me next week. She wants to discuss running the business as our President. Meet Nina: b:t!.R.lLDillo'iirnosk'2_com[QiogLabouJ! Her Husband name is Jeff Wallace. He will be on the BOA and is setting up a meeting next week with the CTO of Intuit (QBO) for me. One of his best friends. His other BFF is Steve Woznicki. I want you at the dinner if possible. Please schedule meeting with Deirdre Lves schedule with you in NY. Waiting on MOU. My Team is leaving for Brazii on Sunday. We should have the meeting set with Carlos Slim in NY in 5 weeks. I meet with Vicenta Fox's team Thursday afternoon. They want a face to face with us the next rnonth. I will make sure you are there if it is passable. The next few weeks we need the following: Privacy statement Terms and conditions Thanks! mBest regards. ( J Barela 949-769-1679 1 EXHIBIT 23 flregb@quixsupply.com From: . <;ent o: Cc: Subject: gregb@quixsupply.com Monday, September 10,2018 12:08 PM 'Michael J. Avenatti' 'Judy K. Regnier' Wire Hi Michael, I really need the help on this wire as discussed. Please let me know when it happens today. Talitha A Barela B of A Routing #026009593 Account 3137 Thanks! Best regards. Greg Barela 949-769-1679 1 EXHIBIT 24 gregb@quixsupp!y.com Subject gregb@quixsupply.com Wednesday, October 10, 2018 2:13PM 'Michael J. Avenatti' Need some help Michael. I was hoping to have an update on and get our money. Do you have an update? But l know things take longer then we want sometimes. i need around 8k to get current and keep moving. Can you help with this till we have an update? Thanks and hope you can help! Greg EXHIBIT 25 gregb@quixsupply.com bm: gregb@quixsupply.com Sunday, October 14, 2018 7:39PM 'Michael J. Avenatti' Action list .It To: Subject Hi Michael, Here is the list of items to discuss: Personal: 1. I am in need of 8k asap. If this could happen Monday it would give me a little more time. 1 need a total of 27k beiween now and Jan 1 to keep things moving, less the 8k. I am working on a few other things but the 8k is needed now.l am funding this thing on my own because I thought we would have in hand by now. Once again a lesson for me. Don't count your chickens! 2. did they respond? If not what is our next action? It will be one year in December and they will owe the second payment in March. Are we still dealing with Judge Boyd Boland and David Sheikh? Can we discuss a go forward strategy till this is handled? 3. Can you send me a copy of the last thing that we filed? QuiX: 1. Paperwork on Ricks email? Where are we with this and can we help? a. We would like to discuss separating the iwo companies. One for the app and the second for the credit card. I will explain when we talk. 2. Raise package for Eric Schmidt. You should have iwo emails to choose from. 3. Steve Ross and my involvement together with the order from the court. Please review emaiL Meetings coming and hopefully you can call in or be there: 1. Call with John at IP capitaL 2. Carlos Slims team. NDA anytime to follow. 3. Nina Simasko and Jeff Wallace. 4. Lee Stein. It looks like Monday for a calL Thanks and look forward to talking! Best regards. Greg Barela 949-7 69-1679 I SUPPLY 1 EXHIBIT 26 Hi Michael, Just finished a call with wirecard. They want to start press releases but I said we are not ready. We had our team fly in and they had a big group there. It was a big deal. It could not have gone better. On a personal note I am going to be in trouble tomorrow with my cash. I am very scared. I am all in and very worried. If you can help here is the data. Talitha Barela B of a Routing 026009593 Account 3137. Let me know if you can help? Th~nk-c: Batch 4 Text Messages ~ EXHIBIT 27 Thank you. Last question for the weekend any idea if you're able to help with the cash I'm trying to borrow some money and want to see if you're able to help or not? Thanks let me know. Hey Michael I'm meeting Lee Stein tomorrow at 5 Larry Page and Eric Schmidt are part of this group want to talk to you about that thanks bye. It's called The Vision circle is there group that support the xprize that I'm going to be at dinner with tomorrow. Batch 4 Text Messages EXHIBIT 28 gregb@quixsupp!y.com -from: ~,.,t: J: Subject: Attachments: gregb@quixsupply.com Monday, October 22, 2018 5:36PM 'Michael J. Avenatti' List QuixSupply Inc corp work needed before seed funding Michael. I was waiting for your call and I know you get busy. I send updates like this so you don't have to dig up old emails. I know your under pressure so let's discuss what you can or can't do? I told the team we would have paperwork for them by Wednesday as you said. Can you give me an update to your situation so I can help if possible. QuiX really is going to go one way or another and could help us both financially. I have a few ideas for you and I to discuss privately. I 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 agreement to secure it. I need to know that we really have the ability to coilect and timing to the best of you opinion. Here is the of the updated list to discuss: Personal: 1. 1am in need of 8k as discussed asap. I need a total of 27k. 2. did they respond? If not what is our next action? Are we still dealing with Judge Boyd Boland and David Sheikh? 3. I need copies of the all the paperwork of whatever we have done on on any fillings. Can you have Judy email me or I can come by and pick them up this week. I need them if I am going to get a loan. QuiX: 1. Paperwork on Ricks email? I attached the email. a. We would like to discuss separating the two companies. One for the app and the second for the credit card. I will explain when we talk. 2. Raise package for Eric Schmidt. You should have two emails to choose from. Let's discuss Lee Stein endorsement for Xprize. 3. Steve Ross and my involvement together with the order from the court. Please review email. 4. Approval of Wirecard press release. 5. Friends and family round. 6. Carlos Slim's teams NDA. 7. Doordash.com merchant agreement. We need our own like this. 8. Call with John at IP capital. 9. Meeting with Nina Simasko and Jeff Wallace. Let me know what time we can talk tomorrow. Thanks! regards, 1 EXHIBIT 29 Last question I'm in deep s*** as far as the cash is concerned. I need 8K by Tuesday or I'm in deeps***. Any luck on helping get that loan for the bigger money and or helping with a smaller money? I know the other loan is not a good deal but I am desperately needing it. Can you please forward what we f1lled on in the morning. I need it to secure the loan. Thanks Hey Michael it's Greg just trying you back as discuss thanks. Batch 4 Text Messages ; I will call you back shortly. ; Prob about 2 hrs Thanks. Talk soon. G Checking back. Let's chat in the am. Working on a solution. I need it by Wednesday at the Or my life goes upside down. I . ". ~ + Batch 6 Text Messages . EXHIBIT 30 I need it by Wednesday at the latest. Or my life goes upside down. I need this thing done. Please please please help me button this thing up. G Checking in. Any word? Thanks. G i i Yes. Update at 3 Making progress Great. Thanks. i Sorry, I can't talk right now. Batch 6 Text Messages EXHIBIT 31 Can we do 3:30 instead of 4:30? i I think so. Thanks for the time today. Look forward to talking tomorrow. G Hi Mike, Here is the account for the 8k. Thanks again. G Talitha Barela B of a Routing 026009593 Account :i1:i7 Batch 6 Text Messages EXHIBIT 32 LARSON. O'BRIEN LLP Steven E. Bledsoe Direct: 213.436.4866 Email: sbledsoe@larsonobrienlaw.com VIA EMAIL November 17,2018 Michael Avenatti, Esq. Michael A venatti & Associates, APC Eagan Avenatti, LLP Re: Confidential Settlement Agreement- Barela v. USA, LLC Dear Mr. A venatti: Our firm has been engaged by Gregory Barela in connection with his efforts to collect the proceeds due him pursuant to the terms of the Confidential Settlement Agreement executed by Mr. Barela and LLC on December 28, 20 !7 (''Settlement Agreement''). We understand that Mr. Barela has been advised by you that did not make the initial $1.6 million payment due under the terms of the Settlement Agreement. We request that that you provide written confirmation of s failure to make such payment. We further ask that you promptly provide us with a true and correct copy of the Settlement Agreement and any fee agreement that you have with Mr. Barela. made the initial '51.6 million payment provided for by the Finally. in the event Settlement .'\greement, we ask that you provide an immediate accounting concerning such funds. Very truly yours. LARSON O'BRIEN LLP Steven E. Bledsoe App ed: \ ---____, Dare: ]'.iovember 17. 0!8 EXHIBIT 33 gregb@quixsupply.com .~: Subject Michael J. Avenatti Saturday, November 17, 2018 10:26 PM gregb@quixsupply.com Contact Greg: I just tried you on your cell. Please call me when you receive this. Thanks, Michael Michael J. Avenatti. Esq. The preceding email message (including any attachments) contains information that may be confidential. protected by the attorney-client or other applicable privileges, or constitutes non-public information. It is intended to be conveyed only to the designated recipient(s). If you are not an intended recipient of this message, please notify the sender by replying to this message and then delete it from your system. Use, dissemination, or reproduction of this message by unintended recipients is not authorized and may be unlawful. 1 EXHIBIT 34 see1ng you soon. get it done one way or another. And our new business will make us completely rich if you dive in. G i Thanks brother. I'm in. Hate to bother you but did you see the email I needed for the cash I'm in deep s*** let me know thanks good luck. i Pis call me What is this all about? Pis call me ASAP. Batch 5 Text Messages EXHIBIT 3 5 VIA EMAIL From: Mr. Gregory Barela 2801 Alton Parkway, #402 Irvine. CA 92606 To: Michael Avenani, Esq. Michael Avenatti & Associates, APC Eagan A venatti, LLP Re: Request for Transfer of Files and Client Funds I am directing you to transfer all paper and electronic files on all maners to Steven E. Bledsoe and Stephen G. Larson at Larson O'Brien LLP, 555 South Flower Street, Suite 4400, Los Angeles, CA 90071. Accordingly, I request that you transfer all existing client files which you have maintained with respect to your representation of me. In addition, I request that you immediately transfer the balance of any funds paid by LLC pursuant to the Confidential Settlement Agreement executed on December 28.2017 which are in the client trust accounts (or held elsewhere) of any of the above-referenced firms to Larson 0' 'enLLP. November 19.2018 EXHIBIT 36 This Confidential Settlement Agreement ("Agreement") is entered into as of December 20, 2017, bY and between Greg Barela, an individual who resides at 2801 Alton Parkway. Apt. 402, Irvine, California 92606 ("Barela"), and dlb/a a Colorado limited liability company with its principal p~ce of business at Barela and are collectively referred to as the "Parties." Recitals Barela and are parties in an arbitration pending before Magistrate Judge Boyd N. Boland (Ret.) styled Greg Bs:rela v. JAG Arbitration No. 2015-1031A (the "Arbitration"). In the Arbitration, Barela asserted claims for correction ofinventorship of U.S. Patent No. 8,662,787; a declaration that Barela is a co·owner with of U .S. Patent No. 8,662,787; trade secret misappropriation; and unjust enrichment. disputed Barela's claims. On December 20, 2017, Barela and agreed to a final compromise and settlement of the Arbitration and all disputes between then;t. Specifically, the Parties entered into a binding and enforceable agreement setting forth the terms and conditions of their final compromise and settlement, and further agreed to enter into a formal written agreement by December 29, 2017. This Agreement formally sets forth the terms and conditions of the Parties' agreed·to final compromise and· settlement of the Arbitration and all disputes between them. Defipitions For purposes of this Agreement, the following terms have the following meaniil.gs: 1. A Party's "Affiliate" means an entity or individual that Controls, is Controlled by, is Controlling, or is under common Control with respect to the Party. 2. "Asserted Trade Secret" means: All trade secrets that were or could have been asserted by Barela in the Arbitration, including but not limited to the Paver Invention. 3. " Patent Rights" means: (a) U.S. Patents Nos. 8,662,787; 8,827,590; 8,967,905;.D645,169; 8,236,392; 8,353,640; D637,318; and 7,244,477; and (b) all provisional applications, parent applications, continuations, continuations-inpart, divisionals, e:x;tensions, renewals, substitutions, reissues, reexaminations, inter partes reviews and foreign counterparts of any of the patents identified in (a). 4_ ''Control" (including, with correlative meanings, "Contr<>ls," "Controlled .by" and "Controlling") means the power to direct or to cause the direction of the management and policies of an entity or an individual, directly or indirectly, whether through ownership of voting secUrities, by contract, or otherwise. With respect to a corporation, limited liability company, partnership or other entity, control includes direct or indirect ownership of at least fifty-one percent (51%) of the voting stock, limited liability company interest, partnership interest or other voting interest (or equivalent interest) .in such corporation, limited liability company, partnership or other entity. 5. "Released Pr<>ducts" means: All products involving any of the Patent Rights created, designed, made, used, offered for sale, distributed, sold; or imported by, for, or under license from or any predecessor, Successor or Mfiliate of Released Products include, but are not limited to, Underlayment products sold under the name PaverBase®. 6. "Successor" means a Third Partythat: (a) acquires substantially all the assets of either Party; or (b) acquires all .or a portion of business relating to the Patent Rights and/or the Released Products; or (c) results from a reconstruction. amalgamation, merger, consolidation or reorganization of or with 7. "Third Party" means any entity or individual other than Barela or "Underlayments" mea ns underlayments for use with pavers, patio stones and other paving element s for pedestrian andlor vehicle traffic. 8. warranties and Representations 9. Barela, on behalf of himself and his predecessors and Affiliates, warrants and represents that he has the authority to enter into and be bound by this Agreement. 10. Barela. on behalf of himself and his predecessors and Affiliates. warrants and represents that he is una ware of any claim by a Third Party against related to the Asserted Trade Secret, the Patent Rights or the Released Products. \ 2 11. on behalf of itself and its predecessors and Affiliates, warrants and represents that it has the authority to enter into and be bound by this Agreement. Payments to Barela 12. will pay the total sum of One Million Nine Hundred Thousand U.S. Dollars (USD 1,900,000) to Barela as f()llows: a. The sum of One Million Six Hundred Thousand U.S. Dollars (USD 1,600,000) will be paid by to Barela on January 10, 2018;and b. The sum ofOne Hundred Thousand U .S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2019; and c. The sum of One Hundre4 Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2020; and d. The sum of One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2021. 13. The payments specified in paragraph 12 are subject to Barela's (including his predecessors, Successors, assigns, heirs and Affiliates) ongoing compliance with the Agreement. 14. Each of the payments specified in paragraph 12 shall be made by wiretransfer to a trust account specified in an email from Barela's counsel (Michael Avenatti) to counsel (David Sheikh) on or before January 3, 2018. Waiver and Releases 15. Barela, on behalf of himself and his predecessors, Successors, assigns, heirs and Affiliates, hereby waives, releases and forever discharges all claims to any rights or interest in or to the Patent Rights and the Released Products including, without limitation, the ability or right to challenge, directly or by assisting a Third Party, to the inventorship, validity or enforceability of any of the Patent Rights, including any lawsuit. protest, opposition, interference, post·grant review, reexamination, inter partes review or the like in any court or governmental agency anywhere in the world. · 16. Barela, on behalf of himself and his· predecessors, Successors, assigns, heirs and Affiliates, hereby releases including its predecessors, Successors, assigns, heirs and Affiliates, from any and all claims, liabilities, demands and causes of action, whether or not now known, suspected or claimed, which Bar~la ever had, 3 now has or claims to have, regarding the Patent Rights and/or the Released Products, including any such claims that were or could have been asserted in a court; in the Arbitration, or in any other proceeding. 17. on behalf of itself and its predecessors, Successors, assigns, heirs and Affiliates, hereby releases Barela, including his predecessors, Successors, assigns, heirs and Affiliates, from any and all claims, liabilities, demands and causes of action, whether or not now known, suspected or claimed, which ever had, now has or claims to have, regarding the Patent Rights and/or the Released Products, including any such claims that were or could have been asserted in a court, in the Arbitration, or in any other proceeding. Confidentiality 18. The Parties hereby agree that this Agreement and its terms and conditions are and will remain confidential. The Parties further agree that they will not disclose, provide, or produce this Agreement or its terms and conditions publicly or to any Third Party. If a Party is asked about the outcome of the Arbitration, such Party cannot disclose the existence of this Agreement or the Agreement's terms and conditions. The Parties shall only disclose that the dispute between Barela and has been resolved. Notwithstanding the foregoing: a. Either Party may disclose this Agreement to its attorneys and accountants provided that such attorneys and accountants are bound by confidentiality obligations commensurate with this provision. b. Either Party may disclose this Agreement and its terms and conditions as may be required by law, regulation. subpoena, or order of an arbitrator, a court, or other adjudicator of competent jurisdiction. If this disclosure is made during the course of litigation, the disclosure must be limited to the litigating parties' outside counsel and the arbitrator, court, or other adjudicator of competent jurisdiction. c. Either Party may disclose this Agreement and its terms and conditions to the extent necessary to enforce this Agreement before a court or other adjudicator of competent jurisdiction. d. may privately state and conflrm the fact that all disputes between and Barela have been resolved in the context of confidential discussions with its business partners and suppliers. 4 e. may disclose this Agreement and its terms and conditions to its contract manufacturer/supplier, JSP, its professional advisors, its board of directors, released Third Parties, and existing and potential investors, acquirers and purchasers, provided that such entities or individuals are bound by confidentiality obligations commensurate with this provision. The Parties acknowledge and agree that this confidentiality provision is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree ~hat it would be impossible, impractical or extremely difficult to fix the actual damages suffered by reason of a breach of this provision, and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100·,000) shall be presumed to be the amount of damages sustained by reason of each such breach, without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. Non-Dis,paragement 19. Each Party (including each Party's respective officers, directors, employees, predecessors, Successors, assigns, heirs and Affiliates) agrees not to make any false, negative, critical or disparaging statements, implied or express, written or oral, concerning the other Party (including the other Party's officers, directors, employees, predecessors, Successors, assigns, Affiliates and licensees) or the products, services or business operations of the other Party (including the other Party's predecessors, Successors, assigns, heirs, Affiliates and licensees). Each Party (including each Party's respective officers, directors, employees, predecessors, Successors, assigns. heirs and Affiliates) further agrees to do nothing that would damage the business reputation or good will of the other Party (including the other Party's officers, directors, employees, predecessors, Successors, assigns, heirs, Afflliates and licensees); provided, however, that nothing in this Agreement shall prohibit either Party's disclosure of information that is required to be disclosed in compliance with applicable laws or regulations or by order of an arbitrator, a court, or other adjudicator of competent jurisdiction. For the avoidance of doubt, this provision prohibits Barela (including his predecessors, Successors, assigns, heirs and Affiliates) from asserting, stating, or suggesting that Barela is an inventor or joint Patent Rights, that the Patent Rights or the inventor of any of the Released Products use or incorporate any trade secrets or other intellectual property of Barela, that Barela contributed in any way to the Patent Rights or the Released Products. or that Barela has any rights or interest in any of the Patent Rights or the Released Products. The Parties acknowledge and agree that this 5 non-disparagement provision is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree that it would be impossible, impractical or extremely difficult to fix the actual damages suft'ered by reason of a breach of this provision, and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100,000) shall be presumed to . be the amount of damages sustained by reason of each such breach, without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. Re~lution of the Arbitration 20. Upon execution of this Agreement by both Parties, the Parties will voluntarily dismiss, with prejudice, all claims and defenses made against each other in the Arbitration. Each Party will pay its own fees, costs, and expenses, including attorneys' fees. Each Party will have the right to apply to the Judicial Arbiter Group, Inc. for a refund of its share of the arbitration fees that were deposited to reserve the Arbitration hearing dates. Notices 21 . Any notices required by this Agreement shall be made by email and express mail delivery or courier, signature required, postage pre-paid as follows: For For Barela: Greg Barela clo Michael Avenatti, Esq. 520 Newport Center Drive Suite 1400 Newport Beach, CA 92660 Email: rna vena ttj(i'li.eaganavena tt1.col!l With a copy to: David J. Sheikh Lee Sheikh Megley & Haan 111 West Jackson Boulevard, Suite 2230 Chicago, illinois 60604 Email: dsheikh(t'yleesheikh.com 6 Miscellaneous 22. Nothing in this Agreement shall be deemed to create or constitute a partnership, agency, employer-employee or joint venture relationship between Barela and 23. The Parties acknowledge that they were represented by their respective counsel in connection with their settlement and this Agreement. This Agreement shall be interpreted according to its fair construction and shall not be construed against either Party. 24. This Agreement represents the entire agreement between Barela and with respect to the subject matter of this Agreement, and supersedes all prior agreements, proposals, or understandings, whether written or oral, between Barela and This Agreement may not be modified, changed, amended, supplemented or rescinded except pursuant to a written instrument duly executed by Barela and 25. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned or transferred by any Party without the prior written consent of the other Party. 26. This Agreement is governed by, and construed in accordance with, the laws of the State of Colorado. 27. If any provision or portion of a provision of this Agreement is held by an arbitrator, a court, or other adjudicator of competent jurisdiction to be invalid under any applicable statute or rule of law, such arbitrator, court or other adjudicator is authorized to modify such provision to the minimum extent necessary to make it valid, and the remaining provisions or portions of provisions of this Agreement shall in no way be affected or impaired thereby. 28. This Agreement may be executed by Barela and in separate counterparts and exchanged electronically, with the same effect as if Barela and had sign-ed the same instrument. Ba:rela and hereby acknowledge their agreement and consent to the terms and co_n ditions set forth above through their respective signatures by a duly authorized representative of each party: 7 GREG BARELA d/b/a By: __ ____ President Prefident Its: - - - - - - - - - - - - - - - Its: 28 Dec2017 DecZOIT Date: - - - - - - - - Date: Date: Date:--------- 8 I i W mm . i l l ) ! ! ! . ~ 3 3 1 3 ,..._ 1 l 1 5 . i n t . . ~ t ! : -------------- ! to.:£ . Duh» 2—“ g" i u h t . l n t I i ---------~-----· ---~-------' • EXHIBIT 37 AJ>DENDUM TO CONFIDENTIAL SE'ITLEMENT AGREEMENT This Addendum to Confidential Settlement Agreement ("Addendum") is ente.t-ed into as of January 3, 2019, by and between Gregory Barela ("'Barela,), and dlb/a . Barela and are collectively referred to as the "Parties.•• Recitals Barela and entered into a Confidential Settlement Agreement \•Agreement'') as of December 20, 2017 that was signed by the Parties on December 28, 2017. Paragraph 12 ofthe Agreement provided that ould make the following f01lf settlement payments to Barela: (1) $1.6 million by January 10, 2018; (2) $100,000 by January 10, 2019; (3) $100,000 by January 10, 2020; and (4) $100,000 by January 10, 2021. Paragraph 13 of the Agreement provided that "the payments specified in paragraph 12 shall be made by wire-transfer to a trust account specified in an email from Barela's counsel (Michael Avenatb) to counsel (David Sheikh) on or before January 3, 2018." On January 2, 2018, Avenatti sent an email to Sheikh that specified an account and providt?d wire-transfer instructions. On January 5, 2018 made the initial $1.6 million settlement paymentbywjre transfer to the account specified by Avenatti and has provided Barela with a wire transfer confirmation showing that the payment was made by and received into the account designated by Avenatti. Accordingly, has fully complied with its obligation to make the initial $1.6 million payment by January 10, 2018. li I I Barela has represented to that paragraph 12 of the partial copy ofthe Agreement that Avenatti provided to Barela on December 28, 2017, and the complete copy of the Agreement that Avenatti's office provided to Barela on or about June 29,2018, contain payments dates ofMarcb 10,2018, March 10,2019, March 10,2020, March 10,2021, respectively, for settlement payments to Barela. Avenatti told Barela that the settlement payments were payable in March of each year (not January). I II At the request of Barela, on November 21, 2018, provided Barela with a true and correct copy of the fully executed Agreement which states that the initial payment of$1.6 miUion was due by January 10, 2018; a payment of$100,000 is due by January 10, 2019; a payment of $100,000 is due by January 10, 2020; and a payment of $100,000 is due by January 10,2021. l ! i I Barela has represented to that Avenatti has repeatedly represented to him that did not make the initial $1.6 million payment due under the Agreement and that Avenatti has been making efforts to collect the $1.6 million that had allegedly failed to pay on the purported March 10, 2018 due date specified in the copies ofthe Agreement Avenatti provided to Barela. I l I Barela has retained new counsel, Steven E. Bledsoe and Stephen G. Larson ofLarson O'Brien LLP, to represent him with respect to his efforts to collect the amounts due to him under the Agreement. f~' Barela has represented to that Avenatti has not responded to Larson O'Brien's November 17 and December 5, 2018 letters toAvenatti requesting that he: (1) confinn, in writing, his representations to Barela that had failed to make the initial $1.6 million payment due undeJ" the terms of the Agreement; (2) promptly provide a true and correct copy of the Agreement; and (3) provide an immediate accounting in the event had made the initial $1.6 million payment provided for in the Agreement Barela has requested that make all further payments due to him under the Agreement via wire transfer to the trust account of Larson O"Brien LLP and, based on Barela•s above-referenced representations, has agreed to do so. Agreement 1. will pay all future amounts due under the Agreement to the trust account of Larson O'Brien LLP, as follows: Wells Fargo Bank 433 N. Camden Drive Beverly Hills, CA 902'1 0 ABA Routing No: 121000248 Account No.: 2776 Account Name: Larson O'Brien LLP IOLTA Trust Account 2. Any future notices to Barela required by the Agreement shall be made by email and express mail delivery or courier, signature required, postage pre-paid to: Gregory Barela, c/o Steven E . Bledsoe, Esq., Larson O'Brien LLP, 555 S. Flower Street, Suite 4400, Los Angeles, CA 90071. This Addendwn may be executed by Barela and and exchanged electronically, with the same effect as if Barela and 3. in separate counterparts had signed the same instrument B~ela and hereby acknowledge their agreement and consent to the terms and conditions set forth above through their respective signatures: GREGORY BARELA ~f' I /7 ( Date: January 3, 2019 ~ I By:'/ £-~.1 Date: January}_, 2019 · ark Buckley CFO and VP of Administration -2 - DECLARATION OF STEVEN E. BLEDSOE STATE BAR OF CALIFORNIA OFFICE OF CHIEF TRIAL COUNSEL MELANIE J. LAWRENCE, No. 230102 INTERIM CHIEF TRIAL COUNSEL ANTHONY J. GARCIA, No. 171419 ASSISTANT CHIEF TRIAL COUNSEL ANAND KUMAR, No. 261592 SUPERVISING ATTORNEY \OOONQUIAUJN—a ELI D. MORGENSTERN, No. 190560 SENIOR TRIAL COUNSEL 845 South Figueroa Street Los Angeles, California 90017-2515 Telephone: (213) 765-1334 STATE BAR COURT HEARING DEPARTMENT - LOS ANGELES In the Matter of: Case No. ) ) MICHAEL JOHN AVENATTI, ) No. 206929, ) DECLARATION OF STEVEN E. BLEDSOE 3 A Member of the State Bar I, ) Steven E. Bledsoe, declare: All statements 1. made herein are true and correct and are based on my personal NNNNNNNNNr—tu—IHH—dp—aflu—Ip—‘r—n knowledge unless indicated as based on information or ®fl0m¥WNHO©WVQM$WNHO informed and believe them to be statements made 2. I true. If necessary, I belief, and as t0 those statements I am could and would competently testify to the herein. have been a member of the State Bar 0f California since March partner at the law firm of Larson O’Brien LLP (the “firm”). 3 1, 1992. I am a My practice focuses on complex civil litigation. 3. In November 201 8, Mr. Gregory Barela employed our firm efforts to collect the to represent him proceeds due to him pursuant to the terms of a settlement agreement 1 DECLARATION OF STEVEN E. BLEDSOE in his executed by Mr. Barela and the Settling Party on December 28, 2017.‘ Michael Avenatti, the respondent in these proceedings, negotiated the I am informed that Mr. terms of the settlement agreement with the Settling Party on behalf of Mr. Barela. At the time 4. \OOONO\UI#DJN»— fully that he employed the firm, Mr. Barela presented me with a copy of the executed settlement agreement that respondent had provided to him. The settlement agreement required the Settling Party to make an payment of $1,600,000 by March initial 10, 201 8, and three additional payments of $100,000 by March 10 of 2019, 2020, 2021, respectively, for a total of $1,900,000. On November 5. counsel. In the email, efforts to collect Settling Party, payment that I 15, 201 8, I explained that Mr. Barela had employed the firm connection with his in on the proceeds from the December 28, 2017 settlement agreement with the and I asked Mr. Sheikh was due on March confirmation. In the email, I 10, confirm to: (i) 201 8; and provided (ii) that the Settling Party provide me made 201 8 email 15, is the $1,600,000 with a copy of the wire transfer my cell phone number and invited Mr. A true and correct copy of my November Exhibit sent an email to David Sheikh, the Settling Party’s Sheikh to call me. attached to this Declaration as 1. 6. On November 16, 201 8, Mr. Sheikh and had a telephone conversation. During I NNNNNNNN—a—t—tp—t—I—I—I—F-H gNQM#WN'—‘O\OOOVO\LIIAUJNHO the telephone conversation, I that the Settling Party did not settlement agreement. I explained to Mr. Sheikh that respondent had advised Mr. Barela make the initial $1,600,000 also stated that the Barela by respondent provided for the 10, 2018. Mr. Sheikh told $1,600,000 payment to be me that the payment due under the terms of the copy of the settlement agreement provided to Mr. initial payment to be made by the Settling Party settlement agreement actually provided for the initial made by January 2018, and payment on time. Given these discrepancies, I that the Settling Party had made the emailed Mr. Sheikh a copy of the settlement agreement that respondent had presented t0 Mr. Barela. The corporation is not identified by agreement, discussed below. 1 on March name due to the confidentiality of the settlement 2 DECLARATION OF STEVEN E. BLEDSOE On November 7. email message to him on AWN 201 8. In my November 17, 201 8, November 17, 201 8 I sent Mr. Sheikh a letter via email as a follow-up to my and our telephone conversation 0n November 16, 15, 2018, letter, I partially memorialized the November 16, 2018 telephone conversation, and requested that Mr. Sheikh provide copy 0f the settlement agreement executed by the me with: Settling Party and Mr. Barela; wire transfer confirmation for the $1,600,000 settlement payment \OOOQQUI January 201 8; and (iii) to 10 trust account. On November 11 copy of my November 17, 17, 201 8, 2018 On November 8. Finally, I (ii) a copy of the the Settling Party in firm concerning or requested that the Settling Party make all future Mr. Barela under the settlement agreement by wire transfer to our firm’s payments due 12 made by any written confirmation with respondent’s law confirming the settlement payment. a true and correct (i) Mr. Barela and letter to 17, 201 8, Mr. Sheikh is I signed the letter. client A true and correct attached to this Declaration as Exhibit 2. also sent respondent a letter via email. In the letter, I firm 13 explained that Mr. Barela had employed the 14 proceeds from the December 28, 2017 settlement agreement with the Settling Party, and 15 respondent 16 Party had failed to 17 promptly provide a true and correct copy of the settlement agreement and any fee agreement 18 between respondent and Mr. Barela; and 19 the Settling Party 20 On November 21 letter 22 17, 23 to: (i) confirm make representations that respondent the initial $1 ,600,000 had made the 17, 201 8, in connection with his efforts to collect initial (iii) payment due under 9. letter t0 On November is I signed the letter. Settling (ii) Respondent did not respond to the A true and correct copy 0f the November 201 8, I 3. sent an email to respondent attaching a letter Barela requesting that respondent transfer: 25 his representation 26 Party to our firm’s client trust account. In a separate email, (i) all of Mr. Barela to our firm; and from Mr. paper and electronic client files with respect to 24 (ii) the balance of any funds paid I by the Settling provided respondent with the 27 28 asked the settlement agreement; attached t0 this Declaration as Exhibit 19, I $1,600,000 payment provided in the settlement agreement. Mr. Barela and respondent on the provide an immediate accounting in the event that and has not provided the requested accounting. 201 8 made to Mr. Barela that the I 3 DECLARATION OF STEVEN E. BLEDSOE firm’s wire letter or my to my email attaching Mr. On November 20, Sheikh reiterated what he told 201 8, Mr. Sheikh sent me when we me a letter Via email. In the spoke by telephone on November included additional details concerning specific dates; namely that: (i) the 16, payment by January 10, settlement agreement telephone conversation is I Mr. Sheikh also requested not a true and correct copy of the settlement agreement; and to our that I it from 201 8; he (iii) 16, 2018. In the letter, prepare a proposed amendment to the settlement agreement that client trust account instead of the trust letter is made settlement agreement be account designated by respondent. and correct copy of Mr. Sheikh’s November 20, 201 8 Exhibit me on November my request for the future payments owed pursuant to the firm’s 5, emailed to him during our November 16, 201 8 had never seen the document before he received reflected initial 201 8, and the Settling Party did so by wire transfer on January the purported settlement agreement that Mr. letter, 201 8 and executed by Mr. Barela and the Settling Party required the Settling Party to make the (ii) Barela’s separate email. 10. \OOOQQU‘kawu—n Respondent did not respond transfer information. A true attached to this Declaration as 3. On November 21, 11. 201 8, Mr. Sheikh sent me via email a letter with an attached NNNNNNr—‘Hr—tr—tr—nr—tp—np—A_H copy of the settlement agreement. letter, A true and correct copy of Mr. Sheikh’s November 21, 201 8 as well as a true and correct, though redacted, copy of the settlement agreement that attached to it are attached to this Declaration as Exhibit 4. On November 27, 12. of the January 5, 201 8, Mr. Sheikh provided me with a copy of the confirmation 201 8 wire transfer of the $1 ,600,000 settlement payment. A true and correct copy of my November 27, 201 8 email exchange with Mr. Sheikh, as well as a true and though redacted, copy of the confirmation 0f the January attached to this Declaration as Exhibit On December 3, 13. November was 17, 201 8, I 201 8, had sent him a 5, correct, 201 8 wire transfer are cumulatively 5. I sent respondent a letter via email reminding letter Barela that the Settling Party had failed to asking him make the to: (i) initial confirm $1 ,600,000 him that on his representations to Mr. payment due under the 4 DECLARATION OF STEVEN E. BLEDSOE settlement agreement; (ii) promptly provide a true and correct copy of the settlement agreement and any fee agreement between respondent and Mr. Barela; and accounting in the event that the Settling Party the settlement agreement. \OWNQM-RUJNH 201 8 letter nor Mr. Barela’s client funds to the intervention. 3, 201 8 I further stated that he letter firm. Finally, I my November in 17, invited respondent to resolve the matter without court 3, letter. A true and correct copy of my December agreement to our firm’s I prepared an addendum to the settlement 2019, Mr. Barela and the Settling Party signed the addendum which provided that the Settling Party would pay all client trust account. to the settlement agreement In January 2019, 15. payment provided attached to this Declaration as Exhibit 6. On January agreement. the initial $1,600,000 had neither responded to Pursuant to Mr. Sheikh’s request, 14. provide an immediate requesting that respondent transfer Mr. Barela’s files and Respondent did not respond to the letter is addendum made (iii) I is future payments due under the settlement A true and correct, though redacted, copy of the attached to this Declaration as Exhibit 7. submitted a State Bar complaint on behalf of Mr. Barela against respondent. I declare under penalty of perjury under the laws of the State of California that the NNNNNNv—Ir—tr—Iu—dy—fir—‘b—n—t—u—a foregoing is true Los Angeles, and correct and that this Declaration is executed this 24‘“ day 0f May, 2019, at KQKV‘ California. Sfeven E. Bledsoe Declarant 5 DECLARATION OF STEVEN E. BLEDSOE EXHIBIT 1 From: Steven E. Biedsoe To: Cc: dshejkh@leeshejkh.com Stephen G. t arson Payment of Settlement Proceeds: Barela v. Thursday, November 15, 2018 8:00:55 PM Subject: Date: Mr. Sheikh, Our firm has been engaged to represent Greg Barela in connection with his efforts to collect the proceeds from his December 28, 2017 Confidential Settlement Agreement with As you know, pursuant to the terms of the settlement agreement, agreed to pay Mr. Barela the initial $1.6 million settlement payment on March 10,2018. Such payment was to be made via wire transfer to the client trust account of Mr. Barela's then counsel, Michael USA. Avenatti. We ask that you confirm that the $1.6 million payment was made by We also ask that you provide us with a copy of the wire transfer confirmation. We would greatly appreciate your prompt attention to this matter. I coincidentally happen to be in Chicago through noon tomorrow. If you would like to discuss this matter in person, please let me know and I will come by your office before I head to the airport. I can also be reached on my cell phone at 818-921-0306. Thank you. Best regards, Steven E. Bledsoe Partner i:AiisoN·:o;iiiiiEN. i:i:i> 555 South Flower Street, Suite 4400 Los Angeles, CA 90071 213..136.4866 Direct 213.436.4888 Office 213.623.2000 Fax sbledsoe@larsonobrienlaw com CONFIDENTIALITY NOTICE: This e-mail and any attachments are for the exclusive and confidential use of the intended recipient. If you received this in error, please do not read, distribute, or take action in reliance upon this message. Instead, please notify us immediately by return e-mail and promptly delete this message and its attachments from your computer system. We do not waive attorney-client or work product privilege by the transmission of this message. EXHIBIT 2 LARSON. O,BRIEN LLP Steven E. Bledsoe Dim:t: 213.436.4166 Email: sbledsoc@larsooobrienlaw.com VIA EMAil. November 17, 2018 David J. Sheikh, Esq. Lee Sheikh Megley& Haan 111 West Jackson Blvd Chicago, IL 60604 Re: Confidential Settlement Agreement- Barela v. Dear David: This letter follows up on my email message to you on November 15, 2018 and our telephone conversation on November 16, 2018 concerning the above-referenced matter. Our firm bas been engaged by Gregory Barela in connection with his efforts to collect the proceeds due him pursuant to the terms of the Confidential Settlement Agreement executed by Mr. Barela and on December 28,2017 ("Settlement Agreement"). Mr. Barela has been advised by Michael Avenatti that did not make the initial $1 .6 million payment due under the terms of the Settlement Agreement. I note that paragraph 12.a. on page 3 ofthe copy of the Settlement Agreement provided to Mr. Barela by Mr. Avenatti provides for the initial settlement payment to be made by on March 10, 2018. I Wlderstand from our telephone conversation that the Settlement Agreement actually provides for the initial $1.6 million payment to be made in January 2018, which is why made the payment at that time. Given these discrepancies. we ask that you promptly provide us with a true and correct copy of the Settlement Agreement executed by and Mr. Barela on December 28, 2018. We further request that you provide us with a copy of the wire transfer confinnation for the $1 .6 miJJion settlement payment made by in January 2018. as well as any written correspondence with Mr. Avenani's firm concerning or confirming the settlement payment. make all future payments.due him under the Finally, Mr. Barela requests that Settlement Agreement by wire transfer to our finn 's client trust acc01.mt. We will provide wire transfer information for our client trust account under separate cover. ~..; o F'lRST <: TREET '\'·'· ~l !TE .t'i -' · \\'A'5H!'\GTO'\ , OC : ·:> oo : • TEL LAR 'J(l ' 0 8RI E 'LA\ \ .( ( l \1 ~o~ . ;-q; . ~~o o FA X. : o~. ~-l') . -t5SS LARSON . O'BRIEN LLP Steven E. Bledsoe November 17,2018 Page2 We greatly appreciate your prompt attention to this matter. Very truly yours. LARSON O'BRIEN LLP Steven E. Bledsoe 4-40 F! R. ':T :;T RE£T ',\\ . · ':i l I T£ -'~u \ \.-\:, H I :'I.GTO:'\ DC ~uuo : · TEL. :o;.~,h~.-o o · FA:\. ; v ! .74;.-4 SS3 L:~R ) I..1 -.. L1B R IE'L -~ \\ ( 0\1 EXHIBIT 3 LARSON. O'BRIEN LLP Steven E. Bledsoe Direct: 213.436.4866 Email: sbledsoe@larsonobrienlaw.com VIA EMAIL November 17,2018 Michael Avenatti, Esq. Michael A venatti & Associates, APC Eagan Avenatti, LLP Re: Confidential Settlement Agreement- Barela v. LLC Dear Mr. A venatti: Our firm has been engaged by Gregory Barela in connection with his efforts to collect the proceeds due him pursuant to the terms of the Confidential Settlement Agreement executed by Mr. Barela and LLC on December 28, 20 !7 (''Settlement Agreement''). We understand that Mr. Barela has been advised by you that did not make the initial $1.6 million payment due under the terms of the Settlement Agreement. We request that that you provide written confirmation of · s failure to make such payment. We further ask that you promptly provide us with a true and correct copy of the Settlement Agreement and any fee agreement that you have with Mr. Barela. made the initial '51.6 million payment provided for by the Finally. in the event Settlement .'\greement, we ask that you provide an immediate accounting concerning such funds. Very truly yours. LARSON O'BRIEN LLP Steven E. Bledsoe App ed: \ ---____, Dare: ]'.iovember 17. 0!8 EXHIBIT 4 LEE SHEIKH :MEGLEY & HAAN Ill West Jackson Boulevard, Suite 2230 · Chicago, IDinois 60604 (312)982-0070 www.leesheikh.com David J. Sheikh Direct Dial: (312) 982-0062 dsbeikh@leeshejkh.com Confidential November 20, 2018 V~a Email: sbledsoe@.Jarsonobrienlaw.com Steven E. Bledsoe · Larson O'Brien LLP 555 South Flower Street Suite 450 Los Angeles, California 90071 Re: Confidential Settlement Agreement- Barela v. Dear Steven: This responds to your letter ofNovember 17,2018. I also received your follow-up voicemail message. I needed to discuss your letter with my client, which I have now done. At the outset, I want to reemphasize and expand on what I told you when we spoke by telephone on November 16, 2018. finally and completely resolved its dispute with Greg Barela under ~ terms of the December 20, 2017 Confidential Settlement Agreement ("Settlement ·Agreement''). The Barela v. arbitration was dismissed, with prejudice, on December 29, 2017. Furthermore, has fully complied with its obligations under the Settlement Agreement, including making the $1 .6 million payment to the account designated by Michael Avenatti on behalf of Mr. Barela. The Settlement Agreement required to make the payment by January 10, 2018, and did so by wire transfer on January 5, 2018. Any assertion that did not make the $1 .6 million payment is demonstrably false. The document that you emailed to me during our November 16, 2018 call is not a true and correct copy of the Settlement Agreement We had not seen that is not involved in Mr. Barela's dispute with Mr. document before receiving it from you. Avenatti, and is displeased that it has had to invest resources to address this matter in response to wants your inquiries. Aside from its remaining obligations under the Settlement Agreement, no further dealings with Mr. Barela, Mr. Avenatti, or anyone associated with them. You have requested that provide a true and correct copy of the Settlement Agreement and documentation confirming payment to Mr. Barela. As a precondition of providing this infonnation, I need written confirmation that all communications and information exchanged between us regarding this matter will be treated in conform~ce with the confidentiality provision in the Settlement Agreement, which states as follows: November 20, 2018 Page2 18. The Parties hereby agree that this Agreement and its terms and conditions are and will remain confidential. The Parties further agree that they will not disclose, provide, or produce this Agreemerit or its terms and conditions publicly or to any Third Party. If a Party is asked about the outcome of the Arbitration, such Party cannot disclose the existence of this Agreement or the Agreement's terms and conditions. The Parties shall only disclose that the dispute between Barela and has been resolved. Notwithstanding the foregoing: a. Either Party may disclose this Agreement to its attorneys and accountants provided that such attorneys and accountants are bound by confidentiality obligations commensurate with this provision. b. Either Party may disclose this Agreement and its terms and conditions as may be required by law, regulation, subpoena, or order of an arbitrator, a court, or other adjudicator of competent jurisdiction. Ifthis disclosure is made during the course of litigation, the disclosure must be limited to the litigating parties' outside counsel and the arbitrator, court, or other adjudicator of competent junsdiction. c. Either Party may disclose this Agreement and its terms and conditions to the extent necessary to enforce this Agreement before a court or other adjudicator of competent jurisdiction. may privately state and confirm the fact that all disputes between and Barela have been resolved in the context ofconfidential discussions with its business partners and suppliers. d. e. may disclose this Agreement and its terms and conditions to its contract manufacturer/supplier, JSP, its professional advisors, its board of directors, released Third Parties, and existing and potential investors, aequirers and purchasers, provided that such entities or individuals are .bound by confidentiality obligations commensurate with this provision. The Parties acknowledge and agree that this confidentiality provision is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree that it would be impossible, impractical or extremely difficult to fix the actual damages suffered by reason of a breach of this provision, and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100,()()0) shall be presmned to be the amount of damages sustained by reason of each such breach, without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. The Settlement Agreement requires three future payments by to Mr. Barela. You have requested that make these payments to yow firm' s client trust.account. However, this will require a formal amendment to the Settlement Agreement. Paragraph 14 ofthe Settlement Agreement states that "[e]ach of the payments specified in paragraph 12 shall be made by wire--transfer to a trust account specified in an email from Barela's counsel (Michael Avenatti) to counsel (David Sheikh) on or before January 3, 2018." On January 2, 2018, Mr. Avenatti provided the wire-transfer instructions, which are a material part of the agreement. made the $1.6 million payment into Novembei20, 2018 Page3 the account designated by Mr. Avenatti. Please prepare a proposed amendment to the Settlement Agreement that reflects your request for the future payments to be made to yom firm's client trust account instead of the trust account designated by Mr. Avenatti. Notice of the amendment will need to be provided to Mr. Aveoatti. Please get back to me regarding the above. Best regards, ~ David J. Sheikh EXHIBIT 5 LEE SHEIKH MEGLEY & HAAN Ill West Jackson Boulevard, Suite 2230 Chicago, Illinois 60604 (312) 982-0070 www.leesheikh..com David J. Sheikh Dirfct Dial: (312) 982-0062 dsbeikh@leesheikh,com Confidential November 21, 2018 Vur Email: sbkdsoe@lllrsonobrienlaw.com Steven E. Bledsoe Larson O'Brien LLP 555 South Flower Street Suite 450 Los Angeles, California 90071 Re: Confidential Settlement Agreement- Barela v. Dear Steven: This responds to your letter of November 20, 2018. Thanks for con:finning that Mr. Barela and your finn will comply with the confidentiality provisions of the Confidential Settlement Agreement executed by Mr. Barela and on December 28, 2017 (''Settlement Agreement") in connection with this matter. I have enclosed a true and correct copy of the fully executed Settlement Agreement. We are still in the process of gathering the complete wire-transfer infonnation. I will let you know when I have that information. To reiterate, the wire-trarisfer information must be treated in confonnance with the confidentiality provision in the Settlement Agreement We agree that paragraphs 18.b.-c. address the situations described in the third paragraph of your letter. To the extent the confidentiality provision in the Settlement Agreement is inconsistent with applicable legal or ethical requirements, will not assert that compliance with those requirements constitutes a breach of the confidentiality provision. Thanks for agreeing to prepare a proposed amendment to the Settlement Agreement and to notify Mr. Avenatti of the amendment. We will review the proposed amendment once we receive it. B~lfr.~ D~ Enclosure CONFIDENTIAL SEITT•JM"RNTAGUJWENT This Confidential Settlement Agreement ("Agreement") is entered into as of December 20, 2017, by and between Greg Barela, an individual who resides at 2801 Alton Parkway, Apt. 402, Irvine, California 92606 ("Barela"); and dlb/a a Colorado limited liability company with its principal p~ce of business at Barela and are collectively referred to as the "Parties." Becitala Barela and are parties in an arbitration pending before Magistrate Judge Boyd N. Boland (Ret.) styled Greg Barela v. d/b/a JAG Arbitration No. 2015·1031A (the "Arbitration"). In the Arbitration, Barela asserted claims for correction ofinventorsbip ofU.S. Patent No. 8,662,787; a declaration that Barela is a co-owner with of U.S. Patent No. 8,662, 787; trade secret misappropriation; and unjust enrichment. disputed Barela's claims. On December 20, 2017, Barela and agreed to a final compromise and settlement of the Arbitration and all disputes between the.D,l. Specifically, the Parties entered into a binding and enforceable agreement setting forth the terms and conditions of their final compromise and settlement, and further agreed to enter into a formal written agreement by December 29, 2017. This Agreement formally sets forth the terms and conditions of the Parties' agreed ·to final compromise and settlement of the Arbitration and all disputes between them. De.fiDltioDS •. For purposes of this Agreement, the following terms have the following meaniD.gs: 1. A Party's "Affiliate,. means an entity or individual that Controls, is Controlled by, is Controlling, or is under common Control with respect to the Party. 2. "Asserted Trade Secret" means: All trade secrets that were or could have been asserted by Barela in the Arbitration, including but not limited to the Paver Invention. Patent Rights" means: (a) U.S. Patents Nos. 8,662, 787; 3. '' 8,827,590; 8,967,905;.D645,169; 8,236,392; 8,353,640; D637,318; and 7,244,477; and (b) all provisional applications, parent applications, continuations, continuations-inpart, divisionals, e~tensions, renewals, substitutions, reisaues, reexaminations, inter partes reviews and foreign counterparts of any of the patents identified in (a). "Control" (including, with correlative meanings, "Controls," "Controlled .by'' and "Controlling") means the power to direct or to cause the direction of the management and policies of an entity or an individual, directly or indirectly, whether through ownership of voting securities, by contract, or otherwise. With respect to a corporation, limited liability company, partnership or other entity, control includes direct or indirect ownership of at least fifty-one percent (51%) of the voting stock, limited liability company interest, partnership interest or other voting interest (or equivalent interest) .in such corporation, limited liability company, partnership or other entity. 4. 5. "Released Products, means: All products involving any of the Patent Rights created, designed, made, used, offered for sale, distributed, sold; or imported by, for, or under license from or any predecessor, Successor or Affiliate of Released Products include, but are not limited to, Underlayment products sold under the name PaverBase®. "Successor'' means a Third Partythat: (a) acquires substantially all the assets of either Party; or (b) acquires all .or a portion of business relating to the Patent Rights andlor the Released Products; or (c) results from a reconstruction. amalgamation, merger, consolidation or reorganization of or with 6. 7. ''Third Party" means any entity or individual other than Barela or 8. "Underlayments" means underlayments for use with pavers, patio stones and other paving elements for pedestrian and/or vehicle traffic. warranties and Representations 9. Barela, on behalf of himself and his predecessors and Affiliates, warrants and represents that he has the authority to enter into and be bound by this Agreement. 10. Barela. on behalf of himself and his predecessors and Affiliates. warrants and represents that he is unaware of any claim by a Third Party against related to the Asserted Trade Secret, the Patent Rights or the Released Products. 2 11. on behalf of itself and its predecessors and Affiliates, warrants and represents that it has the authority to enter into and be bound by this Agreement. Payments to Barela 12. will pay the total sum of One Million Nine Hundred Thousand U.S. Dollars (USD 1,900,000) to Barela as follows: a. The sum of One Million Six Hundred Thousand U.S. Dollars (USD 1,600,000) will be paid by to Barela on January 10, 2018;and b. The sum of-One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2019; and c. The sum of One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2020; and d. The sum of One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2021. 13. The payments specified in paragraph 12 are subject to Barela's (including his predecessors, Successors, assigns, heirs and Mfiliates) ongoing compliance with the Agreement. Each of the payments specified in paragraph 12 shall be made by wire14. transfer to a trust account specified in an email from Barela's counsel (Michael Avenatti) to counsel (David Sheikh) on or before January 3, 2018. Waiver and Releases 15. Barela, on behalf of himself and his predecessors, Successors, assigns, heirs and Mfiliates, hereby waives, releases and forever discharges all claims to any rights or interest in or to the Patent Rights and the Released Products including, without limitation, the ability or right to challenge, directly or by assisting a Third Party, to the inventorship, validity or enforceability of any of the Patent Rights, including any lawsuit. protest, opposition, interference, post·grant review, reexamination, inter partes review or the like in any court or governmental agency anywhere in the world. · 16. Barela, on behalf of himself and his' predecessors, Successors, assigns, heirs and Affiliates, hereby releases including its predecessors, Successors, assigns, heirs and Affiliates, from any and all claims, liabilities, demands and causes of action, whether or not now known, suspected or claimed, which Barela ever had, 3 now has or claims to have, regarding the Patent Rights and/or the Released Products, including any such claims that were or could have been asserted in a court,. in the Arbitration, or in any other proceeding. 17. on behalf of itself and its predecessors, Successors, assigns, heirs and Affiliates, hereby releases Barela, including his predecessors, Successors, assigns, heirs and Affiliates, from any and all claims, liabilities, demands and causes of action, whether or not now known, suspected or claimed, which ever had, now has or claims to have, regarding the Patent Rights and/or the Released Products, including any such claims that were or could have been asserted in a court, in the Arbitration, or in any other proceeding. Confidentiality 18. The Parties hereby agree that this Agreement and its terms and conditions are and will remain confidential. The Parties further ·a gree that they will not disclose, provide, or produce this Agreement or its terms and conditions publicly or to any Third Party. If a Party is asked about the outcome of the Arbitration. such Party cannot disclose the existence of this Agreement or the Agreement's terms and conditions. The Parties shall only disclose that the dispute between Barela and has been resolved. Notwithstanding the foregoing: a. Either Party may disclose this Agreement to its attorneys and accountants provided that such attorneys and accountants are bound by confidentiality obligations commensurate with this proV1s10n. b. Either Party may disclose this Agreement and its terms and conditions as may be required by law, regulation. subpoena, or order of an arbitrator, a court, or other adjudicator of competent jurisdiction. If this disclosure is made during the course of litigation, the disclosure must be limited to the litigating parties' outside counsel and the arbitrator, court, or other adjudicator of competent jurisdiction. c. Either Party may disclose this Agreement and its terms and conditions to the extent necessary to enforce this Agreement before a court or other adjudicator of competent jurisdiction. d. may privately state and confirm the fact that all disputes between and Barela have been resolved in the context of confidential discussions with its business partners and suppliers. 4 e. may disclose this Agreement and its terms and conditions to its contract manufacturer/supplier, JSP, its professional advisors, its board of directors, released Third Parties, and existing and potential investors, acquirers and purchasers, provided that such entities or individuals are bound by confidentiality obligations commensurate with this provision. The Parties acknowledge and agree that this confidentiality provi.s ion is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree that it would be impossible, impractical or extremely difficult to fix the actual damages suffered by reason of a breach of this provision. and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100,000) shall be presumed to be the amount of damages sustained by reason of each such breach, without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. 19. Each Party (including each Party's respective officers, directors, employees, predecessors, Successors, assigns, heirs and Affiliates) agrees not to make any false, negative, critical or disparaging statements, implied or express, written or oral, concerning the other Party (including the other Party's officers, directors, employees, predecessors, Successors, assigns, Affiliates and licensees) or the products, services or business operations of the other Party (including the other Party's predecessors, Successors, assigns, heirs, Mfiliates and licensees). Each Party (including each Party's respective officers, directors, employees, predecessors, Successors, assigns. heirs and Affiliates) further agrees to do nothing that would damage the business reputation or good will of the other Party (including the other Party's officers. directors, employees. predecessors, Successors, assigns, heirs, Affiliates and licensees); provided, however, that nothing in this Agreement shall prohibit either Party's disclosure of information that is required to be disclosed in compliance with applicable laws or regulations or by order of an arbitrator, a court, or other adjudicator of competent jurisdiction. For the avoidance of doubt, this provision prohibits Barela (including his predecessors, Successors, assigns, heirs and Affiliates) from asserting, stating, or suggesting that Barela is an inventor or joint inventor of any of the Patent Rights, that the Patent Rights or the Released Products use or incorporate any trade secrets or other intellectual property Patent Rights or the of Barela, that Barela contributed in any way to the Released Products. or that Barela has any rights or interest in any of the Patent Rights or the Released Products. The Parties acknowledge and agree that this 5 non-disparagement provision is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree that it would be impossible, impractical or extr emely difficult to fix the actual damages suffered by reason of a breach of this provision, and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100,000) shall be presumed to .be the amount of damages sustained by reason of each such breach. without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. Resolution of the ArbitratiOn 20. Upon execution of this Agreement by both Parties, the Parties will voluntarily dismiss, with prejudice, all claims and defenses made against each other in the Arbitration. Each Party will pay its own fees, costs, and expenses, including attorneys' fees. Each Party will have the right to apply to the Judicial Arbiter Group, Inc. for a refund of its share of the arbitration fees that were deposited to reserve the Arbitration hearing dates. Notices 21 . Any notices required by this Agreement shall be made by email and express mail delivery or courier, signature required, postage pre-paid as follows: For For Barela: Greg Barela clo Michael Avenatti, Esq. 520 Newport Center Drive Suite 1400 Newport Beach, CA 92660 Email= mavenatti\i:"i:eaganavena tti .t'Ol!l With a copy to: David J . Sheikh Lee Sh eikh Megley & Haan 111 West Jackson Boulevard, Suite 2230 Chicago, Illinois 60604 Email: dsheikh@leesheikh.eom I 1 ! 1 6 Miscellaneous 22. Nothing in this Agreement shall be deemed to create or constitute a partnership, agency, employer-employee or joint venture relationship between Barela and 23. The Parties acknowledge that they were represented by their respective counsel in connection with their settlement and this Agreement. This Agreement shall be interpreted according to its fair construction and shall not be construed against either Party. 24. This Agreement represents the entire agreement between Barela and with respect to the subject matter of this Agreement, and supersedes all prior agreements, proposals, or understandings, whether written or oral, between Barela and This Agreement may not be modified, changed, amended, supplemented or rescinded except pursuant to a written instrument duly executed by Barela and 25. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned or transferred by any Party without the prior written consent of the other Party. 26. This Agreement is governed by, and construed in accordance with, the laws of the State of Colorado. 27. If any provision or portion of a provision of this Agreement is held by an arbitrator, a court, or other adjudicator of competent jurisdiction to be invalid under any applicable statute or rule of law, such arbitrator, court or other adjudicator is authorized to modify such provision to the minimum extent necessary to make it valid, and the remaining provisions or portions of provisions of this Agreement shall in no way be affected or impaired thereby. 28. This Agreement may be executed by Barela and in separate counterparts and exchanged electronically, with the same effect as if Barela and had sign-ed the same instrument. Ba.r ela and hereby acknowledge their agreement and consent to the terms and condition~ set forth above through their respective signatures by a duly authorized representative of each party: 7 GREG BARELA IGREGBARELA — d/b/a d/b/a II By: ___ By: ____ President President Its:----------------Its: 28 2017 28 Dec 2017 Date: - - - - - - - - Date: Date: D ate:---------- 8 I fr-ODG--~~----------i-BilO t -·----~ ....- - - - - - - l ~ ~. ~ ; ·~ --------..-- ' ~ -- . . __ _ _ _ _ _ _ _ _ ___L_ _ _ _ _ _ _ _ .... - - - --- .. 8 -- ------~ ............: EXHIBIT 6 From: Dayfd Sheikh To: Cc: Subject: Steven E. Bledsoe Steohen G. Larson Date: Attachments: Tuesday, November 27, 2018 1:44:06 PM Barela $1.6M wire confirmation- 1.5.18 Sent: Tuesday, November 27, 2018 11:31 AM To: David Sheikh Cc: Stephen G. Larson Subject: Barela/ Dave, Following up on our earlier correspondence, please let us know if has been able to locate a copy of the wire transfer confirmation from January 5, 2018. Also, please let us know if you have any other documents confirming Mr. Avenatti' s receipt of the settlement payment. Thanks. Best regards, Steven E. Bledsoe Partner LARSON·O'BRIEN LLP 555 South Flower Street Suite 4400 Los Angeles CA 9007l 213.436.4866 Direct 213.436.4888 Office 213.623.2000 Fax sbledsoe@ Ia rsonob rien law .rom CONFIDENTIALITY NOTICE: This e-mail and any attachments are for the exclusive and confidential use of the intended recipient. If you received this in error, please do not read, distribute, or take action in reliance upon this message. Instead, please notify us immediately by return e-mail and promptly delete this message and its attachments from your computer system. We do not waive attorney-client or work product privilege by the transmission of this message. SINGLE WIRE- Confirrnatior. Page 1 of2 Initiate a Single Outgoing Wire Confirmation You have successfully Initiated a wire that Is ready to be sent to SVB for processing, Wire Type: Free Form Wire from a U.S.Dol!ar (USD) AccotJnt Silicon Valley Bank Transaction ID: 2018010511406556 (This Is an Internal SVB tracking number) Number of appr • WASHINGTON. DC 20001 • TE~ >02.]95-4900 • LARSONOBRIENLAW.COM FAX, 202-7954888 EXHIBIT 8 AJ>DENDUM TO CONFIDENTIAL SE'ITLEMENT AGREEMENT This Addendum to Confidential Settlement Agreement ("Addendum") is ente.t-ed into as of January 3, 2019, by and between Gregory Barela ("'Barela,), and dlb/a . Barela and are collectively referred to as the "Parties.•• Recitals Barela and entered into a Confidential Settlement Agreement \•Agreement'') as of December 20, 2017 that was signed by the Parties on December 28, 2017. Paragraph 12 ofthe Agreement provided that ould make the following f01lf settlement payments to Barela: (1) $1.6 million by January 10, 2018; (2) $100,000 by January 10, 2019; (3) $100,000 by January 10, 2020; and (4) $100,000 by January 10, 2021. Paragraph 13 of the Agreement provided that "the payments specified in paragraph 12 shall be made by wire-transfer to a trust account specified in an email from Barela's counsel (Michael Avenatb) to counsel (David Sheikh) on or before January 3, 2018." On January 2, 2018, Avenatti sent an email to Sheikh that specified an account and providt?d wire-transfer instructions. On January 5, 2018 made the initial $1.6 million settlement paymentbywjre transfer to the account specified by Avenatti and has provided Barela with a wire transfer confirmation showing that the payment was made by and received into the account designated by Avenatti. Accordingly, has fully complied with its obligation to make the initial $1.6 million payment by January 10, 2018. li I I Barela has represented to that paragraph 12 of the partial copy ofthe Agreement that Avenatti provided to Barela on December 28, 2017, and the complete copy of the Agreement that Avenatti's office provided to Barela on or about June 29,2018, contain payments dates ofMarcb 10,2018, March 10,2019, March 10,2020, March 10,2021, respectively, for settlement payments to Barela. Avenatti told Barela that the settlement payments were payable in March of each year (not January). I II At the request of Barela, on November 21, 2018, provided Barela with a true and correct copy of the fully executed Agreement which states that the initial payment of$1.6 miUion was due by January 10, 2018; a payment of$100,000 is due by January 10, 2019; a payment of $100,000 is due by January 10, 2020; and a payment of $100,000 is due by January 10,2021. l ! i I Barela has represented to that Avenatti has repeatedly represented to him that did not make the initial $1.6 million payment due under the Agreement and that Avenatti has been making efforts to collect the $1.6 million that had allegedly failed to pay on the purported March 10, 2018 due date specified in the copies ofthe Agreement Avenatti provided to Barela. I l I Barela has retained new counsel, Steven E. Bledsoe and Stephen G. Larson ofLarson O'Brien LLP, to represent him with respect to his efforts to collect the amounts due to him under the Agreement. f~' Barela has represented to that Avenatti has not responded to Larson O'Brien's November 17 and December 5, 2018 letters toAvenatti requesting that he: (1) confinn, in writing, his representations to Barela that had failed to make the initial $1.6 million payment due undeJ" the terms of the Agreement; (2) promptly provide a true and correct copy of the Agreement; and (3) provide an immediate accounting in the event had made the initial $1.6 million payment provided for in the Agreement Barela has requested that make all further payments due to him under the Agreement via wire transfer to the trust account of Larson O"Brien LLP and, based on Barela•s above-referenced representations, has agreed to do so. Agreement 1. will pay all future amounts due under the Agreement to the trust account of Larson O'Brien LLP, as follows: Wells Fargo Bank 433 N. Camden Drive Beverly Hills, CA 902'1 0 ABA Routing No: 121000248 Account No.: 2776 Account Name: Larson O'Brien LLP IOLTA Trust Account 2. Any future notices to Barela required by the Agreement shall be made by email and express mail delivery or courier, signature required, postage pre-paid to: Gregory Barela, c/o Steven E . Bledsoe, Esq., Larson O'Brien LLP, 555 S. Flower Street, Suite 4400, Los Angeles, CA 90071. This Addendwn may be executed by Barela and and exchanged electronically, with the same effect as if Barela and 3. in separate counterparts had signed the same instrument B~ela and hereby acknowledge their agreement and consent to the terms and conditions set forth above through their respective signatures: GREGORY BARELA ~f' I /7 ( Date: January 3, 2019 ~ I By:'/ £-~.1 Date: January}_, 2019 · ark Buckley CFO and VP of Administration -2 - DECLARATION OF DAVID J. SHEIKH STATE BAR OF CALIFORNIA OFFICE OF CHIEF TRIAL COUNSEL MELANIE J. LAWRENCE, No. 230102 INTERIM CHIEF TRIAL COUNSEL ANTHONY J. GARCIA, No. 171419 ASSISTANT CHIEF TRIAL COUNSEL ANAND KUMAR, No. 261592 SUPERVISING ATTORNEY ELI D. MORGENSTERN, No. 190560 SENIOR TRIAL COUNSEL 845 South Figueroa Street Los Angeles, California 90017-2515 Telephone: (213) 765-1334 ' STATE BAR COURT 10 HEARING DEPARTMENT - LOS ANGELES 11 12 In the Matter of: Case No. ) ) 13 MICHAEL JOHN AVENATTI, ) No. 206929, ) 14 15 3 A Member of the State Bar 16 I, 17 David J. ) Sheikh, declare: All statements 1. made herein 18 knowledge unless indicated 19 informed and believe them to be 20 statements 21 2. DECLARATION OF DAVID J. SHEIKH as based are true and correct and are based on information or belief, and true. If necessary, as to those statements I am could and would competently testify to the made herein. Ihave been a member of the Illinois State founding paflner 23 Chicago, 24 particularly those involving patent, trade secrets, 25 / / / 26 / / / 27 / / / Illinois. at the law Bar since November 5, 1992. film of Lee Sheikh Megley & Haan LLC. Our offices 22 28 I on my personal I am a are located in My practice focuses on litigation involving intellectual property disputes, and unfair competition. 1 DECLARATION GF‘DAVfi) J. SHEIKH At 3. all relevant times to the facts asserted in this Declaration, Party] in an intellectual property dispute brought against Avenatti, it I represented the Settling by Mr. Gregory Barela. Mr. Michael whom I understand to be the respondent in these disciplinary proceedings, lawsuit in federal court on behalf of Mr. Barela and filed a against the Settling Party alleging multiple \OWQQMAWNu—n causes of action. Thereafter, Mr. Barela and the Settling Party entered into arbiu'ation. 4. On December 20, 2017, Mr. Barela and the Settling Party agreed to a final compromise and settlement of the arbitration, With the Settling Party ageeing to pay a total of $ 1 ,900,000 t0 Mr. Barela, over four yearly installments. The first payment was in the amount of $1,600,000, with three subsequent annual payments of $100,000 each. 5. Between December 22, 201 7, and December 28, 2017, respondent and written settlement agreement ageement 0n behalf of our respective required the Settling Party to clients. The final I negotiated a written settlement make an initial payment of $1,600,000 by January 10, 201 8, and three additional payments of $ 1 00,000 by January 10 of 2019, 2020, 2021, respectively, for a total of $1,900,000. 6. On December 28, 2017, respondent emailed me the signature page for the settlement agreement, bearing Mr. Barela’s signature. 7. On December 29, 2017, I emailed respondent a fully executed settlement agreement with Mr. Barela’s and the Settling Party’s signatures, which included the payment schedule that NNNNNNNNNfl—HHH—It—IHHH respondent and I had negotiated on behalf of our respective clients. A true and correct, though OOQQMAMNHOOOOQGMhWNWO redacted, fully executed Exhibit 8. copy of the settlement agreement attached to this Declaration as is 1. On January 2, me specifying the client trust account 2018, respondent sent an email to and providing wiring instructions for the Settling Party to make the settlement payments according to the settlement agreement. 9. 0n January 5, payment by wire 1 201 8, the Settling Party made the initial transfer to the client trust account specified The corporation is not identified by agreement, discussed below. name due $1,600,000 settlement by respondent on January 2, 2018. to the confidentiality of the settlement 2 DECLARATION OF DAVID J. SHEIKH At no time 10. March 201 8, or at any time, did in disbelief that the Settling Party had not made the initial I say to respondent that I was in $1,600,000 settlement payment, 01' words MN to that effect. Any assertion that the incorrect because the Settling Party At no time did 11. had not responded to I Settling Party did not make initial $1,600,000 payment made the payment on January say to respondent that I 5, is 20 l 8. why the did not understand Settling Party my requests that the Settling Party make the initial $ 1 ,600,000, 0r words to \OOOQO‘xUl-h that effect. is Again, any assertion that the Settling Party did not incorrect because the Settling Party 12. the law On November firm of Larson 15, 201 8, I made the payment on January received an email fiom Mr. at 11 employed Mr. Bledsoe’s firm in connection with Mr. Barela’s 12 from the December 28, 2017 settlement agreement with the 13 me to: 14 indicated he believed 15 transfer confirmation. In the email, Mr. Bledsoe provided 16 invited 17 attached to this Declaration as Exhibit 2. 18 confirm me to 13. call that the Settling Party was due on March him. 5, $1,600,000 payment 201 8. Steven E. Bledsoe, an attorney 16, efforts to collect Settling Party. on the proceeds Mr. Bledsoe asked made the $1,600,000 payment that Mr. Bledsoe 10, 201 8; and A true and correct copy of Mr. On November initial Obrien, LLP. In the email, Mr. Bledsoe explained that Mr. Barela had 10 (i) make 2018, Mr. Bledsoe and I (ii) provide him with me with his Bledsoe’s cell a copy ofthe wire phone number and November 15, 201 8 email had a telephone conversation. During the me that respondent had 19 telephone conversation, Mr. Bledsoe explained to 20 that the Settling Party did not 21 settlement agreement. Mr. Bledsoe also noted that the copy 0f the settlement agreement 22 provided to Mr. Barela by respondent provided for the 23 Party on 24 provided for the 25 Party 26 of the settlement agreement that respondent had presented March 10, 201 8. initial I make the initial $ 1 ,600,000 payment due under the terms of the initial payment to be made by at that time. made in January 2018, and the Settling that the Settling Given these discrepancies, Mr. Bledsoe emailed to Mr. Barela. 27 28 advised Mr. Barela explained to Mr. Bledsoe that the actual settlement agreement $1,600,000 payment to be made the payment is 3 DECLARATION OF DAVID J. SHEIKH me a copy On November 14. November 17, 201 8 letter, 17, 2018, I received a letter Via email from MI. Bledsoe. In his Mr. Bledsoe partially memorialized our November conversation, and requested that I provide him with: (i) a true and conect agreement executed by the Settling Party and Mr. Barela; (ii) 16, 201 8 telephone copy of the settlement a copy of the wire transfer confirmation for the $ 1 ,600,000 settlement payment made by the Settling Party in January 2018; \OOOQQUIAmN—n and any written confirmation with respondent’s law firm concerning or confirming the (iii) settlement payment. Finally, Mr. Bledsoe requested that the Settling Party payments due flrm’s to to A true and correct copy of Mr. Bledsoe’s November me is attached to this Declaration as Exhibit On November 20, repeated what I told 201 8, NNNNNNNNNH—Au—Iu—nflp—np—n—r—‘t—n Party to make transfer 0n January the I initial 5, by Mr. Barela and payment by January 201 8; (ii) 10, 16, me during our November 2018 201 8; namely 16, payment date of March 201 8 before received I is that that: (i) from him on November also requested that Mr. Bledsoe prepare a proposed amendment Mr. Bledsoe not a true and correct had never seen the document with the it I 2018, and the Settling Party did so by wire 201 8 telephone conversation (iii) I letter the Settling Party required the Settling copy of the purported settlement agreement the 17, sent a letter to Mr. Bledsoe via email. In the letter, copy of the settlement agreement; and I future 3. him when we spoke by telephone on November the settlement agreement executed emailed to all Mr. Barela under the settlement agreement by wire transfer to Mr. Bledsoe’s client trust account. 15. make 16, initial 201 8. In the to the settlement letter, agreement OOQONUIAWNHOKDOOQOSUIbWNHO that reflected his request for the future made to Mr. Bledsoe’s firm’s payments owed pursuant client trust account instead 0f the to the settlement trust agreement be account designated by A true and correct copy of my November 20, 201 8 letter is attached to this respondent. Declaration as Exhibit 4. 16. settlement letter, On November 21, ageement 2018, attached to it I sent Mr. Bledsoe via email. a letter with a true and correct copy 0fthe A true and correct copy of my November 21, 201 8 as well as a true and correct, though redacted, copy of the settlement agreement that attached to it are cumulatively attached to this Declaration as Exhibit 4 DECLARATION OF DAVID J. SHEIKH 5. was On November 27, 17. 2018, Iprovided Mr. Bledsoe with a copy of the confirmation of the Janualy 5, 201 8 Wire transfer of the initial $1,600,000 fiwN payment required in the settlement agreement. Consistent with 18. ageement. On January 3, my request, Mr. Bledsoe prepared an addendum to the settlement 2019, Mr. Barela and the Settling Party signed the provided that the Settling Parry would pay Bledsoe’s firm’s client trust account. all addendum which future payments due under the settlement to Mr. A true and correct copy of the addendum t0 the settlement \Omfimm agreement I is attached to this Declaration as Exhibit certify foregoing is Dated: June 6. under penalty of perjury under the laws of the State of California that the true and correct. I” 3, 2019 David J. j. Sheikfi/ Declarant 5 DECLARATION OF DAVID J. SHEIKH EXHIBIT 1 This Confidential Settlement Agreement ("Agreement") is entered into as of December 20, 2017, bY and between Greg Barela, an individual who resides at 2801 Alton Parkway. Apt. 402, Irvine, California 92606 ("Barela"), and dlb/a a Colorado limited liability company with its principal p~ce of business at Barela and are collectively referred to as the "Parties." Recitals Barela and are parties in an arbitration pending before Magistrate Judge Boyd N. Boland (Ret.) styled Greg Bs:rela v. JAG Arbitration No. 2015-1031A (the "Arbitration"). In the Arbitration, Barela asserted claims for correction ofinventorship of U.S. Patent No. 8,662,787; a declaration that Barela is a co·owner with of U .S. Patent No. 8,662,787; trade secret misappropriation; and unjust enrichment. disputed Barela's claims. On December 20, 2017, Barela and agreed to a final compromise and settlement of the Arbitration and all disputes between then;t. Specifically, the Parties entered into a binding and enforceable agreement setting forth the terms and conditions of their final compromise and settlement, and further agreed to enter into a formal written agreement by December 29, 2017. This Agreement formally sets forth the terms and conditions of the Parties' agreed·to final compromise and· settlement of the Arbitration and all disputes between them. Defipitions For purposes of this Agreement, the following terms have the following meaniil.gs: 1. A Party's "Affiliate" means an entity or individual that Controls, is Controlled by, is Controlling, or is under common Control with respect to the Party. 2. "Asserted Trade Secret" means: All trade secrets that were or could have been asserted by Barela in the Arbitration, including but not limited to the Paver Invention. 3. " Patent Rights" means: (a) U.S. Patents Nos. 8,662,787; 8,827,590; 8,967,905;.D645,169; 8,236,392; 8,353,640; D637,318; and 7,244,477; and (b) all provisional applications, parent applications, continuations, continuations-inpart, divisionals, e:x;tensions, renewals, substitutions, reissues, reexaminations, inter partes reviews and foreign counterparts of any of the patents identified in (a). 4_ ''Control" (including, with correlative meanings, "Contr<>ls," "Controlled .by" and "Controlling") means the power to direct or to cause the direction of the management and policies of an entity or an individual, directly or indirectly, whether through ownership of voting secUrities, by contract, or otherwise. With respect to a corporation, limited liability company, partnership or other entity, control includes direct or indirect ownership of at least fifty-one percent (51%) of the voting stock, limited liability company interest, partnership interest or other voting interest (or equivalent interest) .in such corporation, limited liability company, partnership or other entity. 5. "Released Pr<>ducts" means: All products involving any of the Patent Rights created, designed, made, used, offered for sale, distributed, sold; or imported by, for, or under license from or any predecessor, Successor or Mfiliate of Released Products include, but are not limited to, Underlayment products sold under the name PaverBase®. 6. "Successor" means a Third Partythat: (a) acquires substantially all the assets of either Party; or (b) acquires all .or a portion of business relating to the Patent Rights and/or the Released Products; or (c) results from a reconstruction. amalgamation, merger, consolidation or reorganization of or with 7. "Third Party" means any entity or individual other than Barela or "Underlayments" mea ns underlayments for use with pavers, patio stones and other paving element s for pedestrian andlor vehicle traffic. 8. warranties and Representations 9. Barela, on behalf of himself and his predecessors and Affiliates, warrants and represents that he has the authority to enter into and be bound by this Agreement. 10. Barela. on behalf of himself and his predecessors and Affiliates. warrants and represents that he is una ware of any claim by a Third Party against related to the Asserted Trade Secret, the Patent Rights or the Released Products. \ 2 11. on behalf of itself and its predecessors and Affiliates, warrants and represents that it has the authority to enter into and be bound by this Agreement. Payments to Barela 12. will pay the total sum of One Million Nine Hundred Thousand U.S. Dollars (USD 1,900,000) to Barela as f()llows: a. The sum of One Million Six Hundred Thousand U.S. Dollars (USD 1,600,000) will be paid by to Barela on January 10, 2018;and b. The sum ofOne Hundred Thousand U .S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2019; and c. The sum of One Hundre4 Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2020; and d. The sum of One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2021. 13. The payments specified in paragraph 12 are subject to Barela's (including his predecessors, Successors, assigns, heirs and Affiliates) ongoing compliance with the Agreement. 14. Each of the payments specified in paragraph 12 shall be made by wiretransfer to a trust account specified in an email from Barela's counsel (Michael Avenatti) to counsel (David Sheikh) on or before January 3, 2018. Waiver and Releases 15. Barela, on behalf of himself and his predecessors, Successors, assigns, heirs and Affiliates, hereby waives, releases and forever discharges all claims to any rights or interest in or to the Patent Rights and the Released Products including, without limitation, the ability or right to challenge, directly or by assisting a Third Party, to the inventorship, validity or enforceability of any of the Patent Rights, including any lawsuit. protest, opposition, interference, post·grant review, reexamination, inter partes review or the like in any court or governmental agency anywhere in the world. · 16. Barela, on behalf of himself and his· predecessors, Successors, assigns, heirs and Affiliates, hereby releases including its predecessors, Successors, assigns, heirs and Affiliates, from any and all claims, liabilities, demands and causes of action, whether or not now known, suspected or claimed, which Bar~la ever had, 3 now has or claims to have, regarding the Patent Rights and/or the Released Products, including any such claims that were or could have been asserted in a court; in the Arbitration, or in any other proceeding. 17. on behalf of itself and its predecessors, Successors, assigns, heirs and Affiliates, hereby releases Barela, including his predecessors, Successors, assigns, heirs and Affiliates, from any and all claims, liabilities, demands and causes of action, whether or not now known, suspected or claimed, which ever had, now has or claims to have, regarding the Patent Rights and/or the Released Products, including any such claims that were or could have been asserted in a court, in the Arbitration, or in any other proceeding. Confidentiality 18. The Parties hereby agree that this Agreement and its terms and conditions are and will remain confidential. The Parties further agree that they will not disclose, provide, or produce this Agreement or its terms and conditions publicly or to any Third Party. If a Party is asked about the outcome of the Arbitration, such Party cannot disclose the existence of this Agreement or the Agreement's terms and conditions. The Parties shall only disclose that the dispute between Barela and has been resolved. Notwithstanding the foregoing: a. Either Party may disclose this Agreement to its attorneys and accountants provided that such attorneys and accountants are bound by confidentiality obligations commensurate with this provision. b. Either Party may disclose this Agreement and its terms and conditions as may be required by law, regulation. subpoena, or order of an arbitrator, a court, or other adjudicator of competent jurisdiction. If this disclosure is made during the course of litigation, the disclosure must be limited to the litigating parties' outside counsel and the arbitrator, court, or other adjudicator of competent jurisdiction. c. Either Party may disclose this Agreement and its terms and conditions to the extent necessary to enforce this Agreement before a court or other adjudicator of competent jurisdiction. d. may privately state and conflrm the fact that all disputes between and Barela have been resolved in the context of confidential discussions with its business partners and suppliers. 4 e. may disclose this Agreement and its terms and conditions to its contract manufacturer/supplier, JSP, its professional advisors, its board of directors, released Third Parties, and existing and potential investors, acquirers and purchasers, provided that such entities or individuals are bound by confidentiality obligations commensurate with this provision. The Parties acknowledge and agree that this confidentiality provision is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree ~hat it would be impossible, impractical or extremely difficult to fix the actual damages suffered by reason of a breach of this provision, and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100·,000) shall be presumed to be the amount of damages sustained by reason of each such breach, without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. Non-Dis,paragement 19. Each Party (including each Party's respective officers, directors, employees, predecessors, Successors, assigns, heirs and Affiliates) agrees not to make any false, negative, critical or disparaging statements, implied or express, written or oral, concerning the other Party (including the other Party's officers, directors, employees, predecessors, Successors, assigns, Affiliates and licensees) or the products, services or business operations of the other Party (including the other Party's predecessors, Successors, assigns, heirs, Affiliates and licensees). Each Party (including each Party's respective officers, directors, employees, predecessors, Successors, assigns. heirs and Affiliates) further agrees to do nothing that would damage the business reputation or good will of the other Party (including the other Party's officers, directors, employees, predecessors, Successors, assigns, heirs, Afflliates and licensees); provided, however, that nothing in this Agreement shall prohibit either Party's disclosure of information that is required to be disclosed in compliance with applicable laws or regulations or by order of an arbitrator, a court, or other adjudicator of competent jurisdiction. For the avoidance of doubt, this provision prohibits Barela (including his predecessors, Successors, assigns, heirs and Affiliates) from asserting, stating, or suggesting that Barela is an inventor or joint Patent Rights, that the Patent Rights or the inventor of any of the Released Products use or incorporate any trade secrets or other intellectual property of Barela, that Barela contributed in any way to the Patent Rights or the Released Products. or that Barela has any rights or interest in any of the Patent Rights or the Released Products. The Parties acknowledge and agree that this 5 non-disparagement provision is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree that it would be impossible, impractical or extremely difficult to fix the actual damages suft'ered by reason of a breach of this provision, and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100,000) shall be presumed to . be the amount of damages sustained by reason of each such breach, without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. Re~lution of the Arbitration 20. Upon execution of this Agreement by both Parties, the Parties will voluntarily dismiss, with prejudice, all claims and defenses made against each other in the Arbitration. Each Party will pay its own fees, costs, and expenses, including attorneys' fees. Each Party will have the right to apply to the Judicial Arbiter Group, Inc. for a refund of its share of the arbitration fees that were deposited to reserve the Arbitration hearing dates. Notices 21 . Any notices required by this Agreement shall be made by email and express mail delivery or courier, signature required, postage pre-paid as follows: For For Barela: Greg Barela clo Michael Avenatti, Esq. 520 Newport Center Drive Suite 1400 Newport Beach, CA 92660 Email: rna vena ttj(i'li.eaganavena tt1.col!l With a copy to: David J. Sheikh Lee Sheikh Megley & Haan 111 West Jackson Boulevard, Suite 2230 Chicago, illinois 60604 Email: dsheikh(t'yleesheikh.com 6 Miscellaneous 22. Nothing in this Agreement shall be deemed to create or constitute a partnership, agency, employer-employee or joint venture relationship between Barela and 23. The Parties acknowledge that they were represented by their respective counsel in connection with their settlement and this Agreement. This Agreement shall be interpreted according to its fair construction and shall not be construed against either Party. 24. This Agreement represents the entire agreement between Barela and with respect to the subject matter of this Agreement, and supersedes all prior agreements, proposals, or understandings, whether written or oral, between Barela and This Agreement may not be modified, changed, amended, supplemented or rescinded except pursuant to a written instrument duly executed by Barela and 25. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned or transferred by any Party without the prior written consent of the other Party. 26. This Agreement is governed by, and construed in accordance with, the laws of the State of Colorado. 27. If any provision or portion of a provision of this Agreement is held by an arbitrator, a court, or other adjudicator of competent jurisdiction to be invalid under any applicable statute or rule of law, such arbitrator, court or other adjudicator is authorized to modify such provision to the minimum extent necessary to make it valid, and the remaining provisions or portions of provisions of this Agreement shall in no way be affected or impaired thereby. 28. This Agreement may be executed by Barela and in separate counterparts and exchanged electronically, with the same effect as if Barela and had sign-ed the same instrument. Ba:rela and hereby acknowledge their agreement and consent to the terms and co_n ditions set forth above through their respective signatures by a duly authorized representative of each party: 7 GREG BARELA d/b/a By: __ ____ Pressd' ent President Its: - - - - - - - - - - - - - - - Its: R 28 Dec2017 Dec 2017 Date: - - - - - - - - Date: Date: Date:--------- 8 _ % . . l l i t u l l m- , . 5 8 t 2 5 5 ,..._ . . . 2 l : } t e ~ i r -------------- 1 . . . . ! 5 i 3 . to.:- w 1 1 8T'Z 1 v r I ---------~-----· ---~-------' • EXHIBIT 2 From: Steven E. Biedsoe To: Cc: dshejkh@leeshejkh.com Stephen G. t arson Payment of Settlement Proceeds: Barela v. Thursday, November 15, 2018 8:00:55 PM Subject: Date: Mr. Sheikh, Our firm has been engaged to represent Greg Barela in connection with his efforts to collect the proceeds from his December 28, 2017 Confidential Settlement Agreement with As you know, pursuant to the terms of the settlement agreement, agreed to pay Mr. Barela the initial $1.6 million settlement payment on March 10,2018. Such payment was to be made via wire transfer to the client trust account of Mr. Barela's then counsel, Michael USA. Avenatti. We ask that you confirm that the $1.6 million payment was made by We also ask that you provide us with a copy of the wire transfer confirmation. We would greatly appreciate your prompt attention to this matter. I coincidentally happen to be in Chicago through noon tomorrow. If you would like to discuss this matter in person, please let me know and I will come by your office before I head to the airport. I can also be reached on my cell phone at 818-921-0306. Thank you. Best regards, Steven E. Bledsoe Partner i:AiisoN·:o;iiiiiEN. i:i:i> 555 South Flower Street, Suite 4400 Los Angeles, CA 90071 213..136.4866 Direct 213.436.4888 Office 213.623.2000 Fax sbledsoe@larsonobrienlaw com CONFIDENTIALITY NOTICE: This e-mail and any attachments are for the exclusive and confidential use of the intended recipient. If you received this in error, please do not read, distribute, or take action in reliance upon this message. Instead, please notify us immediately by return e-mail and promptly delete this message and its attachments from your computer system. We do not waive attorney-client or work product privilege by the transmission of this message. EXHIBIT 3 LARSON. O,BRIEN LLP Steven E. Bledsoe Dim:t: 213.436.4166 Email: sbledsoc@larsooobrienlaw.com VIA EMAil. November 17, 2018 David J. Sheikh, Esq. Lee Sheikh Megley& Haan 111 West Jackson Blvd Chicago, IL 60604 Re: Confidential Settlement Agreement- Barela v. Dear David: This letter follows up on my email message to you on November 15, 2018 and our telephone conversation on November 16, 2018 concerning the above-referenced matter. Our firm bas been engaged by Gregory Barela in connection with his efforts to collect the proceeds due him pursuant to the terms of the Confidential Settlement Agreement executed by Mr. Barela and on December 28,2017 ("Settlement Agreement"). Mr. Barela has been advised by Michael Avenatti that did not make the initial $1 .6 million payment due under the terms of the Settlement Agreement. I note that paragraph 12.a. on page 3 ofthe copy of the Settlement Agreement provided to Mr. Barela by Mr. Avenatti provides for the initial settlement payment to be made by on March 10, 2018. I Wlderstand from our telephone conversation that the Settlement Agreement actually provides for the initial $1.6 million payment to be made in January 2018, which is why made the payment at that time. Given these discrepancies. we ask that you promptly provide us with a true and correct copy of the Settlement Agreement executed by and Mr. Barela on December 28, 2018. We further request that you provide us with a copy of the wire transfer confinnation for the $1 .6 miJJion settlement payment made by in January 2018. as well as any written correspondence with Mr. Avenani's firm concerning or confirming the settlement payment. make all future payments.due him under the Finally, Mr. Barela requests that Settlement Agreement by wire transfer to our finn 's client trust acc01.mt. We will provide wire transfer information for our client trust account under separate cover. ~..; o F'lRST <: TREET '\'·'· ~l !TE .t'i -' · \\'A'5H!'\GTO'\ , OC : ·:> oo : • TEL LAR 'J(l ' 0 8RI E 'LA\ \ .( ( l \1 ~o~ . ;-q; . ~~o o FA X. : o~. ~-l') . -t5SS LARSON . O'BRIEN LLP Steven E. Bledsoe November 17,2018 Page2 We greatly appreciate your prompt attention to this matter. Very truly yours. LARSON O'BRIEN LLP Steven E. Bledsoe 4-40 F! R. ':T :;T RE£T ',\\ . · ':i l I T£ -'~u \ \.-\:, H I :'I.GTO:'\ DC ~uuo : · TEL. :o;.~,h~.-o o · FA:\. ; v ! .74;.-4 SS3 L:~R ) I..1 -.. L1B R IE'L -~ \\ ( 0\1 EXHIBIT 4 LEE SHEIKH :MEGLEY & HAAN Ill West Jackson Boulevard, Suite 2230 · Chicago, IDinois 60604 (312)982-0070 www.leesheikh.com David J. Sheikh Direct Dial: (312) 982-0062 dsbeikh@leeshejkh.com Confidential November 20, 2018 V~a Email: sbledsoe@.Jarsonobrienlaw.com Steven E. Bledsoe · Larson O'Brien LLP 555 South Flower Street Suite 450 Los Angeles, California 90071 Re: Confidential Settlement Agreement- Barela v. Dear Steven: This responds to your letter ofNovember 17,2018. I also received your follow-up voicemail message. I needed to discuss your letter with my client, which I have now done. At the outset, I want to reemphasize and expand on what I told you when we spoke by telephone on November 16, 2018. finally and completely resolved its dispute with Greg Barela under ~ terms of the December 20, 2017 Confidential Settlement Agreement ("Settlement ·Agreement''). The Barela v. arbitration was dismissed, with prejudice, on December 29, 2017. Furthermore, has fully complied with its obligations under the Settlement Agreement, including making the $1 .6 million payment to the account designated by Michael Avenatti on behalf of Mr. Barela. The Settlement Agreement required to make the payment by January 10, 2018, and did so by wire transfer on January 5, 2018. Any assertion that did not make the $1 .6 million payment is demonstrably false. The document that you emailed to me during our November 16, 2018 call is not a true and correct copy of the Settlement Agreement We had not seen that is not involved in Mr. Barela's dispute with Mr. document before receiving it from you. Avenatti, and is displeased that it has had to invest resources to address this matter in response to wants your inquiries. Aside from its remaining obligations under the Settlement Agreement, no further dealings with Mr. Barela, Mr. Avenatti, or anyone associated with them. You have requested that provide a true and correct copy of the Settlement Agreement and documentation confirming payment to Mr. Barela. As a precondition of providing this infonnation, I need written confirmation that all communications and information exchanged between us regarding this matter will be treated in conform~ce with the confidentiality provision in the Settlement Agreement, which states as follows: November 20, 2018 Page2 18. The Parties hereby agree that this Agreement and its terms and conditions are and will remain confidential. The Parties further agree that they will not disclose, provide, or produce this Agreemerit or its terms and conditions publicly or to any Third Party. If a Party is asked about the outcome of the Arbitration, such Party cannot disclose the existence of this Agreement or the Agreement's terms and conditions. The Parties shall only disclose that the dispute between Barela and has been resolved. Notwithstanding the foregoing: a. Either Party may disclose this Agreement to its attorneys and accountants provided that such attorneys and accountants are bound by confidentiality obligations commensurate with this provision. b. Either Party may disclose this Agreement and its terms and conditions as may be required by law, regulation, subpoena, or order of an arbitrator, a court, or other adjudicator of competent jurisdiction. Ifthis disclosure is made during the course of litigation, the disclosure must be limited to the litigating parties' outside counsel and the arbitrator, court, or other adjudicator of competent junsdiction. c. Either Party may disclose this Agreement and its terms and conditions to the extent necessary to enforce this Agreement before a court or other adjudicator of competent jurisdiction. may privately state and confirm the fact that all disputes between and Barela have been resolved in the context ofconfidential discussions with its business partners and suppliers. d. e. may disclose this Agreement and its terms and conditions to its contract manufacturer/supplier, JSP, its professional advisors, its board of directors, released Third Parties, and existing and potential investors, aequirers and purchasers, provided that such entities or individuals are .bound by confidentiality obligations commensurate with this provision. The Parties acknowledge and agree that this confidentiality provision is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree that it would be impossible, impractical or extremely difficult to fix the actual damages suffered by reason of a breach of this provision, and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100,()()0) shall be presmned to be the amount of damages sustained by reason of each such breach, without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. The Settlement Agreement requires three future payments by to Mr. Barela. You have requested that make these payments to yow firm' s client trust.account. However, this will require a formal amendment to the Settlement Agreement. Paragraph 14 ofthe Settlement Agreement states that "[e]ach of the payments specified in paragraph 12 shall be made by wire--transfer to a trust account specified in an email from Barela's counsel (Michael Avenatti) to counsel (David Sheikh) on or before January 3, 2018." On January 2, 2018, Mr. Avenatti provided the wire-transfer instructions, which are a material part of the agreement. made the $1.6 million payment into Novembei20, 2018 Page3 the account designated by Mr. Avenatti. Please prepare a proposed amendment to the Settlement Agreement that reflects your request for the future payments to be made to yom firm's client trust account instead of the trust account designated by Mr. Avenatti. Notice of the amendment will need to be provided to Mr. Aveoatti. Please get back to me regarding the above. Best regards, ~ David J. Sheikh EXHIBIT 5 LEE SHEIKH MEGLEY & HAAN Ill West Jackson Boulevard, Suite 2230 Chicago, Illinois 60604 (312) 982-0070 www.leesheikh..com David J. Sheikh Dirfct Dial: (312) 982-0062 dsbeikh@leesheikh,com Confidential November 21, 2018 Vur Email: sbkdsoe@lllrsonobrienlaw.com Steven E. Bledsoe Larson O'Brien LLP 555 South Flower Street Suite 450 Los Angeles, California 90071 Re: Confidential Settlement Agreement- Barela v. Dear Steven: This responds to your letter of November 20, 2018. Thanks for con:finning that Mr. Barela and your finn will comply with the confidentiality provisions of the Confidential Settlement Agreement executed by Mr. Barela and on December 28, 2017 (''Settlement Agreement") in connection with this matter. I have enclosed a true and correct copy of the fully executed Settlement Agreement. We are still in the process of gathering the complete wire-transfer infonnation. I will let you know when I have that information. To reiterate, the wire-trarisfer information must be treated in confonnance with the confidentiality provision in the Settlement Agreement We agree that paragraphs 18.b.-c. address the situations described in the third paragraph of your letter. To the extent the confidentiality provision in the Settlement Agreement is inconsistent with applicable legal or ethical requirements, will not assert that compliance with those requirements constitutes a breach of the confidentiality provision. Thanks for agreeing to prepare a proposed amendment to the Settlement Agreement and to notify Mr. Avenatti of the amendment. We will review the proposed amendment once we receive it. B~lfr.~ D~ Enclosure CONFIDENTIAL SEITT•JM"RNTAGUJWENT This Confidential Settlement Agreement ("Agreement") is entered into as of December 20, 2017, by and between Greg Barela, an individual who resides at 2801 Alton Parkway, Apt. 402, Irvine, California 92606 ("Barela"); and dlb/a a Colorado limited liability company with its principal p~ce of business at Barela and are collectively referred to as the "Parties." Becitala Barela and are parties in an arbitration pending before Magistrate Judge Boyd N. Boland (Ret.) styled Greg Barela v. d/b/a JAG Arbitration No. 2015·1031A (the "Arbitration"). In the Arbitration, Barela asserted claims for correction ofinventorsbip ofU.S. Patent No. 8,662,787; a declaration that Barela is a co-owner with of U.S. Patent No. 8,662, 787; trade secret misappropriation; and unjust enrichment. disputed Barela's claims. On December 20, 2017, Barela and agreed to a final compromise and settlement of the Arbitration and all disputes between the.D,l. Specifically, the Parties entered into a binding and enforceable agreement setting forth the terms and conditions of their final compromise and settlement, and further agreed to enter into a formal written agreement by December 29, 2017. This Agreement formally sets forth the terms and conditions of the Parties' agreed ·to final compromise and settlement of the Arbitration and all disputes between them. De.fiDltioDS •. For purposes of this Agreement, the following terms have the following meaniD.gs: 1. A Party's "Affiliate,. means an entity or individual that Controls, is Controlled by, is Controlling, or is under common Control with respect to the Party. 2. "Asserted Trade Secret" means: All trade secrets that were or could have been asserted by Barela in the Arbitration, including but not limited to the Paver Invention. Patent Rights" means: (a) U.S. Patents Nos. 8,662, 787; 3. '' 8,827,590; 8,967,905;.D645,169; 8,236,392; 8,353,640; D637,318; and 7,244,477; and (b) all provisional applications, parent applications, continuations, continuations-inpart, divisionals, e~tensions, renewals, substitutions, reisaues, reexaminations, inter partes reviews and foreign counterparts of any of the patents identified in (a). "Control" (including, with correlative meanings, "Controls," "Controlled .by'' and "Controlling") means the power to direct or to cause the direction of the management and policies of an entity or an individual, directly or indirectly, whether through ownership of voting securities, by contract, or otherwise. With respect to a corporation, limited liability company, partnership or other entity, control includes direct or indirect ownership of at least fifty-one percent (51%) of the voting stock, limited liability company interest, partnership interest or other voting interest (or equivalent interest) .in such corporation, limited liability company, partnership or other entity. 4. 5. "Released Products, means: All products involving any of the Patent Rights created, designed, made, used, offered for sale, distributed, sold; or imported by, for, or under license from or any predecessor, Successor or Affiliate of Released Products include, but are not limited to, Underlayment products sold under the name PaverBase®. "Successor'' means a Third Partythat: (a) acquires substantially all the assets of either Party; or (b) acquires all .or a portion of business relating to the Patent Rights andlor the Released Products; or (c) results from a reconstruction. amalgamation, merger, consolidation or reorganization of or with 6. 7. ''Third Party" means any entity or individual other than Barela or 8. "Underlayments" means underlayments for use with pavers, patio stones and other paving elements for pedestrian and/or vehicle traffic. warranties and Representations 9. Barela, on behalf of himself and his predecessors and Affiliates, warrants and represents that he has the authority to enter into and be bound by this Agreement. 10. Barela. on behalf of himself and his predecessors and Affiliates. warrants and represents that he is unaware of any claim by a Third Party against related to the Asserted Trade Secret, the Patent Rights or the Released Products. 2 11. on behalf of itself and its predecessors and Affiliates, warrants and represents that it has the authority to enter into and be bound by this Agreement. Payments to Barela 12. will pay the total sum of One Million Nine Hundred Thousand U.S. Dollars (USD 1,900,000) to Barela as follows: a. The sum of One Million Six Hundred Thousand U.S. Dollars (USD 1,600,000) will be paid by to Barela on January 10, 2018;and b. The sum of-One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2019; and c. The sum of One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2020; and d. The sum of One Hundred Thousand U.S. Dollars (USD 100,000) will be paid by to Barela on January 10, 2021. 13. The payments specified in paragraph 12 are subject to Barela's (including his predecessors, Successors, assigns, heirs and Mfiliates) ongoing compliance with the Agreement. Each of the payments specified in paragraph 12 shall be made by wire14. transfer to a trust account specified in an email from Barela's counsel (Michael Avenatti) to counsel (David Sheikh) on or before January 3, 2018. Waiver and Releases 15. Barela, on behalf of himself and his predecessors, Successors, assigns, heirs and Mfiliates, hereby waives, releases and forever discharges all claims to any rights or interest in or to the Patent Rights and the Released Products including, without limitation, the ability or right to challenge, directly or by assisting a Third Party, to the inventorship, validity or enforceability of any of the Patent Rights, including any lawsuit. protest, opposition, interference, post·grant review, reexamination, inter partes review or the like in any court or governmental agency anywhere in the world. · 16. Barela, on behalf of himself and his' predecessors, Successors, assigns, heirs and Affiliates, hereby releases including its predecessors, Successors, assigns, heirs and Affiliates, from any and all claims, liabilities, demands and causes of action, whether or not now known, suspected or claimed, which Barela ever had, 3 now has or claims to have, regarding the Patent Rights and/or the Released Products, including any such claims that were or could have been asserted in a court,. in the Arbitration, or in any other proceeding. 17. on behalf of itself and its predecessors, Successors, assigns, heirs and Affiliates, hereby releases Barela, including his predecessors, Successors, assigns, heirs and Affiliates, from any and all claims, liabilities, demands and causes of action, whether or not now known, suspected or claimed, which ever had, now has or claims to have, regarding the Patent Rights and/or the Released Products, including any such claims that were or could have been asserted in a court, in the Arbitration, or in any other proceeding. Confidentiality 18. The Parties hereby agree that this Agreement and its terms and conditions are and will remain confidential. The Parties further ·a gree that they will not disclose, provide, or produce this Agreement or its terms and conditions publicly or to any Third Party. If a Party is asked about the outcome of the Arbitration. such Party cannot disclose the existence of this Agreement or the Agreement's terms and conditions. The Parties shall only disclose that the dispute between Barela and has been resolved. Notwithstanding the foregoing: a. Either Party may disclose this Agreement to its attorneys and accountants provided that such attorneys and accountants are bound by confidentiality obligations commensurate with this proV1s10n. b. Either Party may disclose this Agreement and its terms and conditions as may be required by law, regulation. subpoena, or order of an arbitrator, a court, or other adjudicator of competent jurisdiction. If this disclosure is made during the course of litigation, the disclosure must be limited to the litigating parties' outside counsel and the arbitrator, court, or other adjudicator of competent jurisdiction. c. Either Party may disclose this Agreement and its terms and conditions to the extent necessary to enforce this Agreement before a court or other adjudicator of competent jurisdiction. d. may privately state and confirm the fact that all disputes between and Barela have been resolved in the context of confidential discussions with its business partners and suppliers. 4 e. may disclose this Agreement and its terms and conditions to its contract manufacturer/supplier, JSP, its professional advisors, its board of directors, released Third Parties, and existing and potential investors, acquirers and purchasers, provided that such entities or individuals are bound by confidentiality obligations commensurate with this provision. The Parties acknowledge and agree that this confidentiality provi.s ion is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree that it would be impossible, impractical or extremely difficult to fix the actual damages suffered by reason of a breach of this provision. and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100,000) shall be presumed to be the amount of damages sustained by reason of each such breach, without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. 19. Each Party (including each Party's respective officers, directors, employees, predecessors, Successors, assigns, heirs and Affiliates) agrees not to make any false, negative, critical or disparaging statements, implied or express, written or oral, concerning the other Party (including the other Party's officers, directors, employees, predecessors, Successors, assigns, Affiliates and licensees) or the products, services or business operations of the other Party (including the other Party's predecessors, Successors, assigns, heirs, Mfiliates and licensees). Each Party (including each Party's respective officers, directors, employees, predecessors, Successors, assigns. heirs and Affiliates) further agrees to do nothing that would damage the business reputation or good will of the other Party (including the other Party's officers. directors, employees. predecessors, Successors, assigns, heirs, Affiliates and licensees); provided, however, that nothing in this Agreement shall prohibit either Party's disclosure of information that is required to be disclosed in compliance with applicable laws or regulations or by order of an arbitrator, a court, or other adjudicator of competent jurisdiction. For the avoidance of doubt, this provision prohibits Barela (including his predecessors, Successors, assigns, heirs and Affiliates) from asserting, stating, or suggesting that Barela is an inventor or joint inventor of any of the Patent Rights, that the Patent Rights or the Released Products use or incorporate any trade secrets or other intellectual property Patent Rights or the of Barela, that Barela contributed in any way to the Released Products. or that Barela has any rights or interest in any of the Patent Rights or the Released Products. The Parties acknowledge and agree that this 5 non-disparagement provision is a material term of this Agreement and that a failure to comply with it constitutes a material breach of this Agreement. The Parties agree that it would be impossible, impractical or extr emely difficult to fix the actual damages suffered by reason of a breach of this provision, and accordingly hereby agree that One Hundred Thousand U.S. Dollars (USD 100,000) shall be presumed to .be the amount of damages sustained by reason of each such breach. without prejudice to the right of the non-breaching Party to also seek injunctive or other equitable relief, if appropriate. Resolution of the ArbitratiOn 20. Upon execution of this Agreement by both Parties, the Parties will voluntarily dismiss, with prejudice, all claims and defenses made against each other in the Arbitration. Each Party will pay its own fees, costs, and expenses, including attorneys' fees. Each Party will have the right to apply to the Judicial Arbiter Group, Inc. for a refund of its share of the arbitration fees that were deposited to reserve the Arbitration hearing dates. Notices 21 . Any notices required by this Agreement shall be made by email and express mail delivery or courier, signature required, postage pre-paid as follows: For For Barela: Greg Barela clo Michael Avenatti, Esq. 520 Newport Center Drive Suite 1400 Newport Beach, CA 92660 Email= mavenatti\i:"i:eaganavena tti .t'Ol!l With a copy to: David J . Sheikh Lee Sh eikh Megley & Haan 111 West Jackson Boulevard, Suite 2230 Chicago, Illinois 60604 Email: dsheikh@leesheikh.eom I 1 ! 1 6 Miscellaneous 22. Nothing in this Agreement shall be deemed to create or constitute a partnership, agency, employer-employee or joint venture relationship between Barela and 23. The Parties acknowledge that they were represented by their respective counsel in connection with their settlement and this Agreement. This Agreement shall be interpreted according to its fair construction and shall not be construed against either Party. 24. This Agreement represents the entire agreement between Barela and with respect to the subject matter of this Agreement, and supersedes all prior agreements, proposals, or understandings, whether written or oral, between Barela and This Agreement may not be modified, changed, amended, supplemented or rescinded except pursuant to a written instrument duly executed by Barela and 25. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned or transferred by any Party without the prior written consent of the other Party. 26. This Agreement is governed by, and construed in accordance with, the laws of the State of Colorado. 27. If any provision or portion of a provision of this Agreement is held by an arbitrator, a court, or other adjudicator of competent jurisdiction to be invalid under any applicable statute or rule of law, such arbitrator, court or other adjudicator is authorized to modify such provision to the minimum extent necessary to make it valid, and the remaining provisions or portions of provisions of this Agreement shall in no way be affected or impaired thereby. 28. This Agreement may be executed by Barela and in separate counterparts and exchanged electronically, with the same effect as if Barela and had sign-ed the same instrument. Ba.r ela and hereby acknowledge their agreement and consent to the terms and condition~ set forth above through their respective signatures by a duly authorized representative of each party: 7 GREG BARELA IGREGBARELA — d/b/a d/b/a II By: ___ By: ____ President President Its:----------------Its: 28 2017 28 Dec 2017 Date: - - - - - - - - Date: Date: D ate:---------- 8 I fr-ODG--~~----------i-BilO t -·----~ ....- - - - - - - l ~ ~. ~ ; ·~ --------..-- ' ~ -- . . __ _ _ _ _ _ _ _ _ ___L_ _ _ _ _ _ _ _ .... - - - --- .. 8 -- ------~ ............: EXHIBIT 6 AJ>DENDUM TO CONFIDENTIAL SE'ITLEMENT AGREEMENT This Addendum to Confidential Settlement Agreement ("Addendum") is ente.t-ed into as of January 3, 2019, by and between Gregory Barela ("'Barela,), and dlb/a . Barela and are collectively referred to as the "Parties.•• Recitals Barela and entered into a Confidential Settlement Agreement \•Agreement'') as of December 20, 2017 that was signed by the Parties on December 28, 2017. Paragraph 12 ofthe Agreement provided that ould make the following f01lf settlement payments to Barela: (1) $1.6 million by January 10, 2018; (2) $100,000 by January 10, 2019; (3) $100,000 by January 10, 2020; and (4) $100,000 by January 10, 2021. Paragraph 13 of the Agreement provided that "the payments specified in paragraph 12 shall be made by wire-transfer to a trust account specified in an email from Barela's counsel (Michael Avenatb) to counsel (David Sheikh) on or before January 3, 2018." On January 2, 2018, Avenatti sent an email to Sheikh that specified an account and providt?d wire-transfer instructions. On January 5, 2018 made the initial $1.6 million settlement paymentbywjre transfer to the account specified by Avenatti and has provided Barela with a wire transfer confirmation showing that the payment was made by and received into the account designated by Avenatti. Accordingly, has fully complied with its obligation to make the initial $1.6 million payment by January 10, 2018. li I I Barela has represented to that paragraph 12 of the partial copy ofthe Agreement that Avenatti provided to Barela on December 28, 2017, and the complete copy of the Agreement that Avenatti's office provided to Barela on or about June 29,2018, contain payments dates ofMarcb 10,2018, March 10,2019, March 10,2020, March 10,2021, respectively, for settlement payments to Barela. Avenatti told Barela that the settlement payments were payable in March of each year (not January). I II At the request of Barela, on November 21, 2018, provided Barela with a true and correct copy of the fully executed Agreement which states that the initial payment of$1.6 miUion was due by January 10, 2018; a payment of$100,000 is due by January 10, 2019; a payment of $100,000 is due by January 10, 2020; and a payment of $100,000 is due by January 10,2021. l ! i I Barela has represented to that Avenatti has repeatedly represented to him that did not make the initial $1.6 million payment due under the Agreement and that Avenatti has been making efforts to collect the $1.6 million that had allegedly failed to pay on the purported March 10, 2018 due date specified in the copies ofthe Agreement Avenatti provided to Barela. I l I Barela has retained new counsel, Steven E. Bledsoe and Stephen G. Larson ofLarson O'Brien LLP, to represent him with respect to his efforts to collect the amounts due to him under the Agreement. f~' Barela has represented to that Avenatti has not responded to Larson O'Brien's November 17 and December 5, 2018 letters toAvenatti requesting that he: (1) confinn, in writing, his representations to Barela that had failed to make the initial $1.6 million payment due undeJ" the terms of the Agreement; (2) promptly provide a true and correct copy of the Agreement; and (3) provide an immediate accounting in the event had made the initial $1.6 million payment provided for in the Agreement Barela has requested that make all further payments due to him under the Agreement via wire transfer to the trust account of Larson O"Brien LLP and, based on Barela•s above-referenced representations, has agreed to do so. Agreement 1. will pay all future amounts due under the Agreement to the trust account of Larson O'Brien LLP, as follows: Wells Fargo Bank 433 N. Camden Drive Beverly Hills, CA 902'1 0 ABA Routing No: 121000248 Account No.: 2776 Account Name: Larson O'Brien LLP IOLTA Trust Account 2. Any future notices to Barela required by the Agreement shall be made by email and express mail delivery or courier, signature required, postage pre-paid to: Gregory Barela, c/o Steven E . Bledsoe, Esq., Larson O'Brien LLP, 555 S. Flower Street, Suite 4400, Los Angeles, CA 90071. This Addendwn may be executed by Barela and and exchanged electronically, with the same effect as if Barela and 3. in separate counterparts had signed the same instrument B~ela and hereby acknowledge their agreement and consent to the terms and conditions set forth above through their respective signatures: GREGORY BARELA ~f' I /7 ( Date: January 3, 2019 ~ I By:'/ £-~.1 Date: January}_, 2019 · ark Buckley CFO and VP of Administration -2 - DECLARATION OF JOY NUNLEY STATE BAR OF CALIFORNIA OFFICE OF CHIEF TRIAL COUNSEL MELANIE J. LAWRENCE, No. 230102 INTERIM CHIEF TRIAL COUNSEL ANTHONY J. GARCIA, No. 171419 ASSISTANT CHIEF TRIAL COUNSEL ANAND KUMAR, No. 261 592 SUPERVISING ATTORNEY \OOONONUIAMNH ELI D. MORGENSTERN, No. 190560 SENIOR TRIAL COUNSEL 845 South Figueroa Street Los Angeles, California 90017-2515 Telephone: (213) 765-1334 STATE BAR COURT HEARING DEPARTMENT - LOS ANGELES In the Matter of: Case No. ) ) MICHAEL JOHN AVENATTI, DECLARATION OF JOY NUNLEY ) No. 206929, ) (OCTC Case No. ) 19--TE-16715) NNNr—iu—dHH—A—np—Ar—Ay—An—n ‘ ) A Member of the State Bar I, ) Joy Nunley, declare: 1. A11 statements made herein knowledge unless indicated as based are true and correct and are based on information or belief, and on my personal as to those statements I am §8§8§8-oomgo~mgm-o informed and believe them to be statements 2. true. If necessary, I could and would competently testify to the made herein. I am an investigator employed by the Office of Chief Trial (“State Bar”). I Counsel 0f the State Bar have been employed as a State Bar Investigator for over 28 3. On February 4. Case Number 19-0-10483 1, 2019, I was assigned is to investigate years. OCTC case number 19-0-10483. based upon a complaint submitted by Mr. Steven E. Bledsoe, an attorney, on behalf of Mr. Gregory Barela, against Mr. Michael John Avenatti, the respondent in these disciplinary proceedings. I have checked the records maintained by the State -1- Bar and confirmed that respondent was admitted to the State Bar on June 1, 2000, and does not have a prior record of discipline. 5. The gravamen of Mr. Bledsoe’s complaint on behalf of Mr. Barela is that: between on 0r about December 22, 201 7, and on or about December 27, (i) 201 7, respondent negotiated a settlement agreement with the Settling Partyl on behalf of Mr. Barela, respondent’s client; \OOOQQUIA (ii) the settlement agreement required the Settling Party to payment of $ 1 ,600,000 by January 10, make an initial 201 8, and three additional payments of $100,000 by January 10 of 2019, 2020, and 2021, 10 respectively, for a total 11 (iii) of $1,900,000; on December 28, 201 7, unbeknownst to Mr. Barela, respondent provided 12 Mr. Barela with an altered copy of the settlement agreement which falsely 13 represented the payment schedule as $1,600,000 due by 201 8, 14 and $100,000 due by March 10 of each of the three subsequent years; 15 (iV) 16 March 10, on December 28, 2017, respondent provided a signature page bearing Mr. Barela’s signature t0 the Settling Party’s attorney; 17 on December (V) 29, 201 7, respondent received a complete copy of the fully 18 executed settlement agreement with Mr. Barela’s and the Settling Party’s 19 signature, 20 negotiated 21 (vi) which included the payment schedule on January 2, 23 trust on January the 26 designated 28 initial $1,600,000 settlement payment to the client account designated by respondent; 25 27 Barela; 201 8, respondent sent an email to the Settling Party’s attorney to wire the (vii) had actually been by respondent but had been concealed from Mr. 22 24 that initial 5, 201 8, as instructed by respondent, the Settling Party wired $1,600,000 settlement payment t0 the client by respondent trust account in his January 2, 201 8 email; 1 The corporation agreement. is not identified by name due to the confidentiality -2- 0f the settlement (viii) afier subtracting respondent’s contingency fee, maintain approximately $840,000 in the client respondent was required to trust account on behalf of Mr. Barela; (ix) between March 201 8 and November 201 8, respondent responded Mr. Barela’s inquiries concerning the status to of his settlement funds with \OOOQONLIIfiUJNW lies (x) and evasions; between April 5, 201 8, and November Mr. Barela with a total “advances” on the 5, 201 8, respondent provided of $130,000, which respondent referred initial to as settlement payment, which respondent falsely represented to Mr. Barela as not having received; (xi) to date, respondent has not paid owes (xii) t0 Mr. Barela; and respondent never provided Mr. Barela with an accounting of the settlement The January 6. NNv—AHr—Iwu—Ap—Ap—AH—‘r—A Mr. Barela the remaining $710,000 that he 2, fimds or his client file. 201 8 email from respondent to the Settling Party’s attorney was one of the numerous documents that Mr. Bledsoe attached to his State Bar complaint. In the email, respondent instructed the Settling Patty t0 wire the initial $1 ,600,000 payment to City National Bank, account no. xxxxx5566.2 On April 7. 24, 2019, pursuant to the State Bar’s subpoena, the State Bar received §§88§BB~oomqamaw-o records related to City National Bank, account no. xxxxx5566. Avenatti Attorney Client Trust Account copy of the bank records related to the Barela Afier I received the bank 8. Excel spreadsheet based on them. prepared 9. 2 The fiJll is (BAR Settlement)” (“Barela CTA”). records for the Barela “Michael CTA, I reviewed and prepared an I 2. omitted for privacy reasons. I J. A true and correct A true and con'ect copy of the Excel spreadsheet that In addition to creating the Excel spreadsheet, is is titled, CTA are attached to thjs Declaration as Exhibit attached to this Declaration as Exhibit account number The account also created a chart wherein I sorted 1. the outgoing debits fiom the Barela CTA by payee. A true and correct copy of the chart I created sorting the outgoing debits from the Barela Exhibit CTA by payee is attached to this Declaration as 3. 10. The subpoenaed bank records (i) on January establish that: 201 8, the $ 1 ,600,000 5, initial wired by the Settling Party into the Barela settlement payment was CTA; \OOOQONUIA (ii) prior to January 5, 201 8, the balance in the Barela (iii) the January 5, 201 8, wire transfer was the fi_rs§ and any kind made into the Barela CTA, not including 10 (iV) respondent never paid himself or his law firm in CTA was $0.00; la_st deposit of interest; one lump sum the ll contingency fee of $740,000 to which he was entitled per his fee 12 agreement with Mr. Barela; 13 (V) respondent made numerous withdrawals from the Barela 14 his 15 payable t0 Edward Ricci, a Florida attorney, on January own personal benefit, including purchasing a cashier's check 16 the 17 Roasters between January 18 total 19 between January 20 amount 0f $43,505.41; and one wire 21 to 22 (vi) 23 24 27 28 8, 201 8, 16, 12, transfers to Alki (vii) by January Coffee Bakery total amount of $44,791 .45; 201 8, the balance in the Barela 10, CTA decreased to 201 8, the balance in the Barela CTA decreased to $760,036.25; (viii) By March $4,621 .73. 9, 201 8, the balance in the Barela in on January 24, 201 8 transfer in the 2018 201 8 in the 201 8, and February 12, 2018 in the TD Ameritrade Clearing Inc. 8, to Dillanos and February amount of $120,187.03; four wire 8, $924,089.25; 25 26 amount of $617,840.44, five wire transfers by January CTA for CTA decreased to (ix) by March 10, 201 8—the date that Mr. Barela anticipated respondent would receive the first installment of the settlement funds—respondent had already disbursed A parties approximately $835,378.27 (i.e., to himself 0r other third 99% of the $840,000 respondent was required to maintain in the Barela CTA); (x) by March wired the \OOOQQUI 14, 201 8, about two months afler the Settling Party initial settlement payment 0f $1,600,000 into the Barela CTA, and before respondent had made any disbursements the benefit of, Mr. Barela from the Barela 10 Barela 11 (xi) CTA, the balance in the 15, 2019, about one year afier the Settling Party wired 12 the initial settlement 13 and before respondent had made any disbursements benefit 15 Barela 16 (Exhibit 17 1, at of, payment of $ 1 ,600,000 into the Barela to, CTA, or for the Mr. Barela from the Barela CTA, the balance in the CTA was $0.00. pp. 7-21, 25-35, and Exhibits 2-3 attached hereto.) On February 27, 11. or for CTA was $609.87; and by January 14 to, 2019, I sent Ms. Ellen Pansky, respondent’s counsel, a letter via 18 U.S. Mail and email asking her to respond to the allegations of misconduct being investigated 19 the State Bar in connection with 20 2019. 21 12. On March l4, 2019, OCTC case number Ms. Pansky sent me a 22 an extension of time to respond to 23 the extension. 24 25 26 27 13. On March 21 , 19-0-10483 by no letter later than an additional extension of time to respond to me a letter via U.S. I agreed to Mail and email requesting my February 27, 2019 letter to April 1, 2019. agreed t0 the extension. 14. I am informed and believe that on Monday, March 24, 28 -5- 15, via U.S. Mail and email requesting my February 27, 201 9 letter to March 22, 2019. 201 9, Ms. Pansky sent March by 2019, the United States I Attorney for the Southern Distn'ct of New York and for the Central District of California N coordinated to arrest respondent at the same time for unrelated charges. I am informed and believe that the United States Attorney for the Southern District arrested respondent in connection with charges filed in the matter United States ofAmerica titled v. Avenatti, United States District Court, Southern District of New York, Case Michael John Number 1:19-mj- COGNQUIAUJ am informed and believe that the complaint filed 02927-UA-1. I UA-l charges that respondent tried to extort millions company. 15. number 1:19-mj-02927- of dollars from Nike, Inc., the apparel A true and correct copy of the complaint in Case Number 1:19-mj-02927-UA—1 downloaded from 10 in case I PACER on April am informed 29, 2019 is that I attached to this Declaration as Exhibit 4. and believe that the United States Attorney for the Central District of 11 California arrested respondent in connection with charges filed in the matter titled United States 12 ofAmerica 13 (Southern Division-Santa Ana), Case 14 the complaint filed in case 15 client, 16 A true and correct copy of the complaint in Case Number 8:19-mj -00241 filed as to respondent 17 and approved by Magistrate Judge Douglas 18 from Michael John Avenatti, United States 16. letter, number 8: Number 1 8: 1 District Court, Central District 9-mj-00241. 29, On March 29, Ms. Pansky stated, 2019 is I am informed of California and believe F. by using McCormick false tax returns to obtain a loan. as t0 respondent that attached to this Declaration as Exhibit 2019, Ms. Pansky sent me letter via U.S. I downloaded 5. Mail and email. In the among other things: 21 “As 22 23 am sure you are also well aware, Mr. Avenatti was arrested New York last Monday, and he is being charged in criminal proceedings in both New York and California. As he was compiling information for me to use t0 provide the response due to your office, I in 24 his computers 25 not possible for 26 27 28 and files were seized by the authorities, and he also is now precluded from communicating with his assistant. Consequently, it is needed to him complete that 9-mj-00241 charges respondent with embezzling from a specifically Mr. Barela, and defrauding a bank PACER on Apn'l 19 20 v. me with the information and materials my letters of explanation.” to provide A true and correct copy of Ms. Pansky’s March 29, 2019 letter is attached to this Declaration as Exhibit At no time has Ms. Pansky provided a substantive response 6. to the allegations of misconduct being investigated by the State Bar in connection with Case Number 19-0-10483. 17. I am informed and believe that on April 10, 201 9, the United States Attorney for the Central District of California filed an indictment against respondent in a criminal matter titled \OOOQONMAWNH United States ofAmerica v. Division—Santa Ana), Case among other respondent, including Mr. Barela. 00061 (JVS) Exhibit 1 I I 29, 8:]9-cr-00061 (JVS). Court (Southern The indictment charges that charges, embezzled funds belonging to four of his former clients, A true and correct copy of the Indictment in Case Number CR 8: 1 9-cr- PACER on April 29, 2019 is attached to this Declaration as downloaded from am informed and believe that on the same day, 9-mj-00241 was merged into Case copy of the docket NNNNHH—I—Ap—u—nr—au—tp—Ir—u Number CR District 7. 18. 8: that Michael John Avenatti, United States 2019 is 19. for Number 8:19-cr—00061 and Case Number 8:19-mj—00241 attached to this Declaration as Exhibit I am informed April 10, 2019, Case i.e, and believe that on that I terminated. downloaded from Number A true and correct PACER 0n April 8. May 22, 2019, the United States Attorney for the Southern District 0f New York filed an indictment against respondent in a criminal matter United States ofAmerica v. Michael John Avenatti, United States of New York, Case Number District among other charges, embezzled Indictment in Case Number CR 19-Cr. 374. 19 Cr. 374 that I District Court, Southern The indictment charges funds belonging to a fifih client. downloaded from titled that respondent, A true and correct copy 0f the PACER on May 28, 2019 is attached to this Declaration as Exhibit 9. I declare under penalty of perjury under the laws of the State of California that the foregoing is true Los Angeles, and correct and that this Declaration is executed this 3rd day of June, 2019, California. q “/LQV JoW®y Declarant at EXHIBIT 1 Frc..rn: 03/261 #053 P . 002/009 19 12:28 THE STATE BAR OF CALIFORNIA 19 0325 OFFICE OF CHIEF TRIAL COUNSEL - SUBPOENA (California Business and Professions Code Sections 6049 to 6052 and 6069) Received ) ) ) ) A State Bar lnvestigalion. ) --------------------) MAR 2ti 2019 Case No. 19-0-1 04&3 In the Matter of lNV.ESTJGATrON SUBPOENA FOR PRODUCTION OF DOCUMENTS AND TIUNCS · (TRUST ACCOUNT FINANCIAL RECORDS) Compliance Support Custodian of Recorda TH£ STATE BAR OF CALIFORNIA, TO: City National Bank ~(} \l''oo'j. Jr>EJ~~~!IJ~IMIN IN TI:IE SUPERIOR COURT OF THE STATE OF CALIFORNIA.. Date issued: March 20,2019 Nunlcy/Avcn~oi~831CfA , SDT/ W$S p~~n~grapb I, but not sooner than IS days after service of the subpoenL 03/26, 19 12:29 #063 P.OOS/009 Case Number: 19-0-10483 ATTACHMENT #1 Records relating to Account No. 5566, Account ofMicbael Avenatti, BAR Settlement, including: 1. Monthly statements issued for the period from January 1, 2018, to the present; 2. All signature cards pertaining to said account; 3. Front and back sides of checks issued from said account from January I, 2018, to the present; 4. Deposit slips for the period from January 1, 2018, to the present; 5. Front and back sides of checks, offsetting debits, and other items deposited into said account for the period from January l, 2018, to the present; 6. Any and all documents evidencing electronic debits and credits from January 1, 20 18, to the present; 7. All documents pertaining to all Cashier's Checks, Bank Checks, and Money Orders purchased or negotiated, from said account from January 1, 2018, to the present, including but not limited to : • Documents (checks, debit memos, cash-in tickets, wires in, etc.) reflecting the means by which the checks or money orders were purchased; and • Documents (bank checks, credit memos, cash-out tickets, wires out, etc.) reflecting disbursements of the proceeds of any negotiated checks or money orders; 8. All documents pcrrtaining to wire transfers sent or received from said account for the period from January I, 2018, to the present, including but not limited to: • Fed Wire, CHIPS, SWIFT, or other money transfer of message documents; • Documents (checks, debit memos, cash-in tickets, wires in, etc.) reflecting the source of the funds wired out; • Documents (bank checks, credit memos, cash-out tickets, wires out, etc.) reflecting the disposition within the bank of the funds wired in; and • Correspondence files; and 9. All Currency Transactions Reports (Fonns 4789) and Currency and Monetary Instrument Reports from January 1, 2018, to the present. It is requested that the data relating to monthly statements and individual transactions be produced in an electronic format in Microsoft Excel format, or in .csv file format, with information including field descriptions (e.g., account number, date/time, description, payee/payor, check number, item identifier, and amount), and in .pdf image file fonnat. l 0. It is requested that image data regarding canceled checks and deposited items be produced in graphic data files in a non-proprietary or commonly readable format with the highest image quality maintained (e.g., in a .jpg format or a .pdffonnat). Image data of items associated with specific transactions (e.g., checks, deposits) shall be produced in individual graphic data files with any associated endorsements, and linked to corresponding text data by a unique identifier. (Page 1 of 4) M . Cl'riNATIONALBANK The way up.· l:f Q. .A BUSINESS ACCOUNT AGREEMEN_ T ___, / GENERAL ACCOUNT INFORMATION Account Holder(s) ("Ciient")/dba: MICHAEL J AVENATil ESQ. ATIORNEY CLIENT TRUST ACCOUNT Type of Account: CA JOLTA State Bar Accl Mailing Address: 520 NEWPORT CENTER DR SUITE 1400"NEWPORT , CA 92660 Telephone: A . ·--- ~~ - ~~~::::::;:::::::::::::;::; / Account Number: E-Mail/Fax: Information on FHe - ,::T:i!ShA 70::.;1:.:-4.::;35::.;1~2---------- Information on File REPRESENTATION FOR INTEREST BEARING ACCOUNT By signing beJOII(, 1/We represent and warrant City National Bank ("CNB") that all fundS In the referenced account are held solely for the benefit of natural pe!Sons or by a non-profit organilation operated primarily for religious, philanthropic, charitable. educational or other simlar pur'pose. MINIMUM NUMBER OF SIGNATURES REQUIRED FOR AUTHORIZED WITHDRAWAL: .Signature Message Code: _N_ON_E_ __ __ _ __ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ - - --- --- Taxp;~yer Information BY SIGNING THE "AGREEMENT BY CLIENr BELOW, 1/WE CERTIFY UNDER PENALTIES OF PERJURY THAT: 1. 2. 3. 4. 5. l'HE CORRECT TAXPAYER IDENTIFICATION NUMBER OF THE ACCOUNT HOLDER IS: -493-90-2-479 ; and, THE TAXPAYER IDENTIFICATION NUIIABER USED FOR TAX REPORTING PURPOSES IS THAT OF THE APPLICABLE STATE BAR ASSOCIATION CORRESPONDING TO THE STATE IN WHICH THE ACCOUNT IS MAINTAINED (TIN AVAILABLE UPON REQUEST); and, THE ACCOUNT HOLDER IS NOT SUBJECT TO BACKUP WITHHOLDING DUE TO FAILURE TO REPORT INTEREST AND DIVIDE NO INCOME; and, l'HE ACCOUNT HOLDER IS A U.S. PERSON OR A U.S. RESIDENT ALIEN; and, THE ACCOUNT HOLDER IS EXEMPT FRQM FATCA REPORTING AND THE FATCA CODE (if any) ENTERED IS CORRECT EXCEPT (Ched\ applicable box) D The Account Holder is currently subject to bad\up withholding and has not been notified by the lntemat Revenue SeJVice that backup withholding has been terminated. 0 The Account Holder is a Non-Resident Alien, Foreign Citizen or Foreign Entity and is exempt from backup withholding and information re~!]!l and an !J)Jl~Q!iate IRS Form W-8, Foreign Status Certificate has been com11leted. ---- Exemption from backup \Mthholdfng payee code (if eny) _ _ _ Exemption from FATCA reporting code for acoounts outside US only _ _ _ Govemmenl Regulation may require that CNB report Interest lnc:oma Information CERTIFICATION OF AUTHORITY By signing the "Agreement by Client" below. each signer declares under penally of perjury under the laws of the state where Signed that the following is true and correcl: (1) The signer holds the title, office. or position Indicated and Is authorized by the Client to make this declaration and sign the Agreement on behall of the Client; (2) If the Client is (a) a sole proprietorship, the signer is the sole proprietor: (b) a partnership, the signer is a· general partner, or a manag~Mtr~C}"Tlimitea-lial)ilil~hli""""Slgnerlntllf"Marra·g-eror-Memoor ces1gnateato aclont5ellallortffir"Ciienronfl"' e _ _ _ _ __ signers are all of the Managel"5-or Member so designated; (3) Tl)e signer is authorized to enter into deposit, fund transfer, brokerage, Investment and trea$Ury managsment agreement and deposit sel\llce agreement(&) on behalf of Client and to designate person(s) authorized to (a) act on behalf of Client and (b) designated per.ions as "Authorized Signors· on any accounts of Client established hereunder; and (4) When $1gned below no other person·s signature or authorization is required :to make the Agreement by Client binding and enforceable on the Client. (5) Thi:. euthoriZaUon Is In a~ditiotl to all otller authorizations now In existence. IMAGED BY:,-=-=--""="""__.,,_, 5117/2017 Page 1 of 4 JAI~ 0 J Llf:~ Citv National Bank Revised 4/1/20t 7 CENTRAL OPS #025 NEW ACCOUNTS SERVICES or (!?age 2 4) Account Title : Account Number: T N E D ~ Y B T N E M E E R G A - - - - - - - ----!MIGHAEl--.f~AVENA'Rf~ESe:-AH0RNEY-GI:IEN1-T-RtiS1--A€€01:1NT-'------ 3512.-------------- __________________________________________________________________________________ On behalf of the named Client, by signing below 1/We acknowledge receipt of the Account Agreement and Disclosures and applicable disclosures and fee schedule(s) containing the tenns, conditiOns and fees governing the account(s), products and services designated above and any accounts designated under "Additional Accounts" below and any products and services taler contracted for, as amenclecl by disclosures and fee &chedule(s) provideel at the time of contracting. 1/We agree that these tenns, conclitions end fees go~~em each account eslilblished with City National Bank ("CNB"J or City National Securities. Inc. ("CNSj and eaCh service now or later contracted for, a& amended by later disclosures. IMie agree that CNB or CNS may provide additional tenns, COnditions and fees from time to time, depending upon the products and services selected by melur. and that CNB or CNS may amend or Change these tenns, conditions and fees from lime to time on any required notice. II any terms. condiUons, fees and any changes thereto are not acceptable to meJ\.ta, l/We w~l dose the account(s) or discontinue the service. 'Mlere applicable, my/our continued use ot the products ·and/or services after receipt of the tenns, condWons. fees and amendments consUMe my/our acceptance of such terms, conditions. fees and amendments thereto. IM'B agree \hat the Authorized Signer(s) may withdraw funds and initiate and conflnn payment orders pursuant to the security procedure selected respecting the account(s) and each Authorized Signer may establi&h additional accounts with CNB or CNS .in the same name(s) and subject to the same signing aUthority atatec! ab011e, contract for additional services for the account(s), and otherwise give inslrudion to CNB or CNS. If 1/\Ne indicated we would like Information aboul the products and services of CNS, you are authorized to share information about melus between CNB and CNS. · FURTJ!ER AGREEMENT FOR TREASURY MANAGEMENT CapltaUzed Ierma usecrtn this Authorization and Agreement, not otherwise defined, ha~~e the meanings given to them In the City National Bank Treasury Management Services Oisclo&Ure and Agreement (the "Agneement"). Sy signing below, the undersigned, on behalf of the Businell$ Organization named below (the "Ciientj, acknowledges receipt of the Agreement and agrees to adh&re to the terms and conditions contained In the Agreement, any applicable User Documentation. setup ronns. related documents, and any other disclosures prolllded to the Client with regard to the provision of one or more City National Bank Treasury Management Services. The Agreement supersedes other treasury management service agreements between the Client and CNB. For certain Treasury Management Services, the Agreement authorizes on page 5 the Clltnfl Syetem Administrator to assign passwords, user names, and Personal ldentlficallon Numbe1'11 to persons that will enable the persona to conduct tranucUons on deposit accounta set up on the Treasury Management Service, notwithstanding !h• slgnlilg authorltv Identified In tne C!epostt •areemeqt. The System Administrator may also designate one or more other pei'1Jons to perform these same functions the System Ad~lnlstrator 11 authorbed to perform (eac:h suc:h penon being called a •user Administrator"). THE AG~EEMENT ALSO PROVIDES FOR BINDING ARBITRATION OF DISPUTES. The Client may from time to lime request CNB to provide one or more of the Services described in the Agreement. Subj&ct to CNB's approval, tt!e Client may begin to use any Service requested once CNB has received all required fonns properly completed and the Client has successluUy fulfilled any applicable user requirements, induding but not limited to testing and training. Further, the undersigned represents and warranta that the Client has taken all actions required to aulhorize the undersigned on behalf of the Client to execute and deliver this Authorization.end Agreement and any other documents CNB may require with respect to a Service and that, when signed by the undersigned, this Authorizallon and Agreement Is the vaHd and binding act olthe.CIIenl 1/We certify lo CNB and CNS lhat all the information on this Agreement Is lrue and correct. 1/Wa authorize CNS to obtain a ChexSystem or other similar report on Client and to reportlnfonnalion. 1/We aulhori1e CNB to obtain a ChexSystem or other similar consumer report on each of us signing below and to report Information. If I ask, CNB will leU me whether a consumer report was ordered and, If one was ordered, the name and address of the consumer reporting agency that furnished II. The Internal Revenue Service s not require your consent to any provisiOn of this document other than the certifications required to avoid back up withholding. Date: ; (City and Slale) AUTHORIZED SIGNERS (SIGN IN BLACK INK ONLY AND SIGN IN BOX BELOW) . Name: nue: 511712017 Page 2 of4 MICHAELJ AVENATil Attorney-Primary Citv National Bank Revised 4/112017 (Page 3 of 4) Account Number: Account Title : MICHA~l 3512 J AVENATil ESQ. ATIORNEY CLIENT TRUST ACCOUNT Name: _x s;gQ ~ Title: JUDY K REGNIER Authorized Signer L---~~~-----------------...1 Restriction/Alias Name/Facsimile: - - - - - - - - - - - - - 5117/2017 Page 3 of 4 City National Bank Revised 4/112017 (Page 4 ot 4) Account Number: Account Title : , 3512 MICHAEL.iAVENATTI ESQ. ATTORNEY CLIENT TRUST ACCOUNT . _., .. BANK USE ONLY .Opened By Today's Date I Time 5/1712017 11:39 AM Opening Deposit so.oo Cecl Ucea Supe15edes Card Da1P ,,...... ----· ·-- ?-r~t Officer(s): 0!{....,:l Is the entity doing business In the stale the account Is opened? Original Opening Date Reviewed By Date CIO&ed Reason Closed Yes iJn-Type of Businesslf;IAICS Code 5411 ADDITIONAL ACCOUNTS Client .... I the following ielditional accounts: IT riON REVIEWED r~~~~n CLOSING REASON . . . . . . . .v . .-·. 511712017 Page4 ol 4 Cilv National Bank Revised 4/112011 PAGE ##XXH1309DPCSTM Page 1 (3) Account #: Thi s statement : Janua ry 31, 2018 Last statement : December 29 , 2017 270 0830L MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 14 00 NEWPORT BEACH CA 92660 5566 Contact us : 800 773-7100 Newpor t Center Office 500 Newport Center Drive Newport Beach, CA 92660 cnb . com Legal Services Trust Fund Acct Account Summary Account Activity Account number 5566 Beginning bal ~linimum balance $0 . 00 Deposits Average balance $486 , 047.54 Electronic cr Avg . collect ba l $486 , 047 . 00 Other credi ts Avg . bal for APY $486 , 047 . 54 Total credits APY earned 0. 03% Checks paid Interest earned $13.18 Electronic db Interest-bearing days 33 Other debits Interest paid YTD $13.18 Total debits Ending balance (12 /29/2017) $0 . 00 (0) + 0.00 (1) + 1, 600 , 000 .00 (1) + 13 . 18 + $1 , 600 , 013 . 18 (3) - 59,500 . 00 (20) - 488,899 . 60 (28) - 835 ,324 . 61 - $1 , 383 , 724 . 21 (1/31/2018) $216 , 288 . 97 ELECTRONIC CREDITS Date Descript ion 1-5 Incoming Wire-Dom Credits Control Number 1, 600, 000 . 00 180105000006073 OTHER CREDITS Date Description 1-31 Interest Credit Reference CHECKS PAID Number Date 6072 01 -12 01 -23 6078 * 6080 * 01 -23 * Skip in check sequence Amount 25 , 500.00 30 , 000 . 00 4, 000 . 00 Control 000008100088000 000008020078600 000008020078800 Credits Control Number 13.18 000000000000000 5566 PAGE ##XXH1309DPCSTM MICHAEL J AVENATTI Janua ry 31 , 2018 Page 2 Account #: 5566 ELECTRONIC DEBITS Date Description 1-8 Tnet Wire Out- Dom 1-8 Tnet Wire Out- Dom 1-9 Tnet Wire Out- Dom 1-9 Tnet Wire Out- Dom 1-10 Tnet Wire Out - Dom 1-10 Tnet Wire Out-Dom 1-10 Wire Tsfr Debit 1- 12 Tnet Wire Out- Dom 1- 16 Tnet Wire Out - Dom 1- 17 Tnet Wire Out- Dom 1- 18 Tnet Wire Out - Dom 1- 24 Tnet Wire Out -Dom 1- 24 Tnet Wire Out-Dom 1- 25 Tnet Wire Out -Dom 1- 25 Tnet Wire Out- Dom 1- 29 Tnet Wire Out-Dom 1-30 Tnet Wire Out-Dom 1-30 Tnet Wire Out -Dom 1-31 Tnet Wire Out- Dom 1-31 Tnet Wire Out-Dom OTHER Date 1-5 1-8 1-8 1-8 1-9 1-9 1-10 1-10 1-10 1-11 1-11 1-12 1-12 1-16 1-16 1-17 1-18 DEBITS Description Service Charge INCOMING WIRE- DOM Service Charge TNET WIRE OUT- DOM Service Charge TNET WIRE OUT- DOM Debit Memo Service Charge TNET WIRE OUT- DOM Service Charge TNET WIRE OUT-DOM Servi ce Charge TNET WIRE OUT- DOM Service Charge TNET WIRE OUT- DOM Service Cha rge WIRE TS FR DEBIT Debit Memo Debit Memo Accou nt Transfer Dr. TO ACC Service Charge TNET WIRE OUT - DOM Accou nt Transfer Dr. TO ACC 00270143504 Service Charge TNET WIRE OUT- DOM Service Charge TNET WIRE OUT- DOM Service Charge TNET WIRE OUT-DOM Debits 16, 146 . 64 41 , 884 . 67 30 , 000 . 00 30 , 000 . 00 17, 000 . 00 60 , 000 . 00 27 1000 , 00 13, 121 . 00 10, 588. 74 10, 000 . 00 24 , 959 . 00 44 , 791. 45 50 , 000 . 00 8,652. 00 19, 956 . 00 21 , 321.07 11, 267 79 11 ,343.81 3, 867 . 43 37 , 000 . 00 Control Number 180108000004 107 18010800000 3985 180109000001852 180109000005252 180110000005042 180110000002195 180110000005871 180112000008794 180116000007078 180117000002065 180118000002106 180124 00000 4142 18 0124000002099 180125000005134 180125000004728 180129000004095 1801300000028 11 1801300000027 95 180131000010086 1801310 000100 88 Debits 15 . 00 12 . 00 12 . 00 617, 840 . 44 12 . 00 12 . 00 12 . 00 12 . 00 5. 00 2, 209 . 77 111 , 113 . 22 100, 000 . 00 12 . 00 1, 900 . 00 12 . 00 12 . 00 12 .00 Control Number 000000000000000 000000000000000 000000000000000 000008050028400 000000000000000 000000000000000 000000000000000 000000000000000 000000000000000 00000813003 6400 00000808004 5600 238000112115349 000000000000000 23 80 00115122 65 6 000000000000000 000000000000000 000000000000000 0 Reference 5566 5566 5566 ##XXH1309DPCSTM 5566 MICHAEL J AVENATTI January 31 , 2018 OTHER Date 1-24 1-24 1-25 1-25 1- 29 1-30 1-30 1-31 1- 31 1- 31 1- 31 Page 3 Account #: DEBITS (Conti nued) Description Service Charge TNET WIRE OUT- DOM Service Charge TNET WIRE OUT- DOM Service Charge TNET WIRE OUT- DOM Service Charge TNET WIRE OUT- DOM Service Charge TNET WIRE OUT-DOM Service Charge TNET WIRE OUT-DOM Service Charge TNET WIRE OUT-DOM Account Transfer Dr . TO ACC 3504 Service Charge TNET WIRE OUT-DOM Service Charge TNET WIRE OUT-DOM Interest Transfer TO ACCOUNT NO 0001338897 DAILY BALANCES Date Amount 12- 29 . 00 01 -05 1, 599 , 985 . 00 01 -08 924 , 08 9.25 864 , 065.25 01-09 01 -10 760 , 036.25 01 -11 646 , 713 .26 PAGE Date 01-12 01 - 16 01 - 17 01 - 18 01- 23 01- 24 Amount 508 , 080 .26 495 , 579 .52 485 , 567 . 52 460 , 596 .52 426 , 596 .52 331 , 781.07 Date 01 -25 01 -29 01 -30 01 -31 5566 Reference Amount 303 , 149 . 07 281,816 . 00 259 , 180 . 40 216 , 288 . 97 Debits 12 . 00 12. 00 12 . 00 12 . 00 12. 00 12. 00 12 . 00 2, 000 .00 12. 00 12. 00 13 .18 Control Number 000000000000000 000000000000000 000000000000000 000000000000000 000000000000000 000000000000000 000000000000000 238000131145440 000000000000000 000000000000000 000000000000000 5566 PAGE ff#XXH1309DPCSTM Page 1 (1) Account #: This statemen t : February 28 , 2018 Last statement : January 31 , 2018 5566 Contact us : BOO 773-7100 Newport Center Offi ce 500 Newport Center Drive Newport Beach , CA 92660 270 0830L MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 cnb .com IMPORTANT NOTICE : WE WANT TO MAKE YOU AWARE OF A NEW FEDERAL REQUIREMENT THAT WILL IMPACT BUSINESS ACCOUNT OPENINGS . IN ORDER TO PREPARE FOR THIS REGULATORY CHANGE , EFFECTIVE MARCH 1, 2018 , CITY NATIONAL BANK WILL MAKE CHANGES TO ITS ACCOUNT OPENING PROCESS . FOR MORE INFORMATION GO TO WWW .CNB .COM/BENEFICIALOWNERSHIP OR CONTACT YOUR RELATIONSHIP MANAGER OR BANKER. Legal Services Trust Fund Acct Account Summary Account number Minimum balance Average ba lance Avg . collect bal Avg. bal for APY APY earned Interest earned Inte res t-bearing days Interest paid YTD 5566 $19 , 621 .73 $94 , 105 . 61 $94 , 105 . 00 $94 , 105 . 61 0. 03% $2 .17 28 $15 . 35 Account Activity Beginning bal Deposits Electronic cr Other credits Tot al credits Checks paid Electronic db Other debits Total debits Ending balance OTHER CREDITS Date Description 2-28 Interest Credit $216,288 . 97 (1/31/2018) (0) (0) (1) + 0. 00 + 0. 00 + 2.17 + $2 .17 (1) (6) (9) - 43 , 000 . 00 - 149,795 . 24 - 3, 874 .17 (2/28/2018) Reference CHECKS PAID Number 6092 Date 02 -14 Amount 43 , 000 . 00 Control 000008100069800 - $196,669 . 41 $19,621.73 Credits Control Number 2.17 000000000000000 5566 ##XXH1309DPCSTM PAGE 5566 MICHAEL J AVENATTI February 28, 2018 Page 2 Account #: 5566 ELECTRONIC DEBITS Date Description 2-5 Tnet Wire Out-Dom 2- 5 Tnet Wire Out-Dom 2-7 Tnet Wire Out-Dom 2-12 Tnet Wire Out-Dom 2- 12 Tnet Wire Out- Dom 2- 16 Tnet Wire Out- Dom OTHER Date 2-5 2-5 2-7 2-12 2-12 2- 14 2-16 2- 27 2- 28 DEBITS Description Service Charge TNET WIRE OUT- DOM Service Charge TNET WIRE OUT-DOM Service Charge TNET WIRE OUT-DOM Service Charge TNET WIRE OUT-DOM Service Charge TNET WIRE OUT- DOM Account Transfer Dr . TO AC 3504 Service Charge TNET WIRE OUT- DOM Account Transfer Dr . TO ACC 350 4 Interest Transfer TO ACCOUNT NO 8897 DAILY BALANCES Date Amount 01-31 216 , 288 .9 7 02-05 190, 665.24 02-07 150, 653.24 Date 02 -12 02 -1 4 02 -16 Amount 112 , 580 .54 67 , 580 .54 21 , 421.73 Date 02- 27 02- 28 Reference Amount 19,621. 73 19, 62 1. 73 Debits 10,8 41. 99 14,757.74 40,000.00 10 , 806 . 89 27 , 241.81 46,146.81 Control Number 18020500000477 1 180205000004 773 180207000002669 180212000006019 18021200 0006020 180216000006890 Debits 12 . 00 12 . 00 12 . 00 12 . 00 12 . 00 2,000.00 12 . 00 1,800. 00 2.17 Control Number 000000000000000 000000000000000 000000000000000 000000000000000 0000000 00000000 294000214164706 000000000000000 294000227132045 000000000000000 5566 PAGE ##XXH1309DPCSTM Page 1 ( 2) Account # This statement : March 30 , 2018 Last statement : February 28 , 2018 5566 Contact us : 800 773-7 100 Newport Center Office 500 Newport Center Drive Newport Beach, CA 92660 270 0830L MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 cnb .com Legal Services Trust Fund Acct Account Summary Account number Minimum balance Average balance Avg. collect bal Avg . bal for APY APY earned Interest earned Interest -bearing days Interest paid YTD 5566 $609 . 73 $5 , 681.60 $5 , 681.00 $5,681.60 0. 03% $0 .14 30 $15.49 Account Activity Beginning bal Deposit s Electronic cr Other credits Total credi ts Checks paid Electronic db Other debits Total debits Ending balance OTHER CREDITS Date Description 3-30 Interest Credit (2/28/2 018) (0) (0) (1) $19 , 621.73 + 0.00 + 0. 00 + 0.14 + $0 . 14 (2) (1) (2) - 15, 000.00 - 4, 000.00 - 12 . 14 (3/30/2018) Reference - $19,012 . 14 $609 . 73 Credits Control Number .14 000000000000000 CHECKS PAID Number Da te 6101 03 -07 03 -09 6109 * ' Skip in check sequence ELECTRONIC DEBITS Date Descripti on 3- 14 Tnet Wire Out-Dom Amount 10 , 000 . 00 5, 000 . 00 Control 000008070022800 000008100017700 Debits Control Number 4, 000 . 00 180314000003842 5566 PAGE ##XXH 1309DPCSTM MICHAEL J AVENATTI March 30, 2018 OTHER Date 3-14 3-30 Page 2 Account #: 270145566 DEBITS Description Service Charge TNET WIRE OUT-DOM Interest Transfer TO ACCOUNT NO DAILY BALANCES Date Amo un t 02 -28 19, 621.73 03 -07 9, 621.73 Date 03- 09 03 -14 Amount 4, 621.73 609 . 73 Reference 8897 Date 03 -30 Amount 609 .73 Debits Control Number 12.00 000000000000000 .14 000000000000000 5566 ##XXH1309DPCSTM PAGE 5566 Page 1 (0) Account fi: This statement : April 30, 2018 Last statement : March 30, 2018 5566 Contact us : 800 773-7100 Newport Center Office 500 Newport Center Drive Newport Beach , CA 92660 270 0830N MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 cnb .com Legal Services Trust Fund Acct Account Summary Account number Minimum balance Average balance Avg . collect bal Avg . bal for APY APY earned Interest earned Interest- bearing days Interest paid YTD 5566 $509 . 73 $571.02 $571.00 $57 1. 02 0. 02% $0 . 01 31 $15 . 50 Account Activity Beginning bal Deposits Electronic cr Other credits Total credits Checks paid Electronic db Other debits Total debits Ending balance OTHER CREDITS Date Description 4- 30 Interest Credit OTHER Date 4-19 4-30 DEBITS Description Account Transfer Dr . TO ACC Interest Transfer TO ACCOUNT NO DAILY BALANCES Date Amount 03- 30 609 . 73 Date 04-19 (3/30/20 18) (0) (1) (0) (0) (2) - 0. 00 - 0. 00 - 100 . 01 + $0 . 01 (4/30/2018) Credits Control Number . 01 000000000000000 Reference Debits Control Number 100 . 00 238000419083037 . 01 000000000000000 97 Date 04 -3 0 - $100 . 01 $509 . 73 Reference 3504 Amount 509 . 73 $609 . 73 + 0. 00 + 0. 00 + 0. 01 ( 0) Amount 509 . 73 5566 ##XXH1309DPCSTM PAGE 5566 Page 1 Account This statement: May 31 , 20 18 Last statement : April 30, 2018 (0) D: 5566 Contact us : 800 773- 7100 Newport Center Office 500 Newport Center Drive Newport Beach , CA 92660 270 0830N MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 cnb .com Legal Services Trust E'und Acct Account Summary Account number Minimum balance Average balance Avg . collect bal Avg . bal for APY APY earned Interest earned Interest-bearing days Interest paid YTD 5566 $509 . 73 $509 . 73 $509 . 00 $509 . 73 0. 05% $0 . 02 31 $15.52 Account Activity Beginning bal Deposits Electronic cr Other credits Total credits Checks paid Electronic db Other debits Total debits Ending balance OTHER CREDITS Date Description 5-31 Interest Credit OTHER DEBITS Date Description 5-31 Interest Transfer TO ACCOUNT NO DAILY BALANCES Date Amount 04 -30 509 .73 Date 05-31 (4/30/2018) (0I (0 I (1) + $0 . 02 - 0. 00 - 0. 00 - 0. 02 (0) (0) (11 (5/31/2018) Date - $0.02 $509 . 73 Reference Credi ts Control Number . 02 000000000000000 Reference Debi ts Control Numbe r .02 000000000000000 8897 Amount 509 . 73 $509 . 73 + 0. 00 + 0.00 + 0. 02 Amount 5566 PAGE ##XXH1309DPCSTM Page 1 (0) Account #: This statement : June 29 , 2018 Last statement : May 31 , 2018 5566 Contact us : 800 773- 7100 Newport Center Office 500 Newport Center Drive Newport Beach , CA 92660 270 0830N MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 cnb . com Legal Services Trust Fund Acct Account Summary Account number Minimum balance Average balance Avg . collect bal Avg . bal for APY APY earned Interest earned Interest-bear ing days Interest paid YTD 5566 $509 .73 $509 .73 $509 . 00 $509 . 73 0. 02% $0 . 01 29 $15 . 53 Account Activity Beginning bal Depos its Electronic cr Other credits Total credits Checks paid Electronic db Other debits Total debits Ending balance OTHER CREDITS Date Description 6- 29 Interest Credit OTHER DEBITS Date Description 6- 29 Interest Transfe r TO ACCOUNT NO DAILY BALANCES Date Amount 05 - 31 509 . 73 Date 06- 29 (5/31/2018) (0) (0) (1) + 0. 00 + 0. 00 + 0. 01 (0) (0) (1) - 0. 00 - 0. 00 - 0. 01 + $0 . 01 (6/29/2018) Date - $0 . 01 $509 . 73 Reference Credits Control Number . 01 00000000 0000000 Reference Debits Control Number . 01 000000000000000 8897 Amount 509 . 73 $509 . 73 Amount 0270145566 ##XXH1309DPCSTM PAGE 5566 Page 1 (0) Account #: This statement: July 31 , 2018 Last stat ement : June 29 , 2018 5566 Contact us : 800 773- 7100 Newport Center Office 500 Newport Center Drive Newport Beach , CA 92660 270 0830N MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT ) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 cnb . com Legal Services Trust Fund Acct Account Summary Account number Minimum balance Average balance Avg . collect bal Avg . bal for APY APY earned Interest earned Interest -bearing days Interest paid YTD 5566 $509 . 73 $509 . 73 $509 . 00 $509 . 73 0. 02% $0 . 01 32 $15 . 54 Account Activity Beginning bal Deposits Electronic cr Other credits Total credits Checks paid Electronic db Ot her debits Total debits Ending balance OTHER CREDITS Date Description 7- 31 Interest Credit OTHER DEBITS Date Description 7-31 Interest Transfer TO ACCOUNT NO DAILY BALANCES Date Amount 06-29 509 . 73 Date 07 -31 + 0. 00 + 0. 00 + 0. 01 (0) (0) (1) - 0.00 - 0. 00 - 0. 01 + $0 . 01 (7/31/201 8) Date - $0.01 $509 . 73 Reference Credits Control Number . 01 000000000000000 Reference Debits Control Number . 01 000000000000000 8897 Amount 509 . 73 $509 . 73 (6/29/2018) (0) (0) (1) Amount 5566 ##XXH1309DPCSTM PAGE 083 Page 1 (0) Account #: This statement : August 31, 2018 Last statement : July 31 , 2018 5566 Contact us : 800 773-7100 Newport Center Office 500 Newport Center Drive Newport Beach , CA 92660 270 0830N MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 cnb . com Legal Services Trust Fund Acct Account Summary Account number Minimum balance Average balance Avg . collect bal Avg. bal for APY APY earned Interest earned Interest- bearing days Interest paid YTD 5566 $509 . 73 $509 . 73 $509 .00 $509 . 73 0.02% $0 . 01 31 $15 . 55 Account Activity Beginning bal Deposits Electronic cr Other credits Total credits Checks paid Electronic db Other debits Total debits Ending balance OTHER CREDITS Date Description 8-31 Interest Credit OTHER DEBITS Date Description 8- 31 Interest Transfer TO ACCOUNT NO DAILY BALANCES Date Amount 07- 31 509.73 Date 08 -31 (7/31/2018) (0) (0) (1) + $0 . 01 (0) (0) - 0.00 - 0. 00 - 0. 01 (1) (8/31/2018) Date - $0. 01 $509 . 73 Reference Credits Control Number . 01 000000000000000 Reference Debits Control Number .01 000000000000000 8897 Amount 509.73 $509.73 + 0.00 + 0.00 + 0.01 Amount 5566 ##XXH1309DPCSTM PAGE 5566 Page 1 (0) Account #: This statement : September 28 , 2018 Last statement : August 31, 2018 5566 Contact us : 800 773-7100 Newport Center Office 500 Newport Center Drive Newport Beach , CA 92660 270 0830N MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 cnb . com Legal Services Trst Fund Account Summary Account number Mi nimum balance Average balance Avg . col l ect bal Avg . bal for APY APY earned Interest earned Interest- bearing days Interest paid YTD 5566 $509 . 73 $509 . 73 $509 . 00 $509 . 73 0.18% $0 . 07 28 $15 . 62 Account Activity Be ginning bal Depos i ts Electronic cr Other credits Tot al credits Checks paid Electronic db Other debits Total debits Ending balance OTHER CREDITS Date Description 9-28 Interest Credit OTHER DEBITS Date Description 9- 28 Interest Transfer TO ACCOUNT NO DAILY BALANCES Amount Date 08-31 509 . 73 Date 09-28 + 0. 00 + 0. 00 + 0. 07 (0) (0) (1) - 0.00 - 0.00 - 0.07 + $0 .07 (9/28/2018) Date - $0 . 07 $509 . 73 Reference Credits Control Number . 07 000000000000000 Reference Debits Control Number . 07 000000000000000 8897 Amount 509 . 73 $509.73 (8/31/2018) (0) (0) (1) Amount 5566 ##XXH1309DPCSTM PAGE 5566 Page 1 (0) Account #: This statement: October 31 , 2018 Last statement : September 28, 2018 270 0830N MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 5566 Contact us : 800 773 -7100 Newport Center Office 500 Newport Center Drive Newport Beach, CA 92660 cnb.com EFFECTIVE 9/4/18 , THE IOLTA INTEREST RATE HAS INCREASED TO EQUAL THE CNB LADDER BUSINESS MONEY MARKET ACCOUNT RATE, WITH NO MONTHLY FEE DEDUCTED FROM INTEREST PAID TO THE STATE BAR LEGAL SERVICES TRUST FUND PROGRAM . EFFECTIVE 11/01/18 , A HIGHER-PAYING INVESTMENT SWEEP OPTION IS AVAILABLE FOR EXCESS IOLTA BALANCES. NOT FDIC INSURED , NOT BANK GUARANTEED, MAY LOSE VALUE . CONTACT YOUR RELATIONSHIP MANAGER FOR MORE INFORMATION . Legal Services Trst Fund Acco unt Summary Account number Minimum balance Average balance Avg. collect bal Avg. bal for APY APY earned Interest earned Interest -bearing days Interest paid YTD 5566 $9 . 73 $418 . 82 $418.00 $418.82 0.24% $0.09 33 $15.71 Account Activity Beginning bal (9/28/2018) ( 0) Deposits (0) Electronic cr ( 1) Other credits Total credits (0) Checks paid ( 0) Electroni c db ( 2) Ot her debits Total debits Ending balance (10/31/2018) OTHER CREDITS Date Description 10-31 Interest Credit OTHER Date 10-26 10-31 DEBITS Description Account Transfer Dr. TO ACC Interest Transfer TO ACCOUNT NO 3504 8 897 $509 . 73 + 0. 00 + 0. 00 + 0.09 + $0 . 09 - 0. 00 - 0. 00 - 500 . 09 - $500.09 $9. 73 Reference Credits Control Number .09 000000000000000 Reference Debits Control Number 500 . 00 294001026120801 . 09 000000000000000 5566 #ffXXH1309DPCSTM PAGE 5566 MICHAEL J AVENATTI October 31 , 2018 Page 2 Account #: DAILY BALANCES Date Amount Date 09- 28 509 . 73 10-26 Amount 9. 73 Date 10-31 Amount 9. 73 5566 5566 ##XXH1309DPCSTM PAGE 5566 Page 1 (0) Account #: This statement : November 30, 2018 Last statement : October 31 , 2018 270 0830N MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 5566 Contact us : 800 773-7100 Newpo rt Cen ter Offi ce 500 Newport Center Drive Newport Beach , CA 92660 cnb . com Legal Services Tr st Fund Account Summary Account number Minimum balance Average balance Avg . collect bal Avg . bal for APY APY earned Interest earned Interes t-bearing days Interest pa id YTD 5566 $9 . 73 $9 . 73 $9 . 00 $9 . 73 0. 00% $0. 00 30 $15 . 71 Account Activity Beginning bal (10/31/2018 ) Credits Debi ts Ending balance (11/30/2018) ** No activity this statement period ** $9 . 73 + $0 . 00 - $0 .00 $9 . 73 5566 PAGE ##XXH1309DPCSTM Page 1 (0} Account #: This statement : December 31 , 2018 Last statement : November 30, 2018 5566 Contact us : 800 773- 7100 Newport Center Office 500 Newport Center Drive Newport Beach, CA 92660 270 0830N MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 cnb .com Legal Services Trst Fund Account Summary Account number Minimum balance Average balance Avg . collect bal Avg . bal for APY APY earned Interest earned Interes t - bearing days Interest paid YTD 5566 $9 . 73 $9 .73 $9 . 00 $9 . 73 1. 22% $0 . 01 31 $15 . 72 Account Activity Beginning bal Deposits Electronic cr Other credits Total credits Checks paid Electronic db Other debits Total debits Ending balance OTHER CREDITS Date Description 12-31 Interest Credit OTHER DEBITS Date Description 12- 31 Interest Transfer TO ACCOUNT NO DAILY BALANCES Date Amount 11- 30 9.73 Date 12 -31 (11/30/2018) (1) + $0 . 01 - 0. 00 - 0. 00 - 0. 01 ( 0} (0} (1) (12/31/2018} Date - $0 . 01 $9 . 73 Reference Credits Control Number . 01 000000000000000 Reference Debits Control Number . 01 000000000000000 8897 Amount 9. 73 $9 . 73 + 0. 00 + 0. 00 + 0. 01 ( 0) ( 0) Amount 5566 ##XXH1309DPCSTM PAGE 5566 Page 1 (0) Account #: This statement : January 31, 2019 Last statement : December 31 , 2018 5566 Contact us : BOO 773-7100 Newport Center Office 500 Newport Cente r Drive Newport Beach , CA 92660 270 0830N MICHAEL J AVENATTI ATTORNEY CLIENT TRUST ACCOUNT (BAR SETTLEMENT) 1910 SUNSET BLVD SUITE 450 LOS ANGELES CA 90026 cnb . com Legal Services Trst Fund Account Summary Account number Minimum balance Average balance Avg . collect bal Avg . bal for APY APY earned Interest earned Interes t -bearing days Interest paid YTD 5566 $0. 00 $4 . 39 $4 . 00 $4 .39 0. 00% $0 . 00 31 $0.00 Account Activi t y Beginning ba l Credi ts Checks paid El ectronic db Other debits Total debits Ending balance OTHER DEBITS Date Description 1- 15 Legal Process Debit DAILY BALANCES Date Amount 12-31 9. 73 Date 01- 15 (12 /31/2018) $9 . 73 + $0 . 00 (0) (0) (1) - 0. 00 - 0. 00 - 9. 73 (1/31/2019 ) Reference Amount .00 Date Amount - $9 . 73 $0 . 00 Debits Control Number 9. 73 638000115145621 - -·------ -- ~~L8.f.M(\/ Wt. Ocbikd Yow il ~ g ChcckingAcct ·~~· &uttcJr:270 j ACCOli)."T~Ir.tBf.ll; J SU a:.'P'-0 ' 'r.OfCLOS.e CASIIICK"S CIC • A"KlV"T J Js I! 617,840.44 tt'Ottun lf.O~'Q ~w.z DotJ ..-::o1 llffltiiU t~;u 30414941 ~----------~ ~------------~ •~11 Purtha •t- nCCashit r'' Chttk rMnhk to f:dward Ric'('i nrre mail frnm .h1dy Rn:nifr J/811! MICHAEL AVENATTl. ESQ PREPAR ED DY' 520 NEWPOR.T CENTER DRIVE STE 1400 II U iftll @ APPROVED ay, NEWPORT Rf.ACI ~ CA 92660 I I11UU U DIAN't\A APP!;LL STEPHEN R£AOAN B.ank Copy - Include with procnscd tran'l.lldion 210145561 U20UOU 5566 Date:20180108 Check:O Account: 6tDttCit:270 · ---"q_ We Debited Yout ACt'0\t~'TtriUM8Cl O.cckingA«I. JJ ll66 I ~~:~~r: ar Ca,hitr'~ C hrckbl ~ MICII AEL J AVENATil l g 5566 Amount:617840.44 CITY HAT1C*ALB.t.Hr: W . "I 820 o\.\fOtko'T I JLs_ l20 NEWI'ORT CEIITER OR SUITE 1400 ... . - Wc~bitel• 66 5566 Amount:111 113.22 Date:20180111 Check: 5566 Accoun 5566 Amount:111113.22 Llak: 01111n01S ~COli:'ITNUM ilF.A II 111, 113 . 22 12 0 5566 5566 Account: Your ll"UI1 111$ *l i4 00 f90>111tZ %!MOO=~ 81111110 l·ac;;=•I ~~:S I I I IUJI U \ Ill! II II VASKA ALF.XANOUR APPROVED OY: 122016066 OTYNAnow.L.S.U. ~ a:~ .. E t2\CI.os£Cit'SIIICa"SCK t _ 1_11_,1_ 1J_ .12---'I JL-_ _ _ __, PREPARED BY: Date:20180111 Check: 5566 Amount:617840. 44 Dolt: OllllnOIS NEWPORT UEACH, CA 92660 210145566 Date:20180108 Check:OAccount: I Is a:lC)a.Q ~"F.E'"CLOSt:CA~nU:SCK • A:.tOUXT 1,209.77 I u·~·n )f.CJ SOUIJ :Did WIO 11111/IC l-et.zld I I Kl~ r urchut nrCI .dtlt r' s Ch«k(l) PREP,\RED BY: MICIIAEL J AVENATTl J20 NEWPORT CENT'tR DRIVE SUITE 1400 AN'ROVF.O BY: NCWPOR T DE.ACH, CA 92660 VASKA Al.UANDEH. fTl :::STE ::.-=:PI-::IE:'i;)ltli-E;-:A-G"'.s ,; : :---- Ra~lr: Copy- I~Kludt with pnxeutd 210145566 Date:20180111 Check: 5566 Account: HtU!A~ ~~ I Ac:tw>I No {S5~1..o Name BH 55 66 12 20160U: W'lnSXIion 2 , 20~ . , Date:20180111 Check: 5566 Amount:2209.77 7rvsr ..:.·-~::;;:,r; · . 5566 Amount:2209.77 COUNTER CHECK 16-1106ft270 I lo. It ~ ,.,. i ~r,.'j?~l' GLo b41.. r3t:M srn-.s US. , s .;1 5, 5oo ,.. ~~~ 11vc--fhous.r:~·tcp -Auc hv&dKd (; 09t~ I CmNAnoMM...-~ 5566 Account: I ftiiUntJ', n::.,n:tOO'oo:;,~~Zf Nil LO•Ot Bl t~ £.0? 2 Date:201801 12 Check:6072 Account: 1904050105 5566 Amount:25500.00 Date:20180112 Check:6072 Account 5566 Amount:25500.00 Page 1 of 3 Narno ~ COUNTER CHECK Mict\Cr.o sn 1..0 ZW 9Z'60 91/I:Z/10 :>p;~~C ~ 9-0LZ' Ol 01'1!1 b08 0 Date:20180123 Check:6080 Account: Name 'fttl!.h"'"' ~' ~~ ,..,....,.._ s~ ~ ........,.No. Date:20180123 Check:6080 Account: 5566 Amount:4000.00 I COUNTERCHECK 16-lfl05.t1Z2C ~ .:Lilt.{/; r S{,f.., ,,." I $ L/3000 --' (}()/ ,t}?vL> 5566 Amount:4000.00 I I/(/() - Z6ll9 '> ¥O •n ~ m<; ntd U:Zil 81/ Will 9-ilU:Ol ~:n , '"IHH• , 1 ,. 1.,.oo·ooa'£01 ""'•" ' b0 "1 2 Date:20180214 Check:6092 Account: u nt..... /.'1- ___ _:., n..., . . -·7l~~~,,~ 1- No. SStA,P 1904050105 5566 Amount: 43000.00 s-~~ - - . OOUNTER CHECK ~~ .3(z Ia 1s Date:20180307 Check:6101 Account: Date:20180214 Check:6092 Account: 5566 Amount:43000.00 "·" !D,ooo-- 5566 Amount:10000.00 1019 llf.'IOO oo·ooa•ots >r-o sn ~ 99S< : "" "•' " • '"'!" "zw K'60 81/Lil/ro 9-0LZ•OJ Date:20180307 Check:6101 Account: 5566 Amount:10000.00 Pag e 2 of 3 COUNTER CHECK "' 3/9 l"'"'' J ~"om 1 s Sooo- . . . . ''"·"••· 6llt9 '>POlO >f.O sn I(J ~t oo ()!;:1.1) Bl/60/ro 9-0I.Z:at sz:u oo·cm'ss ........ p, . . I'IC'I l AJIS £,LO'l Date:20180309 Check:6 109 Account: 1904050105 5566 Amount:SOOO.OO Date:20180309 Check:6109 Account: 5566 Amount:SOOO.OO Pa ge 3 of 3 Run Date: 5-Apr-19 Run Time: 1:13PM BNK: CNB SND DATE: 180105 AMT: $1 ,600,000.00 SRC: FED ADV: LTR TYP: FTR DBT: A/121 140399 ACC: 8287 DEPT: 098 SILICON VALLEY BANK SANTA CLARA, CA SEND: SNDR REFNUM: 20180051122100 Page: I User Name: LTAYLORM Transaction Detail Report VAL: 180105 CUR: USD LOC: ON FILE: N CTRY: TRN: 180 I 05-00006073 FORAMT: 1,600,000.00 CHECKNUM: CDT: D/270 145566 ACC: D/ 5566 DEPT: 270 MICHAEL J AVENATTl ATTORNEY CLIENT TRUST ACCOUNT 520 NEWPORT CENTER DR SUITE 1400 NEWPORT BEACH CA 92660 BNF: ORIG: /3300963331 ORIG TO BNF INFO: BROCK USA 2018 SETTLEMENT PAYMENT REFNUM: ON FILE: Y CTRY: BK: N Outgoing Wires Credit Account Credit Party Name Originator Beneficiary Tran Date Tran Num Ba nk iD Debit Account Debit Party Name CNB D/ 5566 M ICHAELJ AVENATTI 8287 KITSAP BANK Dillanos Coffee Roasters 20180108 3985 41884.67 CNB D/ 5566 M ICHAELJ AVENATTl 8287 US BANK, NA Miller Nash Graham & Dunn LLP 20180108 4 107 16146.64 CNB D/ 5566 MI CHAEL J AVENATTl 8287 SUNTRUST BANK Jam es R. Gailey & Associates P.A. 20180109 5252 30000 CNB D/ 5566 M ICHAELJ AVENATTl 8287 BANK OF AM ERICA, N.A., NY Burke Contracting LLC 20180109 1852 30000 CNB D/ 5566 MICHAELJ AVENATTl 8287 ZB NA DBA CALI FORNIA BANK & TRUST Eagan Avenatti Trust Account 20180110 2195 60000 CNB D/ 5566 M ICHAELJ AVENATTI 1 20180110 5871 27000 CNB D/ 5566 M ICHAELJ AVENATTl 8287 ZB NA DBA CALI FORNIA BANK & TRUST Richard Beada 20180110 5042 17000 CNB D/ 5566 MICHAELJ AVENATTl 8287 UMPQUA BANK G & M Hollywood LLC 20180112 8794 13121 DENNIS N BRAGER A PROF CORP DBA Amount CNB D/ 5566 M ICHAELJ AVENATTl 8287 KEYBANK NATIONAL ASSOCIATION Alki Bakery 20180116 7078 10588.74 CNB D/ 5566 MI CHAEL J AVENATTl 8287 ZB NA DBA CALIFORNIA BANK & TRUST Globa l Baristas LLC 20180117 2065 10000 CNB D/ 5566 M ICHAEL J AVENATTl 8287 KITSAP BANK Dillano s Coffee Roasters 20180118 2106 24959 CNB D/ 5566 MICHAEL J AVENATTl 8287 ZB NA DBA CALI FO RNIA BANK & TRUST Eagan Avenatti LLP Trust 20180124 2099 50000 CNB D/ 5566 M ICHAELJ AVENATTI 8287 WELLS FARGO BANK TO Amerit rade Clearing, Inc. Accou n 20180124 4142 44791.45 CNB D/ 5566 MICHAELJ AVENATTl 8287 PACIFIC CONTIN ENTAL BANK AssuredPartners of Washington LLC 20180125 4728 CNB D/ 5566 MICHAELJ AVENATTl 8287 PACIFIC CONTINENTAL BANK Assured Partners of Washington LLC 20180125 5134 8652 CNB D/ 5566 MICHAELJ AVENATTl 8287 CHASE MANHATTAN BANK NATIONWIDE LEGAL LLC 20180129 4095 21321.07 CNB D/ 5566 M ICHAEL J AVENATTl 8287 KITSAP BANK Dillanos Coffee Roasters 20180130 2795 11343.81 CNB D/ 5566 MI CHAEL J AVENATTl 8287 KEY BANK NATIONAL ASSOCIATION Alki Bakery 20180130 2811 11267.79 CNB D/ 5 566 MI CHAELJ AVENATTI 8287 WELLS FARGO BANK CNB D/ 5566 MICHAELJ AVENATTl 8287 BANK OF AMERI CA, N.A., NY CNB D/ 5566 MICHAELJ AVENATTl 8287 CNB D/ 5 566 MICHAEL J AVENATTl 8287 CNB D/ 5566 M ICHAELJ AVENATTl CNB D/ 5566 M ICHAELJ AVE NATTl CNB D/ 5566 M ICHAELJ AVENATTI 8287 CNB D/ 5566 M ICHAEL J AVENATTl 8287 JPM ORGAN CHASE BANK, NA CNB D/ 5566 M ICHAEL J AVENATTl 828 7 ZB NA DBA CALIFORNIA BANK & TRUST Globa l Baristas, LLC 19956 Coblentz Patch Duffy & Bass LLP 20180131 10088 37000 Jud y Kay Regnier 20180131 10086 3867.43 KITSAP BANK Dillanos Coffee Roasters 20180205 4773 14757.74 KEYBANK NATIONAL ASSOCIATION Alki Bakery 20180205 4771 10841.99 8287 ZB NA DBA CALIFORNIA BANK & TRUST Eagan Avenatti LLP Trust 20180207 2669 40000 8287 KITSAP BANK Di lla nos Coffee Roasters 20180212 6020 27241.81 Alki Ba kery 20180212 6019 10806.89 The X-Law Grou p PC 20180216 6890 46146.81 20180314 3842 4000 KEYBANK NATIONAL ASSOCIATION REGISTER COPY CASHIER'S CHECK CITY NATIONAL BANK 30414948 blt, The way up.• for i~C&UOO·n3·7100 OATE $ ....... ' . . -. $ r L>Am lf3ooo -' 001/ rJ?; __:___ OOIJ.AR5 . !;0~ Date:20180214 Check:6092 Account: 1 ~ 1 I ~ '! ~ ~ ~ ~ ~ ~ I J l ~~ l ,oo ·coo '£b$ :ojt.IJ Xlld U::Zll Bl/lrl/W Date:20180214 Check:6092 Account: 2 5566 Amount:43000.00 Z609 !>f-'ili.!J 99t 9-0WOI bZ!lll sn \.(] 5566 Amount:43000.00 1 CASHIER'S CHECK 30414965 ., DATE $ ' to,ooo- $ I'>.VABLE TO Date:20180307 Check:30414965 Accoun 844 Amount:10000.00 15AAKUSHJNLV APPLICATION FUNDS RECEIVED CASH D«"'((, .~~ p,ooo [.AT C>«ON 0«0" ) .; TOTAl.REC'O ..... .. :· ~,00() ~ t".;- az,,cy /~e,f 1-t( 0?11 et. OOSTS lOT.tii. CHKSISSUEO (B) "'""""""'' (A-8I L£SSCAS1t TOctJSTC)!.'£R TOT"L COST$ 4)~00 ~ -(7 i._ ~ ~~(I ~ %~ "~~ 'tVVV "tt- cus Date:20180307 Check:30414965 Account: j u C) /."~ _ _ . _ _:.., Name'-, l }14Q ~/I Accounl No. : : ~i ; .; : : I 1844 Amount:10000.00 f!:A.t . .5~UNTER CHECK 16-100611220 S5&(,p Date:20180307 Check:6101 Account: .~ ' 4iM..Ai'ti \ .3(z(/¥ 5566 Amount:10000.00 I019 :~'il4J .. . . ... ...OO'OOJ'OIS ¥-0 Sf11.() m~ " ' " ' ! ". 'X\11;1 b£:60 BI/L0/£0 9-0WQI Date:20180307 Check:6101 Account: 5566 Amount:10000.00 REGISTER COPY CASHIER'S CHECK 30414967 If5oco- CITYNATIONALBANKW. The way up.• • , t· •· ·t OATE F4f~Cti&OI).113-7 100 El-l••wfl ~. ~ 11 tt•ll 11 1 $ .' PAYABL\'TO Date: 20 180309 Check: 30414967 Account CISii C>I< C>< Sz..o IJM!lbtr GrY Dr --- 1 c•Al~t>orr ~~ c~.~ 01< 00 ~oo- BANI( Ci1AAGES {8 ) TOTAL COSTS (A·BI TOCI.ISTOMER l ESS CASM Sre 1 92.U.. I"K~ 4= t:+cc....r a~ COSTS TOTAL 01KS ISStiED APPUCATION STFI.Ef1~SS Ot< <>-- r5 CUS.QI.IEFI SIGN HERE FOR ttETD CASH Date:20180309 Check:30414967 Accou Nama COUNTER CHECK lvftuhf-).c,c.~· 8 ~ 1844 Amount:5000.00 16-1606/1220 55{o(P Account No. 3 /9 It ~ o.m $ Sooo-llOl.I.ARS Date:20180309 Check:6109 Account: • •, •••, "'' 'J?' •.,., ,, ., .. oo·ooo'S$ XWd o~:zo lf.{J St/60/£0 Date:20180309 Check:6109 Account: 5566 Amount:5000.00 6019 :){~ili.IJ sn VO 99S 9-aa:ar s1::~1 5566 Amount:5000.00 Page 1 of2 \ rr :z _, ::t; :X: ~ ~ r):> c ~ 2 c;; -, X ~ c z :t> :z:.. '"0 ::0 "Q ~ -"' ;:) <.0 ::0 nr () nw -3 ~~ 0 ., :n r- ~ rsl a;-c > - ~~ ~ ....=>.! ~ 1\.) w -i ...., 0 )> 00 ~0 ~ ~ <"'., ~ :::I:"'TI 5;:D~8~~ cn.s:..o- z l>r-Z)> z ;><; ~ ~ ...... .!::! 0 00 't> ~ 0> _, 0> ...... <0 0> ,_, F :E m c r ("') (J) ~ m z 0 m 0 ::0 N 0 ,1::1. C:: )> (I) CD ~ "'C N c ::::0 r-o )> ,1::1. x ...... ~ "'C )>~ ::0--i~- ~orE 0~~~ n~ CD > U> OG> G)~roz -< w C) ("))>(J) i!J~;!; .. :l!"U ~G>o ~-t;t.. t:.:.ITI ceo"-> ~C)~ ~· ~CD;:o l~h~i J11111Htl711ur ;' ~ ~ ~ ~ 0 0 • After printing this label: 1. Use the 'Print' button on this page to print your label to your laser or inkjet printer. 2. Fold the printed page along the horizontal line. 3. Place label in shipping pouch and affix it to your shipment so that the barcode portion of the label can be read and scanned . Warning: Use only the printed original label for shipping. Using a photocopy of this label for shipping purposes is fraudulent and could result in additional billing charges, along with the cancellation of your Fed Ex account number. 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Written claims must be filed within strict time limits, see current Fed Ex Service Guide. https://www.fedex.com/shipping/html/en/PrintiFrame.html 4/22/2019 EXHIBIT 2 Case No.: 19-0-10483 , R: Michael Avenatti . i CHK# i -------- 1-! Post Date Stmt Period !Payee r----- :incoming wire ! _ _J ____________ __ ________________ 1 r Bank: City National Bank Account: xxxxxx5566 Memo ------~-~egnier ---- - - 0eJ,50Urte : __ ---- Debit! I ' Srv Chg: Period: 12/29/2017-01/31/2019 Credit: 1 --- -- ------ --+------- ---:--------- 617,840.44! . I _ _1_ _ __ i __ -~-- 12.00: 12.00, ~ .... ., .. ·----~-~ -"~ ~~~ ... -~- _j_ ----;----------· I 1 15.oo1 ;-------------- -- - --------:- --------j--------~-r ; I ---------~ _j -------78~~~-k-USA-----~-----···- -----~- i600:00o.oO-r--- , ~~~-!~oingwJres~~-'-':~_e__~~~~~------- _ ----~---------______________ __J :debit memo :purchaseofCashier'sCheckpayable I I : , to Edward Ricci per email from Judy ____________________ ; ___ I -- ---~------------------------------- ------------- ------·-·-· 12/29/17-01/31/18 - _ _ _ j _ _ _ _ _ _ - ' - - - - - - - - - -------~ 01/05/18 ' ~--· _________ ___ _ g_!_LQ5f!i~~-: -~~ ~-~---- ---- ----------------~-}ncomi·~~l~i~S-~~E~i£!_~~~e________ _- -_-~:_: ---- -:~~~~=~~--~-r-~-~~~~~~--------01/08/18 ! I :outgoing wire i Miller Nash Graham & Dunn---------llP ! ~ 16,146.64: ------------------+------------------- - - - - - - - - - - - - - - - - - - - - - - - - . ~-.----------------;-------- ----- ----,--------+01/08/18 j_________________ :qu~going wi_!:_e____ __________ :Dill a nos Coffee Roasters __________ ~__!___8~~§?.!_ 01/08/18 ! outgoing wire service charge : 1 i ----------------- l 01/08/18 --' -·-- --------~- ! outgoing wire service charge 1 ____ outgoingwire joutgoing wire _ ___________ _______ l~~--~!?..~-~fe.r 9.~!?.!!___ ___ 1 'I ' · - --·- - - . :-_ '' --r- 1 1 _· - -- ,_ _______] 1 ! - . ---- - - - - , - - 12.00i ------- ---~------------------ ! I 12.00i $864,077.25 ·-·-~-:~-----~---~ -~~~·=:--~~-~--~--~T -~~:: 12~9i)j ____I~~~-Q~-~~ i 17,000.001 ! I $847,065.25 j_______ j __~o.ooo.ooj ___________ _j ______ j ___ $787,~~?..:_~-~ __, _ 27~9_D_Q~QQJ _____________________ j__ ___ l___ $760,065.25 $760,053.25 ~ ! -----------------+ - ~!?~_n_~~s__ ~· __ B:a~~~-1>:--~~~-~orp____ :Richard Beada ! Eagan Avenatti Trust Account _-_~]~--=---=-=-==--------- ___ ~¥;~:~~~--' --~---- -----------~-~~~:~-:-~:--:i~:j-~~~k;-~~~t~~~~-~-ti~~~~!es P~~ - --:------ - ---- --~ ~~:~~~~%!----~--------: ~:~::~:~:~~ -----------------:--------------------------'----------·--- - - - -- ---------·---- .. '-----------· --. ----- . - ---- -------- -t------ ------- ------r ___ -! -_-~_l___- ----------- __ __________ :outg?~g wir~-~~i~!.~~~-:5:~-r-~~ ' 1 01/09/18 pj]09/18 01/10/18 ]-__] !outgoingwireservicecharge ----+I ---------------------- -----·--------------------- g}l_!QL~~--- _ ____ 01~~0/18 01/10/18 ----------------------,-1 ·· · - ·-·· · · · -~~j~~~~: ~----~----~~-- ------------------- -·-------1 :~~!~~~~~~d;b~i;~~~:;~~~-~ge· ----~!- - - - - - --------~-------- 5.oo! ---------1--- 12 .00 : ~;:~:~:~:~~ :=--=::-±=_=-:::=------:-~.;;;;o Ti>u~ch,-se~tg._stlier'~C:hick~~ ··:. ··~ +•. • i~o~Ej :. . -:-- -~;~ $757,826.48 Ql/11/18. _______ - - - - - - , - - - - + - - - - - - - ----------- - - - - - - - , - - - - - - - - - - - - - - - - - - - - ____ ----------~~~~~-~i~~ wire :_.w~;;:~;~t;;,~:~~~~~ha'lle~- - ----- ----- -- - ----1- ---------------~ ---------------- -------- ----~-- ---- - --, : · $485,579.52 $497,491.52 - - - - -----' +~~~_a-~~!Y--------------------4--------~ _!_~,588.7~------+------------ t n - - ----'----------·---· ·- --- -------------- ------· ~{~H i6o72~~-~---~=--~~~~~~·~:_sl)~~------~=-::-~u:~:::~:so~:~cCt\eck_ •. ~-=~ ···=====-~1~~~~~!~t -= =~~=·~=--~; -~~~ ___:____-=~_:__:_:_:__j_:=_____=loo,ooooJ -•----=n--j =___-=i~ -~~6~ ~~1~~~: -~-=-=~-= 01/16/18 ___ ______ 01/17/18 !outgoing wire iGiobal Baristas llC ! : 10,000.00· ....•... ...•• ! .... ~Ji~~~! _ =-:! _:_ - -=-=~J;~~~~~:f;~c~~ See Federal~le~ of Criminal Pro duce AUSAs JulianL. Andre 21 DATE S DOUG ~ Remoun Karlous oFFiciaL TITLE S ecial .~«Agent, Internal Revenue Service —Criminal Investigation ~~ Sworn to be r me and subscribed in my presence, SIGNAT "`f/ cC0 CK March 22, 2019 d 54 4.6683 and Brett A. Sage1714.338.3598 REC: Detention Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 2 of 198 Page ID #:2 Complaint's Statement of Facts Constituting the Offense or Violation COUNT ONE [18 U.S.C. § 1344(1)] Beginning in or about January 2014, and continuing through in or about April 2016, in Orange County, within the Central District of California, and elsewhere, defendant MICHAEL J. AVENATTI ("AVENATTI"), together with others known and unknown, knowingly and with intent to defraud, executed and attempted to execute a scheme to defraud The Peoples Bank as to material matters. On or about December 12, 2014, in Orange County, within the Central District of California, and elsewhere, defendant AVENATTI, together with others known and unknown, committed and willfully caused others to commit the following act, which constituted an execution of, or an attempt to execute, the fraudulent scheme: (1) wire transfer of approximately $494,500 from The Peoples Bank in Biloxi, Mississippi, to a California Bank & Trust bank account in the name of Eagan Avenatti LLP in Irvine, California. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 3 of 198 Page ID #:3 COUNT TWO [18 U.S.C. ~ 1343] Beginning as early as in or around December 2017 and continuing through in or around March 2019, in Los Angeles and Orange Counties, within the Central District of California, and elsewhere, defendant MICHAEL J. AVENATTI ("AVENATTI"), knowingly and with intent to defraud, devised participate in, and executed a scheme to defraud clients to whom defendant AVENATTI had agreed to provide legal services, as to material matters, and to obtain money and property from his legal clients by means of material false and fraudulent pretenses, representations, and promises, and the concealment of material facts. On or about January 5, 2018, in Los Angeles and Orange Counties, within the Central District of California, and elsewhere, defendant AVENATTI, for the purpose of executing the above-described scheme to defraud, transmitted or caused the transmission of the following items by means of wire communication in interstate and foreign commerce: (1) wire transfer of approximately $1,600,000 sent from Silicon Valley Bank through the interstate Fedwire system to defendant AVENATTI's City National Bank attorney trust account in Los Angeles, California. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 4 of 198 Page ID #:4 I, Remoun Karlous, being duly sworn, declare and state as follows: I. INTRODUCTION 1. I am a Special Agent ("SA") with the Internal Revenue Service-Criminal Investigation ("IRS-CI") in the Los Angeles Field Office and have been so employed since April 1995. As an IRS-CI SA, I have investigated numerous cases involving criminal violations of Title 18, Title 21, Title 26, and Title 31 of the United States Code, which have resulted in seizure, search, and arrest warrants. In particular, I have investigated cases involving money laundering, international money laundering, securities fraud, tax evasion (domestic and international cases), and subscribing to false tax returns. II. PURPOSE OF AFFIDAVIT 2. This affidavit is submitted in support of an arrest warrant for and criminal complaint charging Michael J. Avenatti ("AVENATTI") with: (a) one count of bank fraud, in violation of 18 U.S.C. ~ 1344(1); and (b) one count of wire fraud, in violation of 18 U.S.C. § 1343. 3. The facts set forth in this affidavit are based upon my personal observations, my training and experience, and information obtained from various law enforcement personnel and witnesses. This affidavit is intended to show merely that there is sufficient probable cause for the requested warrant and complaint, and does not purport to set forth all of my knowledge of or investigation into this matter. 1 Unless specifically Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 5 of 198 Page ID #:5 indicated otherwise, all conversations and statements described in this affidavit are related in substance and in part only. III. STATEMENT OF PROBABLE CAUSE A. February 2019 Warrant to Search GBUS Digital Devices 4. On February 22, 2019, in case number 8:19-MJ-103, I submitted an affidavit in support of an application for a warrant to search seven digital devices in the custody of IRS-CI in Laguna Niguel, California (the "prior affidavit"); the seven digital devices had been produced by former Global Baristas US LLC ("GBUS") employees. The Honorable Douglas F. McCormick, United States Magistrate Judge, authorized the warrant that same The application for a day (the "February 2019 search warrant"). search warrant in case number 8:19-MJ-103, as well as my prior affidavit in support thereof, are attached hereto as Exhibit 1 and incorporated herein by reference. In summary, my prior affidavit stated, among other things, the following: a. AVENATTI was and is an attorney licensed to practice law in the State of California. AVENATTI practiced law through Avenatti & Associates, APC ("A&A") and Eagan Avenatti LLP ("EA LLP") in Newport Beach, California. AVENATTI was the sole owner of A&A. b. AVENATTI was also the principal owner and Chief Executive Officer ("CEO") of GBUS, which operated Tully's Coffee ("Tully's") stores in Washington and California. In 2013, AVENATTI's company, Global Baristas LLC ("GB LLC"), acquired TC Global Inc., which previously operated Tully's, out of bankruptcy for approximately $9.2 million. 2 AVENATTI's company, Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 6 of 198 Page ID #:6 A&A, owned 100 percent of Doppio Inc., which in turn owned 80 percent of GB LLC. GB LLC wholly owned GBUS, which handled the day-to-day business operations of Tully's. c. There is probable cause to believe that between at least 2011 and the present AVENATTI committed federal offenses, including, but not limited to, the following: (i) fraud-related offenses relating to loans AVENATTI and his companies obtained from The Peoples Bank in Mississippi (Ex. 1, ~ IV.F); and (ii) wire fraud and money laundering offenses relating to an approximately $1.6 million settlement payment AVENATTI and EA LLP received in January 2018, but failed to transfer to EA LLP's client (Ex. 1, ~ IV.G). d. First, between approximately January 2014 and December 2014, AVENATTI obtained three separate loans from The Peoples Bank, a FDIC insured bank in Mississippi: (1) a $850,500 loan to GB LLC in January 2014; (2) a $2,750,000 loan to EA LLP in March 2014; and (3) a $500,000 loan to EA LLP in December 2014. In connection with these loans, AVENATTI provided The Peoples Bank with false federal personal income tax returns for the 2011, 2012, and 2013 tax years. In these purported tax returns, AVENATTI claimed that he earned $4,562,881 in adjusted gross income in 2011, $5,423,099 in adjusted gross income in 2012, and $4,082,803 in adjusted gross income in 2013. He also claimed that he had paid to the IRS $1,600,000 in estimated tax payments in 2012, and $1,250,000 in estimated tax payments in 2013. However, AVENATTI never filed personal income tax returns for the 2011, 2012, and 2013 tax years, and did not make any 3 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 7 of 198 Page ID #:7 estimated tax payments to the IRS during the 2012 and 2013 tax years. In fact, at the time, AVENATTI still owed the IRS approximately $850,438 in unpaid personal income taxes, plus interest and penalties, from the 2009 and 2010 tax years. Additionally, in March 2014, AVENATTI provided The Peoples Bank with a 2012 federal tax return for EA LLP which claimed total income of $11,426,021 and ordinary business income of $5,819,456. However, the 2012 federal tax return EA LLP actually filed with the IRS in October 2014 claimed total income of only $6,212,605 and an ordinary business loss of $2,128,849. e. Second, from in or about December 2017 and the present, AVENATTI defrauded one of EA LLP's client, G.B., out of the client's portion of an approximately $1.6 million settlement payment. Specifically, in January 2018, AVENATTI arranged for the $1.6 million settlement payment to be transferred to a newly opened attorney trust account. Rather than transfer his client's portion of the settlement proceeds to his client, AVENATTI used the entire $1.6 million for his own purposes, including to pay for expenses relating to GBUS. AVENATTI lied to his client and claimed that the settlement payment was not due until March 2018. When the fake March 2018 deadline passed, AVENATTI led his client to believe that the $1.6 million payment had never been received. B. Additional Evidence Regarding AVENATTI's Scheme to Defraud His Legal Client, G.B. 5. As set forth in my prior affidavit, AVENATTI engaged in a scheme to defraud his client, G.B., out of G.B.'s portion 4 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 8 of 198 Page ID #:8 of an approximately $1.6 million settlement payment AVENATTI and EA LLP received in January 2018 in connection with an arbitration proceeding against a Colorado-based company (See Ex. 1, ~ IV.G.) On March 15, 2019, I participated in an interview of G.B. The information G.B. ("Company 1") provided during the interview was consistent with the information G.B. and his counsel had previously provided to IRSCI and the Newport Beach Police Department ("NBPD") During the interview, G.B.1 also provided the following additional information: a. On or about December 28, 2017, G.B. met with AVENATTI at EA LLP's offices in Newport Beach, California, to go over the proposed settlement agreement with Company 1. During this meeting, AVENATTI provided G.B. with a copy of the $1.9 million settlement agreement to review. The settlement agreement AVENATTI provided to G.B. listed the payment dates as $1.6 million on March 10, 2018, and $100,000 on March 10 of each of the next three years. As noted in my prior affidavit, this information was false and the actual settlement agreement required Company 1 to pay G.B. $1.9 million on January 10, 2018, and $100,000 on January 10 of each of the three subsequent years. (Ex. 1, ¶ 75.e.) 1 G.B. previously pleaded guilty to a felony theft count in approximately September 2018 and was sentenced to probation. (See Ex. 1, ~ 75 n.44.) During his interview, G.B. said that AVENATTI had encouraged him to plead guilty and that AVENATTI continued working with G.B. and one of G.B.'s companies after G.B.'s guilty plea. 5 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 9 of 198 Page ID #:9 Based on my review of documents produced by b. G.B.'s counsel, I know that on or about June 29, 2018, G.B. sent an email to an EA LLP employee ("EA Employee 1") asking her to forward to G.B. the signed settlement agreement with Company 1. During his interview, G.B. said that sometime after he sent this email EA Employee 1 brought him a physical copy of the fullyexecuted settlement agreement while G.B. was at EA LLP's offices. EA Employee 1 handed AVENATTI the settlement agreement. AVENATTI flipped through the settlement agreement and then handed it to G.B. This copy of the settlement agreement also falsely stated that the settlement payments were due on March 10 of 2018 through 2021, as opposed to January 10 of 2018 through 2021. c. As noted in my prior affidavit, between April 2018 and November 2018, AVENATTI "advanced" G.B. approximately $130,000 to help G.B. meet certain financial obligations while he waited for his portion of the $1.6 million settlement payment from Company 1. During his interview, G.B. said that in approximately October 2018, AVENATTI told G.B. that AVENATTI would be able to loan G.B. another $100,000 sometime during the Notably, under the terms of first two weeks of January 2019. the true settlement agreement, Company 1 was scheduled to make an additional $100,000 settlement payment to AVENATTI's trust account on January 10, 2019. Thus, it appears that AVENATTI was offering to loan G.B.'s own money to G.B. 6. During the interview on March 15, 2019, G.B's current counsel also confirmed that AVENATTI still has not turned over D Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 10 of 198 Page ID #:10 G.B.'s client file to his current attorneys despite repeated requests that he do so. 7. Based on my review of bank records and other documents, I have learned that on or about January 5, 2019, a wire transfer of approximately $1,600,000 was transmitted from Silicon Valley Bank through the interstate Fedwire system to a City National Bank attorney trust account ending in 5566 ("CNB Trust Account 5566") associated with AVENATTI.2 IV. 8. REQUEST FOR SEALING I request that the criminal complaint, the arrest warrant, and this affidavit be kept under seal to maintain the integrity of this investigation until further order of the Court, or until defendant makes his initial appearance on the arrest warrant. a. I make this request for several reasons. First, this criminal investigation is ongoing and is neither public nor known to AVENATTI and other subjects of the investigation. Public disclosure of the complaint, arrest warrant, and this affidavit prior to AVENATTI's arrest and initial appearance could cause AVENATTI and others to accelerate any existing or evolving plans to, and give them an opportunity to, destroy or tamper with evidence, tamper with or intimidate witnesses, change patterns of behavior, or notify confederates. 2 I understand that the State Bar of California has specific rules that apply to the proper use of attorney trust accounts. For example, I understand that Rule 1.15 of the State Bar of California states that "[f]unds belonging to the lawyer or the law firm shall not be deposited or otherwise commingled with funds held in a trust account." 7 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 11 of 198 Page ID #:11 b. Second, based on evidence collected to date and described in my prior affidavit, there is probable cause to believe that AVENATTI took a number of affirmative actions to obstruct an IRS collection action relating to GBUS's unpaid payroll taxes by, among other things, lying to an IRS Revenue Officer, changing contracts, merchant accounts, and bank account information to avoid liens and levies imposed by the IRS, and instructing employees to deposit over $800,000 in cash from Tully's stores, which were owned and operated by GBUS, into a bank account associated with a separate entity to avoid liens and levies by the IRS. If AVENATTI were to learn of the instant investigation prior to his arrest he might engage in similarly obstructive conduct. c. Third, a number of former GBUS employees have expressed concerns that AVENATTI might attempt to retaliate against them if he learned they were cooperating with the government's investigation. d. Fourth, there is a possibility that some evidence relating to GBUS's operations may have already been lost when GBUS was evicted from its corporate offices and AVENATTI refused to pay the bill for GBUS's cloud-based server. Although IRS-CI has been able to obtain some GBUS records, including the data stored on the SUBJECT DEVICES, from other sources, AVENATTI's apparent willingness to allow GBUS records to be lost or destroyed raises a concern that, were AVENATTI to learn of the criminal complaint and arrest warrant, he might not hesitate to destroy any remaining GBUS records and other relevant evidence. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 12 of 198 Page ID #:12 V. 9. CONCLUSION For all the reasons described above, there is probable cause to believe that AVENATTI has committed bank fraud, in violation of 18 U.S.C. § 1344(1), and wire fraud, in violation of 18 U.S.C. ~ 1343. ~emoun Karlous, Special Agent Internal Revenue Service Criminal Investigation Subsc t 's be to and savor day of Marc ire me 2019: RABLE D U LAS F. MCCO`.ICK MAGISTRATE JUDGE UNITED STA Case Document 1 Filed 03/22/19 Page 13 of 198 Page ID #:13 EXHIBIT 1 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 14 of 198 Page ID #:14 ao ~ . ~a~~p~~~~~►T~~~EALED* Document 4-1 *SEALED* Filed 02/22/19 Page 1of UNITED STATES DISTRICT COURT for the Central District of California In the Matter of the Search of (Brie~Zy describe the property to be searched or identify the person byname and address) Seven Digital Devices in the Custody of the Internal Revenue Service —Criminal Investigation in Laguna Niguel, California ) ~ Case No. 8:19-MJ-103 ~ APPLICATION FOR A SEARCH WARRANT I, a federal law enforcement officer or an attorney for the government, request a search warrant and state under penalty of perjury that Ihave reason to believe that on the following person or property (tdenttfy the Person or des~rtbe the property to be searched and give its location): See Attachment A located in the Central District of California, there is now concealed (idennfy the person or describe the property to be seized): See Attachment B The basis for the search under Fed. R. Crim. P. 41(c) is (check one or mope): ~ evidence of a crime; ~ contraband, fruits of crime, or other items illegally possessed; ~ property designed for use, intended for use, or used in committing a crime; ❑ a person to be arrested or a person who is unlawfully restrained. The search is related to violations of: Code Section 26 U.S.C. § 7201 26 U.S.C. § 7202 26 U.S.C. § 7203 26 U.S.C. § 7212 18 U.S.C. § 152 18 U.S.C. § 157 18 U.S.C. § 371 18 U.S.C. § 1001 18 U.S.C. § 1014 18 U.S.C. § 1028A 18 U.S.C. § 1343 18 U.S.C. § 1344 18 U.S.C. § 1957 /// /// /// Offense Description Attempt to Evade or Defeat Taa~ Willful Failure to Collect or Pay Over Tax Willful Failure to Pay Tax or File Return Interference with Administration of Internal Revenue Laws Concealment of Assets in Bankruptcy Bankruptcy Fraud Conspiracy False Statements False Statement to a Bank or Other Federally Insured Institution Aggravated Identity Theft Wire Fraud Bank Fraud Money Laundering Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 15 of 198 Page ID #:15 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:236 Filed 02/22/19 Page 2 of The application is based on these facts: See attached Affidavit ~ Continued on the attached sheet. days (give exact ending date ifmore than 30 days: ❑ Delayed notice of of which is set forth on the attached sheet. U.S.C. § 3103a, the basis under 18 )is requested /s/ Applicant's signature IRS CI Special Agent Remoun Karlous Printed name and title Sworn to before me and signed in my presence. Date: February 22,2019 DOUGLAS F. McCORMICK Judge's signature City and state: Santa Ana, CA United States Magistrate Jud ~e Douglas F. McCormick Printed name and title AUSAs: Julian L. Andre (213.894.6683) &Brett A. Sagel (714.338.3598) Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 16 of 198 Page ID #:16 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:237 Filed 02/22/19 Page 3 of ATTACFIMENT A PROPERTY TO BE SEARCHED Forensic images of the following digital devices (the ~~SUBJECT DEVICES"), which are currently maintained in the custody of the Internal Revenue Service-Criminal Investigation (~~IRS-CI") in Laguna Niguel, California: 1. Dell XPS 128 GB Samsung SSD, bearing serial number S1D2NSAG5000777, provided to IRS-CI by M.E. on or about October 22, 2018 (~~SUBJECT DEVICE 1"); 2. Dell Precision, Model M4800, bearing service tag number 252M262, provided to IRC-CI by S.F. on or about October 21, 2018 (~~SUBJECT DEVICE 2"); 3. Seagate External Hard Drive, model number SRDOOFI, bearing serial number NA44HLQH, provided to IRS-CI by M.G. on or about October 22, 2018 (~~SUBJECT DEVICE 3"); 4. Samsung flash drive provided to IRS-CI by V.S. on or about October 31, 2018 ("SUBJECT DEVICE 4"); 5. Seagate Hard Drive, bearing serial number 5VJCIGXV provided to IRS-CI by A.G. on or about November 13, 2018 (~~SUBJECT DEVICE 5"); 6. Veeam 2GB flash drive provided to IRS-CI by A.G. on or about November 13, 2018 (~~SUBJECT DEVICE 6"); and 7. Seagate Hard Drive, bearing serial number 5VJCIGXV provided to IRS-CI by A.G. on or about November 20, 2018 (~~SUBJECT DEVICE 7"). Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 17 of 198 Page ID #:17 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:238 Filed 02/22/19 Page 4 of ATTACFIMENT B I. ITEMS TO BE SEIZED 1. The items to be seized are evidence, contraband, fruits, and/or instrumentalities of violations of 26 U.S.C. § 7201 (attempt to evade or defeat tax); 26 U.S.C. ~ 7202 (willful failure to collect or pay over tax); 26 U.S.C. § 7203 (willful failure to pay tax or file return); 26 U.S.C. § 7212 (interference with administration of internal revenue laws); 18 U.S.C. ~ 152 (concealment of assets in bankruptcy); 18 U.S.C. § 157 (bankruptcy fraud); 18 U.S.C. ~ 371 (conspiracy); 18 U.S.C. ~ 1001 (false statements); 18 U.S.C. § 1014 (false statement to a bank or other federally insured institution); 18 U.S.C. ~ 1028A (aggravated identity theft); 18 U.S.C. ~ 1343 (wire fraud); 18 U.S.C. ~ 1344 (bank fraud); and 18 U.S.C. ~ 1957 (money laundering) (the "Subject Offenses"), namely: a. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to the ownership of Global Baristas US, LLC (~~GBUS"); Global Baristas, LLC (~~GB LLC"); GB Autosport, LLC (~~GB Auto"); GB Hospitality LLC (~~GB Hospitality"); Doppio Inc. ("Doppio"); Eagan Avenatti LLP ("EA LLP"); and Avenatti & Associates, APC (~~A&A") (collectively, the "Subject Entities"). i Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 18 of 198 Page ID #:18 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:239 b. Filed 02/22/19 Page 5 of Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to the sale or purchase of TC Global, Inc. or Tully's Coffee. c. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to the purchase or sale of GBUS, GB LLC, or Doppio. d. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to AVENATTI's control or management of any of the Subject Entities. e. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to the organizational or management structure of any of the Subject Entities. f. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to the finances of any of the Subject Entities, including assets, liabilities, accounts receivable, and accounts payable. g. Records, documents, correspondence, programs, applications, or materials from January 2013 through September ii Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 19 of 198 Page ID #:19 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* p=iled 02/22/19 Page 6 of 184 Page ID #:240 2018 that evidence, discuss, reflect, or relate to value of GBUS or GB LLC. h. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to the accounting records for GBUS and GB LLC, including any Microsoft Dynamics NAV accounting data, files, or records. i. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to GBUS employee handbooks or manuals, employment contracts, compensation records, and employee lists. j. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to the personal finances of Michael J. Avenatti (~~AVENATTI"), including information relating to AVENATTI's assets, debts, income, expenses, and net worth. k. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to any financial transactions, including any proposed or potential financial transactions, involving any of the Subject Entities and/or AVENATTI. iii Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 20 of 198 Page ID #:20 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:241 1. Filed 02/22/19 Page 7 of Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to financial decisions AVENATTI made on behalf of any of the Subject Entities, including decisions to authorize payments on behalf of any of the Subject Entities and transfer money to or from any of the Subject Entities. m. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to any loans or other financing agreements, including any proposed or potential loans or other financing agreements, involving any of the Subject Entities and/or AVENATTI. n. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to the payroll and tax preparation services that Ceridian HCM Inc. (~~Ceridian") provided to GBUS, including any records, documents, correspondence, programs, applications, or materials evidencing, discussing, reflecting, or relating to changes in the payroll and tax services to be provided by Ceridian. o. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to the federal, iv Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 21 of 198 Page ID #:21 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:242 Filed 02/22/19 Page 8 of state, and/or local tax obligations, tax returns, tax liabilities, or tax payments of any of the Subject Entities and/or AVENATTI. p. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to any liens, levies, garnishments, judgments, encumbrances, or tax-related investigations or actions associated with any of the Subject Entities and/or AVENATTI. q. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to GBUS's and GB LLC's merchant credit card processing accounts (the "merchant accounts"), including contracts, agreements, account applications, and correspondence regarding changes to the merchant accounts. r. Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to any of the Subject Entities' and/or AVENATTI's contractual relationships, including drafts and final versions of any executed, proposed, or potential contracts and agreements, bills of sale, correspondence regarding payments, and correspondence regarding the cancellation or modification of contracts and/or agreements. v Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 22 of 198 Page ID #:22 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:243 s. Filed 02/22/19 Page 9 of Records, documents, correspondence, programs, applications, or materials from January 2013 through September 2018 that evidence, discuss, reflect, or relate to changes in any of the Subject Entities' and/or AVENATTI's bank account information. t. Any SUBJECT DEVICE which is itself or which contains evidence, contraband, fruits, or instrumentalities of the Subject Offenses and forensic copies thereof. u. With respect to any SUBJECT DEVICE containing evidence falling within the scope of the foregoing categories of items to be seized: i. evidence of who used, owned, or controlled the device at the time the things described in this warrant were created, edited, or deleted, such as logs, registry entries, configuration files, saved usernames and passwords, documents, browsing history, user profiles, e-mail, e-mail contacts, chat and instant messaging logs, photographs, and correspondence; ii. evidence of the presence or absence of software that would allow others to control the device, such as viruses, Trojan horses, and other forms of malicious software, as well as evidence of the presence or absence of security software designed to detect malicious software; iii. evidence of the attachment of other devices; vi Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 23 of 198 Page ID #:23 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:244 iv. Filed 02/22/19 Page 10 of evidence of counter-forensic programs (and associated data) that are designed to eliminate data from the device; v. evidence of the times the device was used; vi. passwords, encryption keys, and other access devices that may be necessary to access the device; vii. applications, utility programs, compilers, interpreters, or other software, as well as documentation and manuals, that may be necessary to access the device or to conduct a forensic examination of it; viii. records of or information about Internet Protocol addresses used by the device; ix. records of or information about the device's Internet activity, including firewall logs, caches, browser history and cookies, ~~bookmarked" or "favorite" web pages, search terms that the user entered into any Internet search engine, and records of user-typed web addresses. 2. As used herein, the terms ~~records," ~~documents," "correspondence," "programs," "applications," and "materials" include records, documents, correspondence, programs, applications, and materials created, modified, or stored in any form, including in digital form on any digital device and any forensic copies thereof. vii Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 24 of 198 Page ID #:24 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:245 II. Filed 02/22/19 Page 11 of SEARCH PROCEDURES FOR HANDLING POTENTIAi,LY PRIVILEGED INFORMATION ON THE SUBJECT DEVICES 3. In searching the SUBJECT DEVICES (including the forensic copies thereof), the following procedures will be followed at the time of the search in order to avoid unnecessary disclosures of any privileged attorney-client communications or attorney work product. 4. Law enforcement personnel conducting the investigation and search and other individuals assisting law enforcement personnel in the search (the "Search Team") have already obtained custody of the SUBJECT DEVICES, which are capable of containing evidence of the Subject Offenses, or capable of containing data falling within the scope of the items to be seized. The Search Team shall facilitate the transfer of the SUBJECT DEVICES to the ~~Privilege Review Team" (previously designated individuals not participating in the investigation of the case). The Privilege Review Team, including a Privilege Review Team Assistant United States Attorney (~~PRTAUSA") or PRTAUSAs, will then review the SUBJECT DEVICES as set forth herein. The Search Team will review only data from the SUBJECT DEVICES that has been released by the Privilege Review Team to the Search Team. 5. The Privilege Review Team will, in their discretion, either search each SUBJECT DEVICE where it is currently located viii Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 25 of 198 Page ID #:25 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:246 Filed 02/22/19 Page 12 of or transport it to an appropriate law enforcement laboratory or similar facility to be searched at that location. 6. The Privilege Review Team and the Search Team shall complete the search discussed herein as soon as is practicable but not more than 180 days from the date of execution of the warrant. The government will not search the SUBJECT DEVICES beyond this 180-day period without obtaining an extension of time order from the Court. 7. The Search Team will provide the Privilege Review Team and/or appropriate litigation support personne155 with a list of "privilege key words" to search the SUBJECT DEVICES for communications, data, or documents relating to the following law firms: (a) Foster Pepper PLLC; (b) Osborn Machler PLLC; (c) Eisenhower Carlson PLLC; (d) Talmadge/Fitzpatrick/Tribe, PPLC; and (e) Brager Tax Law Group. Such "privilege key words" shall include specific words like "Foster Pepper," "Osborn," "Machler," "Eisenhower," `Carlson," "Talmadge," "Fitzpatrick," "Tribe," `~Brager," as well as other email addresses and domain names associated with those individuals and law firms. Because the Chapter 7 bankruptcy trustee for GBUS (the "GBUS Trustee") has executed a waiver of the attorney-client privilege as to all ss Litigation support personnel and computer forensics agents or personnel, including IRS Computer Investigative Specialists, are authorized to assist both the Privilege Review Team and the Search Team in processing, filtering, and transferring data contained on the SUBJECT DEVICES. ix Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 26 of 198 Page ID #:26 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page I D #:247 Filed 02/22/19 Page 13 of communications between GBUS's officer, directors, employees, and agents, and any lawyer acting on GBUS's behalf (see Affidavit y[ 83.a, Ex. 1), including AVENATTI, the ~~privilege key words" need not include specific words designed to capture all communications with AVENATTI or his law firms, EA LLP and A&A, or standard privilege terms. 8. The Privilege Review Team will segregate and will not search or review the contents of AVENATTI's GBUS email accounts, including: (1) MichaelA@globalbaristas.com; and (2) MAvenatti@globalbaristas.com. Such data will be maintained under seal by the investigating agency without further review absent subsequent authorization as set forth in paragraph 12 below. 9. The Privilege Review Team will conduct an initial review of the data on the SUBJECT DEVICES using the ~~privilege key words," and by using search protocols specifically chosen to identify documents or data containing potentially privileged information. The Privilege Review Team may subject to this initial review all of the data contained in the SUBJECT DEVICES capable of containing any of the items to be seized. Documents or data that are identified by this initial review as not potentially privileged may be given to the Search Team. 10. All documents or data that the initial review identifies as containing any of the ~~privilege key words" will Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 27 of 198 Page ID #:27 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:248 Filed 02/22/19 Page 14 of be reviewed by a Privilege Review Team member to confirm that the documents or data contain potentially privileged information. Documents or data that are determined by this secondary review not to be potentially privileged may be given to the Search Team. Documents or data that are determined by this review to be potentially privileged or privileged will be given to the United States Attorney's Office for further review b y the PRTAUSA(s) Documents or data identified by the PRTAUSA(s) after further review as not potentially privileged may be given to the Search Team. If, after further review, the PRTAUSA(s) determines it to be appropriate, the PRTAUSA may apply to the Court for a finding with respect to particular documents or data that no privilege, or an exception to the privilege, applies. Documents or data that are the subject of such a finding may be given to the Search Team. In such an instance, the PRTAUSA(s) shall conduct a review of the documents or data to determine whether they fall within the scope of the items to be seized prior to applying to the Court for relief. Documents or data identified by the PRTAUSA(s) after review as privileged will be maintained under seal by the investigating agency without further review absent subsequent authorization as set forth in paragraph 12 below. 11. The Privilege Review Team may, in its discretion, also use "scope key words" to search any documents or data that were xi Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 28 of 198 Page ID #:28 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:249 Filed 02/22/19 Page 15 of identified as potentially privileged using the "privilege key words" if the Privilege Review Team determines that such a procedure would allow the Privilege Review Team to complete its review of potentially privileged documents more effectively and efficiently. The Privilege Review Team may also, in its discretion, apply the "scope key words" to a subset of the potentially privileged data. At the Privilege Review Team's request, the Search Team may provide the Privilege Review Team and/or appropriate litigation support personnel with a list of "scope key words" designed to search for data relating to the items to be seized. These "scope key words" may then be applied to the potentially privileged data identified by using the "privilege key words." The Privilege Review Team may conduct a detailed quality check on any data that did not contain the "scope key words" to ensure that the scope key word search is effective. Additional "scope key words" designed to locate the items to be seized may also be applied at the discretion of the PRTAUSA(s). Any data or documents that contain both any of the "privilege key words" and any of "scope key words" shall be then reviewed by the Privilege Review Team and the PRTAUSA(s) in accordance with the procedures set forth in paragraph 9 above. Documents and data that are identified by the "scope key word" searches and quality checks as falling outside the scope of the warrant will be maintained under seal as set forth in paragraph xii Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 29 of 198 Page ID #:29 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:250 Filed 02/22/19 Page 16 of 12 below and not further reviewed absent subsequent authorization. 12. Documents or data identified by the PRTAUSA(s) after review as privileged (that are not subject to a finding by a court of no privilege or an exception to the privilege) or potentially privileged and outside the scope of the items to be seized shall be segregated and sealed together in an enclosure, the outer portion of which will be marked as containing potentially privileged information, and maintained by the investigative agency. Such data or documents shall not be accessible by or given to the Search Team at any time absent authorization of the Court. However, the Privilege Review Team may, in its discretion, store the privileged and potentially privileged data and documents in a folder or a set of folders in a document review platform database, such as Relativity or Eclipse, that remains inaccessible to the Search Team. The Privilege Review Team's access to this separate document review platform database shall cease upon expiration of the warrant. However, litigation support personnel from the United States Attorney's Office, United States Department of Justice, and/or the investigating agency may continue to access this separatelymaintained document review database for the purpose of database maintenance. xiii Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 30 of 198 Page ID #:30 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:251 13. Filed 02/22/19 Page 17 of The Search Team will search only the documents and data that the Privilege Review Team provides to the Search Team at any step listed above in order to locate documents and data that are within the scope of the search warrant. The Search Team does not have to wait until the entire privilege review is concluded to begin its review for documents and data within the scope of the search warrant. The Privilege Review Team may also conduct the search for documents and data within the scope of the search warrant if that is more efficient, but is not required to do so. In conducting its review, the Search Team may, in its discretion, use key word searches and other searches to determine whether documents or data fall within the scope of the search warrant. Data that is identified after these scope reviews as outside the scope of the items to be seized will be maintained under seal by the Search Team and not further reviewed absent subsequent authorization from the Court. 14. All members of the Search Team shall be advised that AVENATTI may hold an individual attorney-client relationship with the law firms identified in paragraph 7 above or other law firms and lawyers not previously identified, and that communications with or records involving those law firms and lawyers may not be covered by GBUS Trustee's waiver of the attorney-client privilege. If, upon review, a member of the Search Team determines that a document or data from the SUBJECT xiv Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 31 of 198 Page ID #:31 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:252 Filed 02/22/19 Page 18 of DEVICES appears to contain potentially privileged information that may not be covered by GBUS's limited waiver of the attorney-client privilege, such as communications with the lawyers and law firms identified in paragraph 7 above or other law firms and lawyers not previously identified, the Search Team member shall discontinue its review of the document or data and shall immediately notify a member of the Privilege Review Team. The Search Team member may record identifying information regarding the potentially privilege document or data that is reasonably necessary to identity the document or data for the Privilege Review Team. The Search Team shall not further review any documents or data that appears to contain such potentially privileged information until after the Privilege Review Team has completed its review of the additional potentially privileged information discovered by the Search Team member. 15. In performing the reviews, both the Privilege Review Team and the Search Team may: a. search for and attempt to recover deleted, "hidden," or encrypted data; b. use tools to exclude normal operating system files and standard third-party software that do not need to be searched; and c. use forensic examination and searching tools, such as ~~EnCase," ~~FTK" (Forensic Tool Kit), Nuix, Axiom, xv Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 32 of 198 Page ID #:32 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:253 Filed 02/22/19 Page 19 of Relativity, and Eclipse, which tools may use hashing and other sophisticated techniques. 16. If either the Privilege Review Team or the Search Team, while searching a SUBJECT DEVICE encounters immediately apparent contraband or other evidence of a crime outside the scope of the items to be seized, they shall immediately discontinue the search of that device pending further order of the Court and shall make and retain notes detailing how the contraband or other evidence of a crime was encountered, including how it was immediately apparent contraband or evidence of a crime. 17. If the search determines that a SUBJECT DEVICES does contain data falling within the list of items to be seized, the government may make and retain copies of such data, and may access such data at any time. 18. The government may retain the SUBJECT DEVICES (including any forensic copy thereof), which have already been obtained by the Search Team, but may not access data falling outside the scope of the other items to be seized (after the time for searching the device has expired) on the SUBJECT DEVICES absent further court order. 19. After the completion of the search of the SUBJECT DEVICES, the government shall not access digital data falling xvi Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 33 of 198 Page ID #:33 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:254 Filed 02/22/19 Page 20 of outside the scope of the items to be seized absent further order of the Court. 20. The special procedures relating to digital devices found in this warrant govern only the search of digital devices pursuant to the authority conferred by this warrant and do not apply to any search of digital devices pursuant to any other court order. xvii Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 34 of 198 Page ID #:34 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:255 Filed 02/22/19 Page 21 of AFFIDAVIT TABLE OF CONTENTS I. INTRODUCTION..........................................1 II. PURPOSE OF AFFIDAVIT..................................1 III. SUMMARY OF PROBABLE CAUSE.............................3 IV. STATEMENT OF PROBABLE CAUSE..........................12 A. Federal Tax Obligations.........................12 1. Federal Payroll Tax Obligations............12 2. Federal Income Tax Obligations for Corporations, Partnerships, and Limited Liability Companies........................14 3. Federal Income Tax Obligations for Individuals................................14 B. Background Information..........................15 C. Tax Offenses Relating to Global Baristas US LLC (GBUS) and Global Baristas LLC (GB LLC).........18 D. 1. Tax Information Regarding GBUS and GB LLC..18 2. The IRS Payroll Tax Collection Case........21 3. GBUS Employee Interviews...................38 4. Information Regarding TSYS Merchant Solutions..................................81 5. Information Regarding The Boeing Company...86 6. Preliminary Review of GBUS and GB LLC Bank Account Information........................93 7. GBUS Bankruptcy Proceedings................95 Tax Offenses Relating to Eagan Avenatti LLP (EA LLP) and Avenatti & Associates, APC (A&A).......97 1. The IRS Payroll Tax Collection Case........97 2. EA LLP Bankruptcy Proceedings.............101 3. Information Obtained from Paychex Regarding EA LLP's Payroll Taxes....................104 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 35 of 198 Page ID #:35 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:256 E. F. G. V. Filed 02/22/19 Page 22 of 4. Other Tax Information Regarding EA LLP and A&A.......................................105 5. Preliminary Review of EA LLP's and A&A's Bank Account Information..................107 Tax Offenses Relating to AVENATTI's Personal Income Tax Obligations.........................108 1. Information Regarding AVENATTI's Personal Income Tax Obligation.....................109 2. Preliminary Review of AVENATTI's Bank Records...................................111 3. Information Regarding the Sale of AVENATTI's Residence in Laguna Beach and Purchase of AVENATTI's Residence in Newport Beach.....115 a. The Laguna Beach Residence...........115 b. The Newport Beach Residence..........119 4. Information from AVENATTI's Divorce Proceedings...............................120 5. AVENATTI's Statements Regarding His Net Worth.....................................122 Fraud Offenses Relating to The Peoples Bank....123 1. $850,000 Loan to GB LLC in January 2014...124 2. $2,750,000 Loan to EA LLP in March 2014...126 3. $500,000 Loan to EA LLP in December 2014..128 Fraud Offenses Relating to the $1.6 Million G.B. Settlement.....................................135 ADDITIONAL INFORMATION REGARDING THE SUBJECT DEVICES.............................................142 A. Collection of the Subject Devices..............142 B. The SUBJECT DEVICES Are Unlikely to Contain Attorney-Client Privileged Communications or Records........................................147 VI. TRAINING AND EXPERIENCE ON DIGITAL DEVICES..........150 VII. REQUEST FOR SEALING.................................156 VIII. CONCLUSION.....................................158 ii Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 36 of 198 Page ID #:36 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:257 filed 02/22/19 Page 23 of AFFIDAVIT I, Remoun Karlous, being duly sworn, declare and state as follows: 2. 1. INTRODUCTION I am a Special Agent ("SA") with the Internal Revenue Service-Criminal Investigation (~~IRS-CI") in the Los Angeles Field Office and have been so employed since April 1995. As an IRS-CI SA, I have investigated numerous cases involving criminal violations of Title 18, Title 21, Title 26, and Title 31 of the United States Code, which have resulted in seizure, search, and arrest warrants. In particular, I have investigated cases involving money laundering, international money laundering, securities fraud, tax evasion (domestic and international cases), and subscribing to false tax returns. I2. 2. PURPOSE OF AFFIDAVIT This affidavit is made in support of an application for a warrant to search the forensic images of the following digital devices, which are currently held in the custody of IRSCI in Laguna Niguel, California: a. Dell XPS 128 GB Samsung SSD, bearing serial number S1D2NSAG5000777, provided to IRS-CI by M.E.1 on or about October 22, 2018 ("SUBJECT DEVICE 1"); 1 Although the government has requested that this affidavit, as well as the search warrant and application, be filed under seal, I have referred to victims and witnesses by their initials throughout the affidavit to protect their privacy in the event the affidavit is later unsealed by the Court. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 37 of 198 Page ID #:37 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:258 b. Filed 02/22/19 Page 24 of Dell Precision, Model M4800, bearing service tag number 252M262, provided to IRC-CI by S.F. on or about October 21, 2018 (~~SUBJECT DEVICE 2"); c. Seagate External Hard Drive, model number SRDOOFI, bearing serial number NA44HLQH, provided to IRS-CI by M.G. on or about October 22, 2018 (~~SUBJECT DEVICE 3"); d. Samsung flash drive provided to IRS-CI by V.S. on or about October 31, 2018 ("SUBJECT DEVICE 4"); e. Seagate Hard Drive, bearing serial number 5VJCIGXV, provided to IRS-CI by A.G. on or about November 13, 2018 (~~SUBJECT DEVICE 5"); f. Veeam 2GB flash drive provided to IRS-CI by A.G. on or about November 13, 2018 (~~SUBJECT DEVICE 6"); and g. Seagate Hard Drive, bearing serial number 5VJCIGXV, provided to IRS-CI by A.G. on or about November 20, 2018 (~~SUBJECT DEVICE 7")z (collectively, the ~~SUBJECT DEVICES"). 3. The requested search warrant seeks authorization to seize any data on the SUBJECT DEVICES that constitutes evidence, contraband, instrumentalities, and/or fruits of violations of: 26 U.S.C. ~ 7201 (attempt to evade or defeat tax); 26 U.S.C. ~ 7202 (willful failure to collect or pay over tax); 26 U.S.C. § 7203 (willful failure to pay tax or file return); 26 U.S.C. ~ 7212 (interference with administration of internal revenue laws); 18 U.S.C. § 152 (concealment of assets in bankruptcy); 18 2 As discussed in paragraphs 81-82 below, A.G. used the same hard drive to produce to IRS-CI two different sets of data. IRS-CI created two separate forensic images of the hard drive, each of which is identified herein as a separate SUBJECT DEVICE, namely SUBJECT DEVICE 5 and SUBJECT DEVICE 7. 2 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 38 of 198 Page ID #:38 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:259 Filed 02/22/19 Page 25 of U.S.C. ~ 157 (bankruptcy fraud); 18 18 U.S.C. § 371 (conspiracy); 18 U.S.C. ~ 1001 (false statements); 18 U.S.C. ~ 1014 (false statement to a bank or other federally insured institution); 18 U.S.C. ~ 1028A (aggravated identity theft); 18 U.S.C. ~ 1343 (wire fraud); 18 U.S.C. § 1344 (bank fraud); and 18 U.S.C. ~ 1957 (money laundering) (the "Subject Offenses"), and any SUBJECT DEVICE which is itself or which contains evidence, contraband, fruits, or instrumentalities of the Subject Offenses, and forensic copies thereof. 4. The SUBJECT DEVICES are identified in Attachment A to the search warrant application. The list of items to be seized is set forth in Attachment B to the search warrant application. Attachments A and B are incorporated herein by reference. 5. The facts set forth in this affidavit are based upon my personal observations, my training and experience, and information obtained from various law enforcement personnel and witnesses. This affidavit is intended to show merely that there is sufficient probable cause for the requested warrant and does not purport to set forth all of my knowledge of or investigation into this matter. Unless specifically indicated otherwise, all conversations and statements described in this affidavit are related in substance and in part only. III. SUNIl~lARY OF PROBABLE CAUSE 6. Michael J. Avenatti (~~AVENATTI") was and is an attorney licensed to practice law in the State of California. AVENATTI practiced law through Avenatti & Associates, APC ("A&A") and Eagan Avenatti LLP ("EA LLP") in Newport Beach, [C3 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 39 of 198 Page ID #:39 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:260 California. Filed 02/22/19 Page 26 of AVENATTI was the sole owner of A&A, which owned 75 percent of EA LLP. 7. AVENATTI was also the principal owner and Chief Executive Officer ("CEO") of Global Baristas US LLC (~~GBUS"), which operated Tully's Coffee ("Tully's") stores in Washington and California. In 2013, AVENATTI's company, Global Baristas LLC (~~GB LLC"), acquired TC Global Inc., which previously operated Tully's, out of bankruptcy for approximately $9.2 million. AVENATTI's company, A&A, owned 100 percent of Doppio Inc., which in turn owned 80 percent of GB LLC. GB LLC wholly owned GBUS, which handled the day-to-day business operations of Tully's. 8. As set forth herein, there is probable cause to believe that between at least 2011 and the present AVENATTI committed federal offenses, including the following: (a) tax offenses relating to GBUS's payroll tax obligations and AVENATTI's efforts to obstruct an IRS collection action; (b) tax offenses relating to the tax obligations of EA LLP and A&A, including the payroll tax obligations of EA LLP; (c) tax offenses relating to AVENATTI's personal tax obligations; (d) fraud-related offenses relating to loans AVENATTI and his companies obtained from The Peoples Bank in Mississippi; and (e) wire fraud, money laundering, and bankruptcy fraud offenses relating to an approximately $1.6 million settlement payment AVENATTI and EA LLP received in January 2018, but failed to transfer to EA LLP's client or disclose in federal bankruptcy proceedings involving AVENATTI and EA LLP. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 40 of 198 Page ID #:40 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:261 9. Filed 02/22/19 Page 27 of First, between the fourth quarter of 2015 and the fourth quarter of 2017, inclusive, GBUS failed to file employment tax returns and pay approximately $3,121,460 in federal payroll taxes, including approximately $2,390,048 in trust fund taxes, which had been withheld from GBUS employees' paychecks. Multiple former GBUS employees have said that AVENATTI was responsible for all of GBUS's significant financial and business decisions, including the decision not to pay the payroll and trust fund taxes that GBUS owed to the IRS. Indeed, AVENATTI was well aware of GBUS's outstanding tax obligations, yet repeatedly refused to authorize the required tax payments to the IRS. 10. Although GBUS failed to pay to the IRS its payroll taxes between the fourth quarter of 2015 and the fourth quarter of 2017, AVENATTI caused substantial amounts of money to be transferred from GBUS's or GB LLC's bank accounts during this same time period. For example, a preliminary analysis of GBUS's and GB LLC's bank account records shows that between 2015 and 2017 AVENATTI caused a net of approximately $1.7 million to be transferred from GBUS's or GB LLC's bank accounts to bank accounts associated with A&A or EA LLP. This money could have and should have been used to pay GBUS payroll tax obligations. 11. Additionally, after the IRS initiated a collection action relating to GBUS's outstanding payroll tax obligations in September 2016, issued an approximately $5,000,000 tax lien against GBUS in July 2017, and levied multiple GBUS bank accounts, AVENATTI directed repeated attempts to evade 5 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 41 of 198 Page ID #:41 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:262 Filed 02/22/19 Page 28 of collection of those payroll taxes and obstruct the IRS collection action. Among other things, AVENATTI took the following steps to evade the collection of payroll taxes due to the IRS and obstruct the IRS collection action: a. In October 2016, when first contacted by an IRS Revenue Officer ("RO 1") regarding GBUS's unpaid payroll taxes, AVENATTI falsely stated that a third-party payroll company was responsible for filing GBUS's payroll tax returns and making GBUS's federal tax deposits. AVENATTI, however, knew that GBUS's third-party payroll company, Ceridian HCM Inc. (~~Ceridian"), had discontinued the tax services it had previously provided to GBUS and was, therefore, no longer responsible for filing GBUS's payroll tax returns and making the AVENATTI was well aware that necessary federal tax deposits. GBUS was not paying its payroll taxes. GBUS employees repeatedly asked him to authorize the payment of GBUS's payroll taxes to the IRS, yet he refused to do so. b. In September 2017, after IRS RO 1 advised GBUS of the possibility of criminal proceedings and levied multiple GBUS bank accounts, including a GBUS account at KeyBank, AVENATTI directed GBUS employees to stop depositing cash receipts from the Tully's stores into the account at KeyBank. Instead, in order to avoid the levies, AVENATTI directed GBUS employees to deposit all cash receipts from Tul1y's stores into a little-used bank account at Bank of America associated with his car racing entity, GB Autosport, LLC ("GB Auto"). C ^• Between September 2017 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 42 of 198 Page ID #:42 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:263 Filed 02/22/19 Page 29 of and December 2017, approximately $859,784 in cash was deposited into the GB Auto account at AVENATTI's direction. c. In late-September and early-October 2017, in order to avoid IRS levies issued to the sponsoring bank for GBUS's merchant credit card processing accounts (~~merchant accounts"), AVENATTI directed GBUS's credit card processing company, TSYS Merchant Solutions ("TSYS"), to change the company name and Employer Identification Number ("EIN") associated with the merchant accounts from GBUS to GB LLC. AVENATTI also directed TSYS to have all credit card receipts paid to a new bank account under the name of GB LLC, which AVENATTI had opened that same day in Orange County, California, instead of the bank accounts associated with GBUS, which were already subject to the IRS levies. d. In November 2016, approximately one month after the IRS RO first contacted AVENATTI, AVENATTI changed the name of the party to a contract with The Boeing Company ("Boeing") from GBUS to "GB Hospitality LLC," a company which does not appear to have ever been registered with any government agency or operated. Later, in September 2017, after the IRS had issued levies to Boeing and a number of banks with which GBUS had accounts, Boeing cancelled the contract because GBUS had failed to make the required commission payments. In connection with the cancellation of the contract, Boeing agreed to purchase two existing Tully's ~~kiosks" at Boeing facilities and other Tully's equipment in exchange for a total of $155,010 and the forgiveness of GBUS's debt to Boeing. 7 Although all of the Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 43 of 198 Page ID #:43 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:264 Filed 02/22/19 Page 30 of Tully's locations were operated by GBUS, AVENATTI told an attorney at Boeing to use the name GB LLC on the two bills of sale for the kiosks and equipment, and instructed Boeing to wire the $155,010 payment to an attorney trust account associated with EA LLP rather than any of the bank accounts associated with GBUS. Had the Boeing contract and subsequent bills of sale been under the name GBUS, Boeing would not have made the $155,010 payment due to the existing GBUS tax lien. After receiving the $155,010 payment from Boeing, AVENATTI transferred the $155,010 to an A&A bank account, from which he then transferred $15,000 to his personal checking account, paid approximately $13,073 for rent at his residential apartment in Los Angeles, California, and paid approximately $8,459 to Neiman Marcus. Indeed, out of the $155,010 Boeing transferred to the EA LLP trust account, it appears that only approximately half ever ended up in GBUS's bank accounts. 12. Second, AVENATTI's other companies, EA LLP and A&A, have repeatedly failed to meet their tax obligations despite generating substantial revenues. Between 2015 and 2017, EA LLP failed to file payroll tax returns and pay approximately $2.4 million in payroll taxes, including approximately $1,279,001 in trust fund taxes that had been withheld from EA LLP employees' paychecks. Just as he did in connection with GBUS, AVENATTI lied to the IRS when initially contacted regarding EA LLP's failure to pay its payroll taxes, and falsely claimed that a third-party payroll company, Paychex, was responsible for making the required tax payments even though the payroll company had Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 44 of 198 Page ID #:44 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:265 Filed 02/22/19 Page 31 of notified AVENATTI in January 2015 that it was discontinuing various payroll tax services. Additionally, EA LLP has not filed partnership tax returns (IRS Form 1065) for the 2013, 2014, 2015, 2016, and 2017 tax years, even though EA LLP appears to have received approximately $137,890,016 of deposits into its bank accounts during these tax years. Indeed, AVENATTI's personal website claims that AVENATTI has recovered over one billion dollars in verdicts and settlements for his clients. Similarly, A&A has not filed corporate tax returns (IRS Form 11205) for the 2011, 2012, 2013, 2014, 2015, 2016, or 2017 tax years, even though A&A appears to have received approximately $37,961,633 of deposits into its bank accounts during these tax years, including net payments of approximately $23,820,816 from EA LLP. 13. Third, AVENATTI filed federal personal income tax returns for the 2009 and 2010 tax years indicating that he owed the IRS a total of approximately $850,438, plus interest and penalties. AVENATTI, however, did not pay the IRS the amounts he owed for those tax years. AVENATTI then failed to file personal tax returns for the 2011 through 2017 tax years. During these tax years, AVENATTI generated substantial income and lived lavishly, yet largely failed to pay any federal income tax. A preliminary analysis of AVENATTI's personal bank accounts reflects that AVENATTI received net payments of approximately $8,464,064 from A&A and EA LLP between 2011 to 2017. AVENATTI also repeatedly used money that had been transferred from GBUS, GB LLC, and EA LLP to A&A to pay for Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 45 of 198 Page ID #:45 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:266 personal expenses. Filed 02/22/19 Page 32 of Further, AVENATTI received proceeds of approximately $5.4 million when he sold his home in Laguna Beach, California in 2015. Finally, in connection with recent divorce proceedings, AVENATTI's wife said that AVENATTI told her that he earned $3.7 million dollars in 2016. His wife also said that their family's monthly expenses were over $200,000 per month. Financial and escrow company records show that from approximately September 2015 to September 2016, AVENATTI and his wife rented a home in Newport Beach for $100,000 per month, after making a $1,000,000 deposit. 14. Fourth, between approximately January 2014 and December 2014, AVENATTI obtained three separate loans from The Peoples Bank, a federally insured bank in Mississippi: (1) a $850,500 loan to GB LLC in January 2014; (2) a $2,750,000 loan to EA LLP in March 2014; and (3) a $500,000 loan to EA LLP in December 2014. In connection with these loans, AVENATTI provided The Peoples Bank with false federal personal income tax returns for the 2011, 2012, and 2013 tax years. In these purported tax returns, AVENATTI claimed that he earned $4,562,881 in adjusted gross income in 2011, $5,423,099 in adjusted gross income in 2012, and $4,082,803 in adjusted gross income in 2013. He also claimed that he had paid to the IRS $1,600,000 in estimated tax payments in 2012, and $1,250,000 in estimated tax payments in 2013. However, AVENATTI never filed personal income tax returns for the 2011, 2012, and 2013 tax years, and did not make any estimated tax payments during the 2012 and 2013 tax years. In fact, as noted above, at the time, 10 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 46 of 198 Page ID #:46 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:267 Filed 02/22/19 Page 33 of AVENATTI still owed the IRS approximately $850,438 in unpaid personal income taxes, plus interest and penalties, from the 2009 and 2010 tax years. Additionally, in March 2014, AVENATTI provided The Peoples Bank with a 2012 federal tax return for EA LLP which claimed total income of $11,426,021 and ordinary business income of $5,819,456. However, the 2012 federal tax return EA LLP actually filed with the IRS in October 2014 claimed total income of only $6,212,605 and an ordinary business loss of $2,128,849. 15. Fifth, between January 2018 and November 2018, AVENATTI defrauded one of EA LLP's client, G.B., out of the client's portion of an approximately $1.6 million settlement payment. Specifically, in January 2018, AVENATTI arranged for the $1.6 million settlement payment to be transferred to one of his attorney trust accounts. Rather than transfer his client's portion of the settlement proceeds to his client, AVENATTI used the entire $1.6 million for his own purposes, including to pay for expenses relating to GBUS. He then lied to his client and claimed that the settlement payment was not due until March 2018. When the fake March 2018 deadline passed, AVENATTI led his client to believe that the $1.6 million payment had never been received. Additionally, AVENATTI failed to disclose in federal bankruptcy proceedings involving AVENATTI and EA LLP that he had received the $1.6 million settlement payment, despite being aware that he was required to do so. 16. Judy Regnier ("REGNIER") has been described by AVENATTI as his office manager, chief paralegal, and bookkeeper. 11 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 47 of 198 Page ID #:47 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:268 Filed 02/22/19 Page 34 of She appears to have worked for EA LLP in an administrative capacity since at least 2010. At various times, REGNIER was a signatory on bank accounts associated with GBUS, GB LLC, GB Auto, EA LLP, and A&A. REGNIER was personally involved in many of the events described herein, including directing or executing the transfer of funds between various entities associated with AVENATTI, directing the actions of GBUS employees, and transmitting signed contracts and agreements on behalf of GBUS, GB LLC, EA LLP, or A&A to other parties. IV. A. Federal Tax Obligations 1. 17. STATEMENT OF PROBABLE CAUSE Federal Payroll Tax Obligations Based on my training and experience, as well as discussions with other IRS-CI SAs and IRS revenue agents, I have learned the following regarding federal payroll taxes: a. The Internal Revenue Code imposes four types of tax with respect to wages paid to employees: (1) income tax; (2) Social Security tax; (3) Medicare tax; and (4) federal unemployment tax (collectively, "payroll taxes"). b. Income tax is imposed upon employees based upon the amount of wages they receive. c. Social Security tax and Medicare tax are imposed b y the Federal Insurance Contributions Act, and are collectively referred to as ~~FICA" taxes. FICA taxes are imposed separately on employees and on employers. 12 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 48 of 198 Page ID #:48 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page I D #:269 Filed 02/22/19 Page 35 of Federal unemployment tax is imposed under the d. Federal Unemployment Tax Act (~~FUTA") FUTA taxes are imposed solely on employers. Employers are required to withhold employee FICA e. taxes and income taxes from the wages paid to their employees, The and to pay over the withheld amounts to the United States. employers duty to pay over income taxes required to be collected exists even if the taxes are not actually withheld from the employees' wages. The employee FICA taxes and income taxes that employers are required to withhold and pay over to the United States are commonly referred to as "trust fund taxes" because of the provision in the Internal Revenue Code requiring that such taxes ~~shall be held to be a special fund in trust for the United States." f. Employers are required to file an Employer's Quarterly Federal Tax Return ("IRS Form 941") quarterly. On IRS Form 941, the employer is required to report the income tax, Social Security tax, and Medicare tax withheld from employees' paychecks. The employer is also required to report and pay the employer's portion of Social Security and Medicare tax for its employees. g. Employers are required to file an Annual Federal Unemployment (FUTA) Tax Return ("IRS Form 940") yearly. In connection with the IRS Form 940, the employer is required to report its FUTA tax liability for each quarter. 13 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 49 of 198 Page ID #:49 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:270 2. 18. Filed 02/22/19 Page 36 of Federal Income Tax Obligations for Corporations, Partnerships, and Limited Liability Companies Based on my training and experience, as well as discussions with other IRS-CI SAs and IRS revenue agents, I have learned the following regarding federal income tax obligations for corporations, partnerships, and limited liability companies, such as GBUS, GB LLC, EA LLP, and A&A: a. Under 26 U.S.C. § 6012(a)(1)(A), corporations and partnerships are required to file tax returns yearly, irrespective of their income. Similarly, the general rule is that every partnership shall file a return for each taxable year. Single-member LLCs are treated as disregarded entities for tax purposes unless they affirmatively elect to be treated as corporations. 3. 19. Federal Income Tax Obligations for Individuals Based on my training and experience, as well as discussions with other IRS-CI SAs and IRS revenue agents, I have learned the following regarding federal income tax obligations for individuals: a. Under 26 U.S.C. ~ 6012, ~~every individual having for the taxable year gross income which equals or exceeds the exemption amount" is required to file a federal tax return. receipt of a specified amount of gross income generally determines whether an income tax return must be filed. The threshold gross income amount for a married person filing 14 The Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 50 of 198 Page ID #:50 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:271 Filed 02/22/19 Page 37 of separately for the 2011 to 2017 tax years ranged from $3,700 to $4,050.3 b. Gross income is defined as all income from whatever source derived, including, but not limited to, the following items: (1) compensation for services, including fees, commissions, fringe benefits, and similar items; (2) gross income derived from business; (3) gains derived from dealings in property; and (4) distributive shares of partnership gross income. B. Background Information 20. Based on publicly available information and other information obtained during the course of this investigation, I have learned the following information regarding AVENATTI and his various companies: a. California. AVENATTI is a plaintiff's attorney in Southern At all relevant times, AVENATTI lived and worked in Orange County and Los Angeles County, within the Central District of California. b. In 2006, AVENATTI incorporated A&A, a California subchapter S corporation. In 2007, AVENATTI formed the law firm Eagan O'Malley & Avenatti LLP. In approximately December 2010, O'Malley left the partnership and the firm changed its name to Eagan Avenatti LLP. As recently as January 2019, AVENATTI was still practicing law under the name Eagan Avenatti LLP. According to AVENATTI's website, www.avenatti.com, he has 3 Although AVENATTI was married to L.S. during the 2011 to 2017 tax years, based on my review of IRS tax records I know that L.S. filed separate tax returns during each of these years. 15 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 51 of 198 Page ID #:51 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:272 Filed 02/22/19 Page 38 of obtained over `~$1 billion in verdicts and settlements as lead counsel" in cases throughout the country. AVENATTI has become a well-known public figure due to his representation of the plaintiff in Stephanie Clifford v. Donald J. Trump, No. 2:18-CV2217-SJO-FFM (C.D. Cal.), a lawsuit against the President of the United States,4 and frequent appearances on cable news shows. c. EA LLP's office was located in Newport Beach, California until at least in or around November 2018. d. AVENATTI has been since at least July 2013 the principal owner and CEO of GBUS, which operated Tully's stores in Washington and California.s located in Seattle, Washington. GBUS's corporate offices were In 2013, AVENATTI's company, GB LLC, acquired TC Global Inc., which previously operated Tully's, at a bankruptcy auction for approximately $9.2 million. e. During civil depositions taken in October 2016 and July 2017 in connection with Bellevue Square LLC v. Global Baristas US, LLC et al, Case No. 15-2-27043-5-SEA (the "Bellevue Square Litigation"), which was pending in the Superior Court of 4 I understand that the Clifford lawsuit was filed on March 6, 2018, well-after the EA LLP IRS collection case began in September 2015 and the GBUS IRS collection case began in September 2016. Indeed, IRS R0 1 first discussed a fraud referral to IRS-CI in connection with the GBUS collection case with his manager in September 2017, approximately six months before the Clifford lawsuit was filed. 5 In or around October 2018, AVENATTI made press statements indicating that he was no longer the owner of GB LLC or GBUS and had recently sold the company for close to $28 million. To date, the government has been unable to locate any information confirming that AVENATTI sold GB LLC or GBUS. To the contrary, based on the information available to the government, it appears these statements were false. 16 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 52 of 198 Page ID #:52 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:273 Filed 02/22/19 Page 39 of the State of Washington for King County, AVENATTI admitted the following: i. A&A owns Doppio; ii. Doppio owns at least 800 of GB LLC; and iii. GB LLC wholly owns GBUS, which handled ~~most of the day-to-day activities" of Tully's. Since approximately March 2017, EA LLP has been f. involved in bankruptcy proceedings; first in the Middle District of Florida and then transferred in April 2017 to the Central District of California, In re Eagan Avenatti, LLP, No. 8:17-BK11961-CB (C.D. Cal.) (the ~~EA Bankruptcy") ~ IV.D.2.) (See infra In connection with the EA Bankruptcy, AVENATTI admitted the following: i. AVENATTI owns 100 percent of A&A. ii. A&A owns 75 percent of EA LLP, and Michael Eagan owns the remaining 25 percent of EA LLP. g. In documents publicly filed with the Washington Secretary of State, AVENATTI is listed as the sole officer and director of Doppio, the sole governor and president of GB LLC, and the sole manager of GBUS. h. AVENATTI was also a competitive racecar driver from at least 2007 to 2015. The website www.driverdb.com indicates that AVENATTI competed in 34 races during that time period. AVENATTI is also the sole governor of GB Auto, a Washington Limited Liability Company that was formed in 2013 shortly after AVENATTI's company GB LLC purchased TC Global Inc., the operator of Tully's. 17 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 53 of 198 Page ID #:53 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:274 i. Filed 02/22/19 Page_ 40 of In connection with the EA Bankruptcy, AVENATTI described REGNIER as his office manager, chief paralegal, and bookkeeper. C. Tax Offenses Relating to Global Baristas US LLC (GBUS) and Global Baristas LLC (GB LLC) 21. As discussed below, there is probable cause to believe that AVENATTI committed a variety of tax offenses in connection with his ownership and control of GBUS. Specifically, the investigation to date has revealed that AVENATTI intentionally failed to pay over to the IRS approximately $3,121,460 in payroll taxes, including approximately $2,390,048 in trust fund taxes that had been withheld from GBUS employees' paychecks. AVENATTI also took a number of steps to obstruct the IRS collection action and evade the collection of GBUS's payroll taxes by, among other things, lying to IRS RO 1, changing GBUS's merchant accounts to avoid IRS tax levies, instructing employees to deposit over $800,000 in cash from Tully's Coffee shops into a bank account associated with a separate entity to avoid IRS levies, and changing the company name on contracts involving GBUS and Boeing. 1. 22. Tax Information Regarding GBUS and GB LLC Based on my review of IRS tax records and discussions with IRS revenue officers and IRS revenue agents, I have learned the following regarding GBUS's payment of federal payroll taxes, including trust fund taxes (i.e., employee withholdings): a. Between July 2013 and September 18, 2015, GBUS paid its federal tax deposits, including trust fund tax Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 54 of 198 Page ID #:54 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:275 payments, to the IRS on a bi-weekly basis. Filed 02/22/19 Page 41 of During this time period, GBUS also filed its IRS Forms 941 each quarter. b. After the third quarter of 2015, GBUS stopped filing its IRS Forms 941 and paying its federal tax deposits to the IRS. c. On March 27, 2017, in connection with the IRS collection case, the IRS prepared substitute quarterly payroll tax returns for the fourth quarter of 2015 through the third quarter of 2016. d. On October 18, 2017, in connection with the IRS collection case, GBUS filed IRS Forms 941 for the fourth quarter of 2015 through the second quarter of 2017, and an IRS Form 940 for 2016. e. As detailed in the below chart, GBUS has failed to pay over approximately $3,121,460 in federal payroll taxes, including approximately $2,390,048 in trust fund taxes:6 Payments Payroll Tax Owed Trust Etuzd Tax Owed Payroll Tax Assessed Trust Fund Tax Assessed 2015, Q4 $466,215 $292,724 $173,489 $292,725 $292,724 2016, Q1 $556,290 $382,100 $0 $556,290 $382,100 2016, Q2 $437,336 $297,791 $0 $437,336 $297,791 2016, Q3 $487,296 $333,969 $88,170 $399,126 $333,969 2016, Q4 $405,440 $277,681 $0 $405,410 $277,681 2017, Q1 $455,289 $309,702 $0 $455,289 $309,702 Period 6 The tax figures included throughout this affidavit are approximate figures based on my preliminary review of IRS tax records, information provided to me by IRS revenue officers, and/or discussions with an IRS revenue agent. IRS-CI is still in the process of completing its tax calculations. 19 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 55 of 198 Page ID #:55 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:276 Payroll Tax Owed Trust Ftuui Tax Owed $0 $502,969 $345,094 $291,222 $263,678 $157,969 $150,989 Unknown Unknown $85,684 -$85,684 Unknown Unknown Unknown $0 Unknown Unknown $3,732,483 $2,530,281 Payroll Tax Assessed Trust Etiind Tax Assessed 2017, Q2 $502,969 $345,094 2017, Q3 $421,648 2017, Q4 2018, Q1 Period TOTALS Filed 02/22/19 Page 42 of f. Payments $611,023 $3,121,460 $2,390,048 Although the IRS received approximately $611,023 in payroll tax payments during the IRS collection case, such payments only account for a small portion (approximately 16 percent) of the total amount of payroll taxes GBUS owed to the IRS. Moreover, approximately $261,661 of the payroll tax payments the IRS received was attributable to money received from financial institutions in response to the IRS levies, and approximately $349,362 is attributable to payments GBUS or EA LLP made to the IRS during the IRS collection case. g. GBUS, GB LLC, and Doppio did not file federal corporate or partnership income tax returns for the 2013, 2014, 2015, 2016, or 2017 tax years. In fact, GBUS, GB LLC, and Doppio have never filed federal corporate or partnership income tax returns. ~ Bank records show that on or about October 31, 2017, EA LLP sent the IRS two wire transfers totaling approximately $263,660 as partial payment for GBUS's outstanding payroll tax liability. 20 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 56 of 198 Page ID #:56 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:277 2. 23. Filed 02/22/19 Page 43 of The IRS Payroll Tax Collection Case In or about September 2016, the IRS initiated a collection action against GBUS due to its failure to file IRS Forms 941 and pay its payroll taxes. I have reviewed the collection case file, including the ICS History.e I also participated in an interview with IRS RO 1 on September 26, 2018. Based on my review of the collection case file and the interview with RO 1, I have learned, among other things, the following information: a. On September 24, 2016, the IRS opened a collection case against GBUS based on a federal tax deposit alert (~~FTDA") A FTDA is generated when a company that was paying quarterly payroll taxes to the IRS stops making such payments. b. On September 26, 2016, the collection case was assigned to RO 1. RO 1 ran an initial compliance check on GBUS and determined that GBUS had already missed filing several quarters of payroll tax returns. c. On October 7, 2016, RO 1 made a field visit to GBUS's corporate offices in Seattle, Washington. RO 1 met with GBUS's Human Resources Director, M.E., and GBUS's Controller, V.S. RO 1 told M.E. and V.S. that the purpose of his visit was to verify federal tax deposits, and that a FTDA had been $ Based on my training and experience, I know that the ICS History is a chronology of events that occurred during the collection case. During his interview, RO 1 explained that not all of the information he receives is included in the ICS History. The ICS History is not meant to document every statement, but is instead just a log of events. 21 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 57 of 198 Page ID #:57 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:278 Filed 02/22/19 Page 44 of generated based on the possibility that the company had fallen behind in its federal tax deposit payments. V.S. appeared surprised by RO 1's visit. Neither M.E. nor M.E. and V.S. both told RO 1 that AVENATTI was the corporate officer responsible for all of GBUS's business affairs. RO 1 attempted to obtain payroll information from M.E. and V.S., but they did not want to give RO 1 any additional information until RO 1 had spoken with AVENATTI. M.E. and V.S. gave RO 1 AVENATTI's contact information. d. Later on October 7, 2016, RO 1 called AVENATTI and left a voicemail asking AVENATTI to call him back immediately. When AVENATTI called RO 1, RO 1 stated the purpose of his visit to GBUS's corporate headquarters was to verify GBUS's federal tax deposits. RO 1 also confirmed that AVENATTI was the corporate officer for GBUS. AVENATTI appeared shocked and did not appear to understand how payroll taxes worked. AVENATTI said that he was not personally involved in the company's finances, and that his payroll staff and a third-party payroll company handled the company's payroll responsibilities and payroll taxes. AVENATTI did not tell RO 1 the name of the third-party payroll company, but said that he would provide the information to RO 1 later. RO 1 told AVENATTI that since September 2015 GBUS had not filed any payroll tax returns or made any federal tax deposit payments. AVENATTI said he was very confused about this as well, and that he would talk to his accountant to see if the business had changed payroll companies in late-2015. AVENATTI asked to speak to his accountant and 22 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 58 of 198 Page ID #:58 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:279 Filed 02/22/19 Page 45 of said he would call RO 1 back by October 13, 2016. RO 1 also told AVENATTI that GBUS owed a balance of $7,758 for the 2015 third-quarter federal tax deposits, and was delinquent for the fourth quarter of 2015 and the first and second quarters of 2016. e. On October 14, 2016, AVENATTI called RO 1 and said that he had talked to his accountant, M.H. (a certified public accountant in Los Angeles, California), who would be handling the collection case as the Power of Attorney (~~POA") for GBUS because AVENATTI did not have time. f. On October 20, 2016, RO 1 spoke with M.H. M.H. did not have any information regarding GBUS's payroll taxes at the time. M.H. said she had just been hired, and would need to obtain information regarding the business from AVENATTI. RO 1 told M.H. that by November 14, 2016, GBUS needed to pay the remaining balance of $7,758 for the third-quarter of 2015, and file the delinquent quarterly payroll returns for the fourthquarter of 2015 and the first three quarters of 2016. RO 1 also requested that GBUS provide 12 months of bank statements, a 2016 profit and loss statement, and a fully completed IRS Form 433B (collection information statement for business). RO 1 further told M.H. that he would need to set up an appointment for an IRS Form 4180 trust fund interview, the purpose of which is the determination of which corporate officers are responsible for making the federal tax deposits. RO 1 explained to M.H. the consequences that would result if GBUS did not meet these deadlines, including the possibility of levies, summonses, and 23 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 59 of 198 Page ID #:59 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page I D #:280 seizures. Filed 02/22/19 Page 46 of At no point during the call, did M.H. suggest that AVENATTI was not the responsible party for GBUS's payroll tax liabilities. g. On November 18, 2016, M.H. called RO 1 to request an extension of the November 14, 2016, deadline to pay the $7,758 remaining balance, file the delinquent returns, and provide the requested financial information and IRS Form 433B. M.H. told RO 1 that AVENATTI, GBUS's managing member, had been out of the country for work and M.H. had not been able to have a meaningful discussion with him regarding the status of the business or its taxes. M.H. said that AVENATTI was coming home for the holidays and that she planned to meet with him "intensely" to discuss the issues with the business. RO 1 agreed to extend the deadline to December 19, 2016, and again explained to M.H. the consequences that would result if GBUS did not meet this deadline. h. As of the December 19, 2016, deadline, RO 1 had not heard back from GBUS, M.H., or AVENATTI. The IRS had not received from GBUS any additional payments, the delinquent returns, or the requested financial information. As a result, RO 1 mailed to GBUS and M.H. via certified U.S. Mail completed substitute returns prepared by the IRS ("IRS Form 6020B"); IRS Publication 5, which detailed appeal rights; blank IRS Form 940 and IRS Form 941 returns; and IRS Letter 1085, detailing the proposed assessment and advising GBUS that the IRS had prepared tax returns on the company's behalf and providing GBUS with 30 days to contest the assessment or file its own returns. 24 Based Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 60 of 198 Page ID #:60 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:281 Filed 02/22/19 Page 47 of on the IRS Form 6020B substitute returns, GBUS owed the IRS a balance of approximately $4.8 million in unpaid payroll taxes. i. On or about December 22, 2016, GBUS paid the $7,758 balance due for the 2015 third quarter federal tax deposits. j. On or about February 9, 2017, RO 1 filed IRS Form 6020B substitute returns with the IRS for the fourth quarter of 2015, and the first three quarters of 2016. k. As of March 13, 2017, GBUS still had not filed its delinquent returns or provided any of the requested financial information. unable to reach her. RO 1 attempted to contact M.H., but was RO 1 left M.H. a message informing her that liens would be filed for all balances due from the IRS Form 6020B assessments. RO 1 also mailed out an IRS Form 9297 to GBUS and M.H., which stated that GBUS had until April 10, 2017, to file .the delinquent returns and to provide the requested financial information and IRS Form 433B. GBUS did not comply with the April 10, 2017, deadline. 1. Because RO 1 had not heard back from GBUS or M.H. as of June 22, 2017, RO 1 began the process of filing notices of liens against GBUS for all amounts due to the IRS. On June 26, 2017, the IRS filed a federal tax lien against GBUS for approximately $4,998,227 with King County in Washington. 25 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 61 of 198 Page ID #:61 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:282 m. Filed 02/22/19 Page 48 of On August 16, 2017, at RO 1's request, IRS levies9 were issued to a number of financial institutions and companies associated with GBUS, including: (1) Bank of America (~~BofA"); (2) California Bank & Trust (~~CB&T"); (3) JP Morgan Chase Bank NA (~~Chase"); (4) HomeStreet Bank ("HomeStreet"); (5) KeyBank; (6) Heartland Payment Systems (~~Heartland"); (7) First National Bank of Omaha (~~FNB Omaha"); and (8) Boeing. The levy notices indicated that GBUS owed the IRS a total of approximately $5,210,769. The levy notices were simultaneously mailed to GBUS's corporate offices. As noted in paragraph 29.q below, funds provided to the IRS by the recipient financial institutions as a result of the levies were routinely noted on the monthly financial statements provided to GBUS and AVENATTI b y the financial institutions. RO 1 continued to issue a dditional levy notices to financial institutions and companies associated with GBUS throughout January 2018. Because IRS levies only apply to funds in the accounts at the time the levy is issued, RO 1 issued levies on a nearly daily basis at various points in time. In total, RO 1 issued approximately 125 levy notices. n. On or about August 21, 2017, RO 1 began the process of bypassing GBUS's representative, M.H. Before 9 Based on my training and experience, I know that an IRS levy is used to collect money that a taxpayer owes to the IRS. The levy requires the recipient to turn over to the United States Treasury the taxpayer's property and rights to property, such as money, credits, and bank deposits, that the recipient of the levy has or is already obligated to pay to the taxpayer. Banks, savings and loans, and credit unions are obligated to hold any funds subject to the levy for 21 days before sending payment to the United States Treasury. ~^. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 62 of 198 Page ID #:62 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:283 Filed 02/22/19 Page 49 of b ypassing a taxpayer's representative, RO 1 was first required to issue a warning to M.H. RO 1 called M.H. and left her a message stating that three separate attempts had been made to obtain information from her regarding GBUS, but that no information had been provided, and his calls had not been returned. RO D.L also said that he would be bypassing M.H. if she made no further contact. o. RO 1 did not receive a response. On September 1, 2017, RO 1 visited GBUS's corporate headquarters. RO 1 spoke to a GBUS employee, S.F., who confirmed that AVENATTI was the sole person responsible for GBUS's finances and served as both the CEO and Chief Financial Officer ("CFO"). S.F. also confirmed that the various notices the IRS sent to GBUS had been received by GBUS, and that the notices were being scanned and then emailed to AVENATTI. S.F. said that AVENATTI was a practicing attorney in California. When asked for AVENATTI's email address, S.F. said she could not give that out. S.F. did not appear surprised that RO 1 was visiting GBUS. S.F. said she was aware of the IRS levies. RO 1 also provided S.F. with a copy of IRS Letter 903, which stated that the Department of Justice was considering initiating a civil suit or criminal prosecution due to GBUS's failure to make its required trust fund payments to the IRS. RO 1 also read the letter to S.F., who confirmed that she understood the letter. As noted in paragraph 32.f below, during a subsequent interview, S.F. confirmed that she told AVENATTI about RO 1's visit and provided him with a copy of the IRS 903 Letter. 27 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 63 of 198 Page ID #:63 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:284 Filed 02/22/19 Page 50 of On September 1, 2017, upon returning to his p. office, RO 1 consulted with his general manager about a possible fraud referral to IRS-CI due to GBUS's non-compliance. RO 1's justification for the potential fraud referral was that GBUS had not provided any documents; RO 1 had been attempting to collect the taxes owed for one year and had only received one payment of approximately $7,000; the POA, M.H., had been dismissed; and Tully's stores were still operating. On September 5, 2017, Dennis Brager ("Brager"), q. an attorney from the Brager Tax Law Group, contacted RO 1. Brager said we would serve as the new POA for GBUS. Brager told RO 1 that the payroll tax issues were all due to a financial error and that GBUS had gone through staffing changes in the financial or accounting department that had caused the payroll Brager also told RO 1 that AVENATTI knew nothing tax issue. about the IRS issues until the delivery of the 903 Letter `last Friday" (i.e., September 1, 2017). RO 1 explained to Brager that the case was a year old, he had been unable to get any information from the prior POA, M.H., and that liens and levies had already been issued. Brager told RO 1 that the left hand did not know what the right hand was doing, that AVENATTI was busy, and that employees were not doing their jobs. RO 1 told Brager that the balance due to the IRS was currently at $5,274,460. Brager told RO 1 that GBUS would file original returns and correct all balances due. r. On September 6, 2017, S.F. contacted RO 1 and said she wanted to provide information to him confidentially due Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 64 of 198 Page ID #:64 Case 8:19-mj-00103-DUTYSEALED* Document 4-1 *SEALED* 184 Page ID #:285 Filed 02/22/19 Page 51 of to fear of reprisal from AVENATTI if he learned she had spoken to the IRS. RO 1 asked S.F. why she changed her mind and wanted to talk to him. S.F. said that after hearing RO 1 read the 903 Letter she became uncomfortable with AVENATTI's response to the situation and the scramble she had had to go through to pay vendors because of the filed levies. s. On September 15 and September 25, 2017, RO 1 called Brager's office, but was unable to reach him. During the call on September 25, RO 1 told the receptionist that he would be faxing Brager a number of forms, and also mailing the forms to Brager via certified mail. Among other things, RO 1 sent Brager a Form 9297, summary of contact letter, requesting full payment of the approximately $5.3 million balance due, and setting a deadline of October 16, 2017, for GBUS to file original returns to correct the Form 6020B substitute returns. The Form 9297 letter also advised GBUS that the IRS would seize corporate assets from a number of Tully's locations if GBUS were unable to pay the balance due. t. On September 26, 2017, RO 1 conducted a IRS Form 4180 trust fund interview with A.H., a former GBUS employee. A.H. confirmed that she had been a payroll clerk and bookkeeper at GBUS. A.H. told RO 1 that AVENATTI was in charge of GBUS and made all of the financial decisions for the company. u. On September 26, 2017, RO 1 also attempted to conduct an IRS Form 4180 trust fund interview with T.M., GBUS's former CFO and Chief Operating Officer (~~COO"), at his home. 1 eventually spoke with T.M. via telephone. 29 RO T.M. said he needed Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 65 of 198 Page ID #:65 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:286 to speak with counsel before speaking to RO 1. Filed 02/22/19 Page 52 of Subsequently, on or about November 3, 2017, RO 1 received a letter from T.M.'s attorney attaching the completed Form 4180, a signed declaration from T.M., and a copy of T.M.'s September 24, 2015, resignation email to AVENATTI. In the Form 4180, T.M. stated that AVENATTI was the sole corporate officer for GBUS and was responsible for GBUS's financial decisions. The letter from T.M.'s attorney also argued that T.M. was not personally liable for any of GBUS's tax liabilities. v. On October 3, 2017, RO 1 spoke with Brager. Brager expressed shock that levies had been issued. RO 1 told Brager that the levies were issued because no federal tax deposits had been received from GBUS and that GBUS was an "egregious pyramider."10 RO 1 told Brager that RO 1 would agree not to issue additional levies against GBUS until October 16, 2017, so that GBUS could take steps to make immediate federal tax deposits. Brager asked RO 1 for a "levy release," which RO 1 declined to provide because GBUS had not been in compliance and had failed to provide any financial information. When Brager said that GBUS would not be able to make any federal tax deposits due to the levies in place, RO 1 told Brager that GBUS had not made any federal tax deposits since the fourth-quarter of 2015, that the levies did not start until August 2017, and that GBUS therefore had almost two years of payroll taxes stashed away. When asked what happened to the payroll taxes to RO 1 explained during his September 2018 interview that a ~~pyramider" is a business that is accumulating payroll taxes every quarter without making the required payments to the IRS. 30 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 66 of 198 Page ID #:66 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:287 Filed 02/22/19 Page 53 of that had been withheld from the employees from October 2015 to July 2017, Brager told RO 1 that he did not know and that he needed to talk to AVENATTI. On October 13, 2017, Brager contacted RO 1 and w. told him that GBUS had made a federal tax deposit payment for its payroll taxes. Brager also said that GBUS had filed its original payroll tax return. On October 18, 2017, RO 1 received four payroll x. tax returns from GBUS for processing and four payroll tax returns for 6020B reconsideration. As of October 18, 2017, however, the IRS still had not received any federal tax deposits from GBUS. RO 1 left a message for Brager informing him that there had "still been no FTDS!" In the message, RO 1 told Brager that the payment of the federal tax deposits needed to be immediate and retroactive since the last federal tax deposit payment had been made on November 2, 2015. y. On October 20, 2017, having still not received federal tax deposit payments from GBUS, RO 1 again began issuing daily levies to the financial institutions associated with GBUS, including KeyBank, CB&T, and FNB Omaha. RO 1 also noted in the ICS History that the case was being considered for a fraud referral to IRS-CI. z. On October 26, 2017, the IRS received a $23,763 payment from GBUS. aa. In late October 2017, RO 1 noticed that the levies issued were not producing the expected amount of seized 31 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 67 of 198 Page ID #:67 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:288 funds. Filed 02/22/19 Page 54 of This raised a red flag for RO 1 regarding GBUS's financial arrangements. bb. On November 2, 2017, Brager called RO 1 and faxed over two copies of federal tax deposits made by GBUS. Brager requested that the IRS enter into an installment agreement with GBUS. RO 1, however, told Brager that GBUS did not qualify for an installment agreement because GBUS had never provided the IRS with any financial information. RO 1 told Brager that he believed the request for an installment agreement was merely a stall tactic and attempt to delay collection.11 During the call, Brager repeatedly told RO 1 that AVENATTI had relied on the payroll service provider to make payments but the provider had failed to make the deposits. RO 1 responded that GBUS should have had the money at issue readily available since the federal tax deposits were never made. Brager said he didn't know the financial information for GBUS, but would get together with AVENATTI and provide RO 1 with all the financial information within 10 days. RO 1 told Brager that enforcement (i.e., additional levies) would continue during that time period. cc. On November 6, 2017, the IRS received a Form 941 payroll return for GBUS for the third-quarter of 2017. The payroll return was signed by M.E. dd. employee. On November 14, 2017, RO 1 spoke with a FNB Omaha RO 1 wanted to know why there had been no funds from the latest levies issued to FNB Omaha. The FNB Omaha employee 11 RO 1's general manager reviewed the installment agreement request and agreed with RO 1's assessment that it was merely a delay tactic. 32 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 68 of 198 Page ID #:68 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:289 Filed 02/22/19 Page 55 of told RO 1 that GBUS had changed merchant accounts and was no longer using FNB Omaha as the sponsoring bank. The employee said that GBUS might still be using TSYS as its credit card processor, but a different sponsoring bank. RO 1 considered the change in merchant accounts to be a red flag. ee. On November 14, 2017, a GBUS employee told RO 1 that: (1) the merchant account IDs had been changed in all of the Tully's stores on October 5, 2017; (2) FNB Omaha had requested the GBUS accounts be closed due to risk; (3) the account into which cash from the Tully's stores was deposited had been changed from a KeyBank account to a subsidiary account under the name of GB Auto; (4) cash was being deposited into a BofA account ending in 7412 (~~GB Auto BofA Account 7412"); and (5) cash was retrieved from the coffee shops twice a week on Monday and Thursday mornings. At this point, RO 1 believed that GBUS was actively placing assets out of the reach of the government. ff. On November 17, 2017, M.G. called RO 1 to say that M.G. wanted to cooperate and remain anonymous due to fear of reprisal. GBUS.12 M.G. was the Director of Retail Operations for M.G. said she was responsible for daily cash deposits and setting up merchant credit card processing services for all of the Tully's stores. M.G. told RO 1 that GBUS's corporate headquarters and one of the Tully's retail locations had been closed due to non-payment of the lease. M.G. said that she had 1z Based on interviews of M.G. and S.F. conducted in September 2018, I know that M.G. and S.F. are sisters. 33 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 69 of 198 Page ID #:69 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page I D #:290 Filed 02/22/19 Page 56 of been instructed by V.S., GBUS's controller, to make numerous changes to the cash deposits and the merchant accounts, which made her feel uneasy and suspicious as to whether fraud was occurring. M.G. said she had all the financial information and correspondence from AVENATTI regarding changes to the merchant accounts. RO 1 told her that he would be summonsing her into the office to provide the documents. He also asked M.G. to let him know if AVENATTI changed the bank accounts or merchant accounts again. gg. Later, on November 17, 2017, two GBUS employees, M.G. and V.S. were served with IRS summonses requiring them to appear before RO 1 and produce relevant GBUS business records. hh. On November 28, 2017, M.E. appeared for an interview in response to the collection summons RO 1 issued. During the interview, M.E. filled out a Form 4180. M.E. said that since April 2016 she prepared, reviewed, signed, and authorized the transmission of payroll tax returns. M.E., however, confirmed that AVENATTI was the owner and operator of GBUS, and that all financial obligations, if paid, were paid at the direction of AVENATTI. ii. On November 29, 2017, M.G. appeared for an interview in response to the collection summons RO 1 issued. M.G. provided RO 1 with bank account information for GBUS, GB LLC, and GB Auto. M.G. confirmed that GBUS had changed both its credit card processing and cash deposit accounts. M.G. said that cash from the Tully's stores were previously being deposited into a KeyBank account, but was now being deposited 34 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 70 of 198 Page ID #:70 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:291 into an account for GB Auto. Filed 02/22/19 Page 57 of M.G. said that the entity name for the merchant accounts had been changed from GBUS to GB LLC. M.G. said that REGNIER, from EA LLP, had set up the new bank account for GB LLC. M.G. also provided RO 1 with emails regarding the company's business, including emails regarding the merchant account changes.13 jj. On November 30, 2017, V.S. appeared for an interview in response to the collection summons RO 1 issued. V.S. told RO 1 that no payments for GBUS were made unless authorized by AVENATTI. V.S. repeatedly said that AVENATTI refers to himself as the owner, CEO, and sole member of GBUS and that any and all decisions go through him. V.S. said that funds were frequently transferred between GBUS and EA LLP, and that unreasonable legal fees were being paid to EA LLP. V.S. also said that GBUS sponsored the International Motor Sports Association ("IMSA"), and spent approximately $200,000 in license fees and other investments relating to AVENATTI's racing V.S. said that T.M., GBUS's former C00/CFO, and B.H., team. GBUS's former Director of Operations were both aware of the financial irregularities at GBUS. V.S. also provided RO 1 with email correspondence involving AVENATTI, as well emails regarding the changes to the TSYS merchant accounts.14 kk. On December 5, 2017, M.G. told RO 1 that AVENATTI had instructed all of the Tully's stores to hold their cash 13 IRS-CI's collection and review of these emails is discussed further in footnote 15 below. 14 IRS-CI's collection and review of the emails V.S. provided is discussed further in footnote 15 below. 35 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 71 of 198 Page ID #:71 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:292 deposits until further notice. Filed 02/22/19 Page 58 of M.G. said AVENATTI was also very curious about what documents were submitted to the IRS in response to the summons and wanted a full account of the documents submitted. 11. On or about December 7, 2017, Brager sent a letter to RO 1's general manager complaining about the summonses issued to GBUS employees. Among other things, Brager's letter claimed that the IRS had provided inadequate notice of the summonses to GBUS. Brager further claimed that RO 1 may have obtained privileged information from the employees because AVENATTI is both the managing member of GBUS and its general counsel .ls mm. On December 11, 2017, RO 1 contacted A.R.G., a lawyer for Boeing, regarding the sale of the Tully's kiosks while IRS liens were pending. On December 12, 2017, A.R.G. emailed RO 1 a copy of the Global Baristas contract, and an email exchange with AVENATTI. A.G. stated that the contract was is In April 2018, following the fraud referral to IRS-CI, RO 1 provided me with PDFs of six documents he had received in response to the summonses. In May 2018, RO 1 also provided me with a disk containing additional documents he had received in response to the summonses. I briefly reviewed the six PDFs, but did not review any of the materials on the disk. Later in May 2018, while reviewing RO 1's case file, I learned of Brager's privilege claim. I then provided the materials I received from RO 1 to an attorney with the Department of Justice's Tax Division so that a privilege review could be conducted. I understand that a Privilege Review Team AUSA (~~PRTAUSA") subsequently conducted a review of the materials in August 2018. The PRTAUSA redacted two portions of one email on the basis that GBUS might be able to claim that the redacted portions were protected by the attorney-client privilege, but concluded that none of the other documents RO 1 had provided were protected or potentially protected by the attorney-client privilege. The redacted email and the remaining documents were then released to IRS-CI and the prosecution team for us to review. 36 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 72 of 198 Page ID #:72 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:293 actually with GB Hospitality, LLC. Filed 02/22/19 Page 59 of In the email, A.G. said that AVENATTI "verbally had asked me to use the entity Global Baristas, LLC on the Bill of Sale as he said it was the entity that held title to the equipment." nn. S.F. On December 14, 2017, RO 1 spoke with M.G. and They told him AVENATTI had instructed the Tully's stores to hold the cash deposits because he was in the process of setting up new accounts to take cash deposits. They also told RO 1 that GBUS was in the process of finalizing a new merchant credit card account with Chase Bank under the name of GB LLC. oo. On December 14, 2017, RO 1 issued a summons for AVENATTI to appear for a 4180 trust fund interview. On January 11, 2018, Brager advised RO 1 that AVENATTI would not appear because AVENATTI had not been properly served with the summons. pp. As of January 2018, RO 1 was still issuing levies to known bank accounts associated with GBUS, as well as to bank accounts associated with GB LLC and GB Auto. These levies typically resulted in the recovery of only $50 to $100. qq. On February 2, 2018, Brager sent RO 1 a protest of the proposed trust fund recovery penalty assessments against AVENATTI and GBUS. Among other things, Brager claimed that AVENATTI "did not act willfully since he was not involved in the preparation, or calculation of the payroll taxes" and "did not have knowledge of the fact that the taxes were unpaid until after the taxes had accrued." Brager therefore argued that AVENATTI was not a ~~responsible person" for GBUS and ~~cannot be 37 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 73 of 198 Page ID #:73 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:294 Filed 02/22/19 Page 60 of held personally liable for the trust fund taxes owed by Global Baristas, US LLC." rr. On March 12, 2018, RO 1 made field visits to a number of Tully's locations, each of which had signs posted on the door stating that the store was temporarily closed. RO 1 then contacted a GBUS employee, who told him that the closures were in fact permanent. ss. On March 19, 2018, the IRS Fraud Technical Advisor's Manager approved a fraud referral to IRS-CI. 3. 24. GBUS Employee Interviews As part of its investigation, IRS-CI has interviewed numerous former GBUS employees. At the outset of each interview, Assistant United States Attorneys ("AUSAs") working on this investigation requested that the employee not provide the government with any information that might be covered by the attorney-client privilege. The AUSAs explained that any legal discussions the employee may have had with lawyers acting on behalf of GBUS or any other company the employee worked for could potentially be covered by the attorney-client privileged, and that the company would hold the privilege -- meaning that only the company could decide to disclose privileged communications to the government. The AUSAs further explained that the government understood that GBUS's owner and CEO, AVENATTI, was also a lawyer and may have acted both in a business capacity and a legal capacity on behalf of GBUS. The AUSAs asked the employees to inform the interviewers if at any point the questions might require the employees to disclose Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 74 of 198 Page ID #:74 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:295 Filed 02/22/19 Page 61 of legal discussions they had with AVENATTI, and to not disclose any legal discussions they may have had with AVENATTI in his capacity as a lawyer for GBUS. Each of the employees said they understood and agreed not to provide any information that they believed could be potentially privileged. 25. On November 13, 2018, I participated in an interview of T.M., GBUS's former Chief Operating Officer ("COO") and Chief Financial Officer (~~CFO") T.M. was accompanied by his personal T.M. provided the following information: attorney. a. T.M. met AVENATTI in approximately 2011 through T.M.'s work for Cascade Capital Group ("Cascade"). In 2012, T.M., AVENATTI, and others were attending a bankruptcy hearing in connection with the Meridian Mortgage Funds ("Meridian") bankruptcy case. Prior to the Meridian hearing, there was a hearing regarding the auction to purchase TC Global, Tully's parent company, out of bankruptcy. During that hearing, AVENATTI expressed an interest in purchasing TC Global out of bankruptcy. AVENATTI then hired Cascade to do due diligence on TC Global and Tully's. In January 2013, AVENATTI, through GB LLC, put in a successful bid of $9.15 million to purchase TC Global at a bankruptcy auction. The purchase closed in June 2013. b. July 2013. T.M. worked as a consultant for GBUS beginning in In October or November 2013, T.M. took a full-time position as GBUS's COO and CFO. T.M worked for GBUS until September 24, 2015, when he resigned. Between approximately January 2015 and September 2015, T.M. worked for GBUS only half- 39 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 75 of 198 Page ID #:75 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:296 time. Filed 02/22/19 Page 62 of T.M.'s base salary was $250,000, with incentives of up to $150,000 annually. T.M. was also supposed to receive "phantom equity" in GBUS, under which T.M. would receive six percent of the sale proceeds of GBUS equity in excess of $9,150,000. AVENATTI's title at GBUS was CEO and he was on c. GBUS's payroll as its CEO. T.M. considered AVENATTI to be the T.M said he ~~treated this as if I was working owner and CEO. for the owner." AVENATTI's role was to identify strategy and make decisions for GBUS. T.M. said that AVENATTI was the ultimate decision maker for GBUS and that every important decision was approved by AVENATTI. For example, AVENATTI made all of the hiring decisions for GBUS, and interviewed and vetted the candidates. d. T.M. said that AVENATTI's default position at GBUS was not as a lawyer. When asked whether AVENATTI ever acted as a lawyer for GBUS, T.M. said he did not know and that this was a gray area. T.M., however, said that he did not see any invoices from EA LLP and was not aware of GBUS ever hiring EA LLP to do legal work for GBUS. T.M. considered his conversations with AVENATTI to be about business matters, not legal matters. e. T.M. said that for the entire time he worked for GBUS, Foster Pepper PLLC was GBUS's operational counsel. T.M. saw invoices from Foster Pepper to GBUS, which were then routed to AVENATTI. f. T.M. said that GBUS used a third-party payroll company, but was not sure of the company's name. .~ The prior Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 76 of 198 Page ID #:76 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page I D #:297 Filed 02/22/19 Page 63 of payroll company had not been allowing direct deposit of wages for employees because of cash flow issues. When GBUS switched to a new payroll company, GBUS set up direct deposit for its employees.16 As cash flow got tighter at GBUS, direct deposit was rolled back. T.M. discussed rolling back direct deposit and reverting to paper checks with AVENATTI. g. T.M. explained that after direct deposit was stopped in 2015, the payroll company would generate payroll checks on GBUS's stock checks. When GBUS had direct deposit, the payroll company would pull the funds for payroll and payroll taxes out of GBUS's payroll account on the Friday before the Monday payday. immediately. The money for payroll would therefore be gone Cancelling direct deposit gave GBUS "float time" until the employees' checks cleared the following week, meaning that the payroll funds would still be in GBUS's bank account and GBUS had more time to make funds available to pay the employees and its payroll taxes. h. T.M. resigned his position at GBUS in large part due to payroll tax issues at GBUS and because he was concerned about his personal liability. Payroll was very tight and GBUS could not always meet its payroll obligations. On three or four occasions, T.M. loaned GBUS money so that it could cover the gaps in its payroll obligations. T.M. estimated that he loaned 16 Based on interviews with other GBUS witnesses, I learned that GBUS used Ceridian for its payroll services at all times. While T.M. appears to have been mistaken about GBUS's use of a prior payroll company, T.M.'s statements regarding direct deposit are consistent with statements made by other former GBUS employees. 41 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 77 of 198 Page ID #:77 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:298 Filed 02/22/19 Page 64 of GBUS $10,000 to $40,000 to meet its payroll obligations. This money was paid back prior to T.M.'s resignation. i. On September 24, 2015, T.M. had a phone conversation with AVENATTI regarding the outflow of funds for that week. T.M. told AVENATTI that GBUS needed funds to pay its payroll taxes the next day. that.l~ AVENATTI told T.M. not to count on Based on AVENATTI's response, T.M. told AVENATTI that it would be his last day. He then emailed AVENATTI a resignation letter later that same day. j. T.M. said that AVENATTI was aware that GBUS needed to pay its payroll taxes. T.M. specifically discussed GBUS's obligation to pay its payroll taxes with AVENATTI on more than one occasion.l$ k. for GBUS. M.D. was the head of Human Resources and Payroll GBUS's IRS Forms 940 and IRS Forms 941 were normally filed by M.D. 1. T.M. would be notified when they were filed. T.M. was asked whether AVENATTI ever withdrew money from GBUS. T.M. said that money was flowing out of GBUS as early as August 2013. AVENATTI was a signer on GBUS's bank accounts, and there were frequent transfers from GBUS to EA LLP 17 As detailed in paragraph 22.b above, IRS records show that GBUS stopped making federal tax deposit payments to the IRS after the third quarter of 2015. 1e During the discussion of GBUS's payroll tax obligations, T.M. began to mention a discussion he and AVENATTI had with a labor lawyer from Foster Pepper in early 2015. The AUSAs immediately instructed T.M. not to provide any information regarding the substance of his conversations with Foster Pepper. T.M. followed that instruction and did not provide any information regarding the substance of his discussions with GBUS's lawyers. 42 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 78 of 198 Page ID #:78 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:299 and from EA LLP to GBUS. Filed 02/22/19 Page 65 of T.M. said that none of the transfers to EA LLP were for legal services EA LLP provided to GBUS. AVENATTI would not tell T.M. in advance that he would be taking money out of GBUS's bank accounts -- the money would just be gone. M.B., GBUS's controller at the time, would tell T.M. when AVENATTI had taken money out of the GBUS bank accounts. When T.M. asked AVENATTI if he was going to stop taking money in and out of GBUS's bank accounts, AVENATTI responded that he did not foresee that happening. AVENATTI did not tell T.M. what the funds AVENATTI was taking out of GBUS's bank accounts were being used for. GBUS's accounting team tracked the money AVENATTI transferred into and out of GBUS. m. T.M. initially had authority to sign company checks, which were cut whenever vendor invoices were due. approximately March 2015, however, this had changed.19 By T.M. would provide AVENATTI with a list of vendors' invoices. Sometimes T.M. would make the decision to pay vendors on his own, and other times AVENATTI would approve the payments to vendors. n. T.M. said that the daily operations of the Tully's stores went through GBUS. All cash receipts came from GBUS and everything happened under GBUS. T.M. did not recall any cash receipts coming from GB LLC. 19 Based on my review of GBUS bank account records, I know that in February 2015 GBUS opened two new accounts at CB&T. AVENATTI and REGNIER were the only signatories on these bank accounts. 43 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 79 of 198 Page ID #:79 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:300 o. Filed 02/22/19 Page 66 of T.M. said that the majority of GBUS's profits came from the Tully's stores at Boeing facilities. The commission payments to Boeing were delayed more than once because of working capital restrictions. T.M. had never heard of a company called "GB Hospitality," which was the name AVENATTI used on the Boeing contract in November 2016 (see 9[ 39.d). p. T.M. is familiar with The Peoples Bank in Mississippi because of litigation that Cascade and AVENATTI worked on involving Mississippi Power. T.M., however, was not aware of AVENATTI obtaining a loan from The Peoples Bank. T.M. did not recall seeing any loan documents, and there was no debit or credit item for a loan from The Peoples Bank in GBUS's financial statements. q. T.M. was also asked about GB Auto. Auto was AVENATTI's racing team in IMSA. T.M. said GB Money that was sent from GBUS to GB Auto would have been tracked by the accounting team. AVENATTI also signed GBUS up as a coffee sponsor for IMSA. AVENATTI used the Tully's logo on his race car and an employee would serve Tully's coffee at IMSA events. T.M. said that the IMSA expenses did not help with GBUS's operations. r. T.M. did not know whether corporate tax returns for GBUS had been completed or filed. T.M. had arranged for GBUS to hire a tax accountant in Tampa, Florida, to prepare GBUS's tax returns. AVENATTI participated in meetings with the accountants by phone. The accountants provided GBUS with a list of documents that were needed to prepare the tax returns, .. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 80 of 198 Page ID #:80 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:301 Filed 02/22/19 Page 67 of including a number of documents that would have been in AVENATTI's control. T.M. did not know if AVENATTI ever provided the required documents to the accountants. s. AVENATTI had a GBUS email address, but T.M. always emailed AVENATTI at his EA LLP email address. t. T.M. said that REGNIER was responsible for all of AVENATTI's administrative needs. REGNIER would have been copied on all emails to AVENATTI regarding GBUS's cash needs. T.M. understood that REGNIER had been with AVENATTI for a very long time. u. T.M. was asked about a settlement agreement he entered into with AVENATTI and GBUS in 2018 relating to money GBUS still owed T.M. as part of his employment agreement. As part of the settlement, on or about October 2, 2018, T.M. received a $35,000 check from A&A's CB&T bank account, which bounced. T.M. guessed that the check was signed by REGNIER. v. Prior to the interview with T.M., I learned that on or about October 31, 2018, T.M. filed a civil lawsuit against AVENATTI in the Superior Court of the State of Washington for King County for wrongful wage withholding; breach of contract; dishonored check; and fraud and misrepresentation. The civil complaint alleges that AVENATTI failed to pay T.M. money he was owed under his employment agreement with GBUS. In addition to the incentive payments mentioned in paragraph 25.b above, the complaint notes that AVENATTI had recently been quoted in a October 24, 2018, Seattle Times article as saying that he sold "Global Baristas for $28 million a long time ago." 45 T.M. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 81 of 198 Page ID #:81 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:302 Filed 02/22/19 Page 68 of claimed that under the terms of his employment agreement, he would have been entitled to six percent of the sale proceeds above $9.15 million. w. T.M. said he had never discussed selling GBUS with AVENATTI and does not know if AVENATTI ever sold GBUS. 26. On October 24, 2018, I participated in an interview of M.B., GBUS's former Controller. M.B. provided the following information: In October 2013, M.B. began working at GBUS as a. M.B. had been recruited by T.M., and its Controller. interviewed for the position with T.M. and AVENATTI. reported to T.M. She M.B. worked full-time at GBUS until December 2015, and part-time at GBUS in January 2016. b. M.B. managed GBUS's accounting department. M.B.'s role at GBUS included assessing and running the accounting systems, overseeing the financials, and looking at the day-to-day accounting figures. c. AVENATTI was the owner and CEO of GBUS. M.B. did not know AVENATTI to be the General Counsel of GBUS. d. AVENATTI would authorize payments for GBUS. would email T.M. and AVENATTI to ask what bills to pay. M.B. M.B. would usually get a response of approval from T.M., and sometimes from AVENATTI. e. GBUS used Ceridian for its payroll services. Ceridian was initially responsible for paying the payroll taxes and preparing and filing the payroll tax returns. this was set up by T.M. or AVENATTI. ., M.B. believed Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 82 of 198 Page ID #:82 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page I D #:303 f. Filed 02/22/19 Page 69 of In the second or third quarter of 2015, AVENATTI directed Ceridian to stop paying GBUS's payroll tax withholdings and told Ceridian that GBUS would pay the payroll taxes itself. This gave GBUS float time for the payroll payments. M.B. explained that AVENATTI was the only signatory on GBUS's payroll account and that no one other than AVENATTI was empowered to pay the payroll tax withholdings. After this change, M.D. (GBUS's Human Resources and Payroll Director) was responsible for filing the payroll tax returns, and AVENATTI was responsible for paying the payroll tax withholdings. M.B. said the decision to change the payment process for GBUS's payroll tax withholdings with Ceridian was made by AVENATTI, and went from AVENATTI to T.M., and then from T.M. to M.D. M.B. believes that AVENATTI would have signed the forms authorizing the change with Ceridian. g. For the third-quarter of 2015, Ceridian paid the net salary to GBUS employees, Ceridian prepared the IRS Form 941 payroll tax return, and GBUS was responsible for paying the payroll tax withholdings to the IRS. AVENATTI, however, would not approve the payment of the payroll tax withholdings. M.B. said that AVENATTI directed M.D. not to pay GBUS's payroll taxes for the third-quarter of 2015. M.D. was mortified by this directive and told M.B. about it. h. M.B. documented AVENATTI's instruction not to pay GBUS's payroll taxes and sent AVENATTI an email explaining the ramifications of not paying the payroll taxes. respond to her email. AVENATTI did not When M.B. asked AVENATTI over the phone whether he had received her email, he responded that it was 47 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 83 of 198 Page ID #:83 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:304 ~~mine to deal with." piled 02/22/19 Page 70 of M.B. did not believe she saved a copy of this email, and was unable to locate a copy of it in her personal emails following her interview. M.B. remembered seeing emails from M.D. to i. AVENATTI requesting that AVENATTI approve the payment of the payroll tax payments. M.B. also sent similar requests to AVENATTI. j. M.B. said that V.S. and B.C. from the accounting department knew that GBUS's payroll taxes were not being paid because they had access to GBUS's financials. M.E. from the human resources department also knew that the payroll taxes were not being paid. In fact, M.B. speculated that everyone in GBUS's corporate office knew about the payroll tax issues because the corporate office was small, and the employees were close on a professional level. k. M.B. said the payroll tax issue was the ~~nail in the coffin" as to her decision to leave GBUS. She left GBUS a few months later in December 2015, and actually took a pay cut to leave GBUS. She said that AVENATTI's ~~moral compass didn't point north." 1. M.B. thought GBUS spent approximately $750,000 in connection with its IMSA sponsorship. GBUS was hemorrhaging money at the time and M.B. did not think the IMSA sponsorship was the best use of funds. Without the IMSA expenses GBUS would have been cash neutral and in a better financial position. M.B. considered the IMSA sponsorship to be a ~~vanity" decision by AVENATTI. .• Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 84 of 198 Page ID #:84 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:305 M.B. said that AVENATTI would frequently transfer m. money in and out of GBUS's bank accounts. months. Filed 02/22/19 Page 71 of This happened for M.B. would login into GBUS's bank accounts and see wires to and from EA LLP or A&A. M.B. would reconcile the bank accounts every day and tracked the funds deposited or withdrawn b y AVENATTI. M.B. said the amount AVENATTI deposited was likely more than the amount he withdrew, but that if you included the money AVENATTI spent on IMSA he would likely have owed GBUS money. M.B. said that AVENATTI's deposits and withdrawals from GBUS's bank account had an impact on GBUS's operations. GBUS was operating with a cash loss and some of the money AVENATTI withdrew could have been used to pay vendors. n. AVENATTI would wonder why GBUS was short on cash. In response, M.B. would prepare cash reports and give them to AVENATTI. o. M.B. said that AVENATTI's law firm was not an investor in GBUS. There were no invoices between the law firm and GBUS, and no formal loan documents between GBUS and AVENATTI's law firm. p. email address. M.B. would send emails to AVENATTI at his EA LLP M.B. would typically communicate with AVENATTI via email or by phone. M.B. only saw AVENATTI a few times a year. q. his law firm. REGNIER was the right hand person for AVENATTI at M.B. dealt with REGNIER a few times when M.B. needed AVENATTI to get something done for GBUS. get AVENATTI to take action at M.B.'s request. .; REGNIER would Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 85 of 198 Page ID #:85 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:306 27. f=iled 02/22/19 Page 72 of On October 24, 2018, I participated in an interview with M.D., GBUS's former human resources and payroll director. M.D. provided the following information: a. M.D. started working at Tully's in 2000 in the payroll department. He worked for Tully's when it was sold to TC Global in 2008, and stayed on after AVENATTI bought TC Global out of bankruptcy. His job duties at GBUS included overseeing payroll, human resources, and facilities. GBUS in November 2015. M.D. resigned from M.D., however, worked part-time at GBUS until April 2016 to help with payroll. b. GBUS used Ceridian to handle its payroll the entire time that M.D. worked for GBUS. Payroll was on Mondays, so the funds would need to be available in GBUS's payroll account on the prior Thursday or Friday. In 2013 and 2014, Ceridian was a full service payroll processor for GBUS. Ceridian's services during this time included direct deposit drawn on Ceridian's bank account, withholding, tax filings, and W-2s, among other things. These were the services provided for the first year-and-a-half, at which point T.M. instructed M.D. to stop the direct deposit service. Thereafter, payroll was no longer paid from Ceridian's bank account, but instead from GBUS's payroll bank account. The checks were still cut by Ceridian, but the money was drawn on GBUS's payroll bank account. c. M.D. said another change occurred in the summer of 2015, when the wires to pay the payroll taxes were not approved. Ceridian requested the payroll tax money and the 50 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 86 of 198 Page ID #:86 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:307 payment did not get approved by GBUS. Filed 02/22/19 Page.73 of M.D. recalled telling M.B. that he had been notified by Ceridian about the non-payment of the payroll taxes by GBUS. M.D. did not know if the payroll tax payments were ever made to Ceridian. d. M.D. said that a couple of times the payroll payments to Ceridian were late. After a while, Ceridian told M.D. that it was no longer going to make payroll payments due to GBUS failing to pay Ceridian on time. Ceridian was also no longer filing GBUS's payroll tax returns. M.D. told M.B. about this, who then told T.M. and AVENATTI. e. M.D. said that bi-weekly payments to the IRS stopped once the Ceridian services and payments were discontinued. He believed that AVENATTI, not T.M., made the ultimate decision to terminate Ceridian's services. f. In the third quarter of 2015, GBUS's payroll tax payments were not made because AVENATTI did not approve the payments. M.B. told M.D. that AVENATTI did not approve the tax payments. g. M.D. said he started looking for a new job because of the lack of payroll tax payments. He thought it was "unethical" that payroll tax payments were not being made even though GBUS was withholding taxes from GBUS employees. He was concerned someone would blame him so he started looking for a new job. He described GBUS's failure to pay its payroll taxes as the final straw in his decision to leave GBUS because he believed GBUS had the fiduciary responsibility to pay the IRS. M.D. ultimately took a pay cut to leave GBUS for another job. 51 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 87 of 198 Page ID #:87 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:308 h. Filed 02/22/19 Page 74 of M.D. did not know if the payroll tax payments for the third or fourth quarter of 2015 were ever paid by GBUS. M.D., however, said that the payroll tax payment requests would have been sent to GBUS's accounting team. M.D. would send check requests for the state and federal tax payments to V.S. i. M.D. shared his concerns regarding the payroll tax issues with M.B., because T.M. had already left GBUS at the time. j. M.D. understood that M.B. was speaking to AVENATTI about the payroll taxes that needed to be paid. M.B. told him about her discussions and communications with AVENATTI regarding the payroll tax issues. k. M.D. believed that he, M.B., and M.E., who worked for him in the human resources and payroll department, were the only employees that knew GBUS was not paying its payroll taxes. 1. M.D. believed that AVENATTI and T.M. were signatories on the GBUS bank accounts. M.D. said that no checks could be cut without AVENATTI's approval. m. M.D. considered AVENATTI to be the owner, President, and CEO of GBUS. himself. This is how AVENATTI presented M.D. did not consider AVENATTI to be GBUS's General Counsel, and never heard AVENATTI refer to himself as GBUS's General Counsel. M.D. was not aware of GBUS ever hiring EA LLP to perform any legal services for GBUS. n. M.D. had limited interactions with AVENATTI during his time at GBUS. five times. M.D. had seen AVENATTI only four or He did not recall having any significant 52 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 88 of 198 Page ID #:88 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:309 Filed 02/22/19 Page 75 of conversations with AVENATTI or any one-on-one phone calls with him. M.D. typically interacted with T.M. and M.B. o. M.D. emailed AVENATTI approximately 10 times at his EA LLP email address. AVENATTI had a GBUS email address, but did not use it. p. M.D. was scared of AVENATTI when he worked at GBUS because he did not want to be personally sued. M.D. respected AVENATTI at first, but over time he no longer trusted AVENATTI and became concerned that AVENATTI would sue him for anything. M.D. also expressed concern that AVENATTI might attempt to retaliate against him if he learned that M.D. was cooperating with the government's investigation. 28. On October 22, 2018, I participated in an interview of B.H., GBUS's former Director of Operations. B.H. provided the following information: a. From early 2014 to early 2016, B.H. worked at GBUS as its Director of Operations. T.M. recruited B.H. for the position because they had previously worked together at Cascade. B.H. met with T.M. and AVENATTI before accepting the position. b. As Director of Operations, B.H. was responsible for overseeing the district managers, dealing with store-related issues, and dealing with IMSA-related issues. The individual store managers reported to the district managers, and the district managers reported to B.H. B.H. said 90 percent of their focus was on reaching the stores' revenue goals. 53 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 89 of 198 Page ID #:89 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:310 c. Filed 02/22/19 Page 76 of B.H. knew AVENATTI as the owner and head of GBUS. AVENATTI's role at GBUS was to make major decisions, such as decisions regarding finances and lease agreements. d. B.H. was aware that AVENATTI was a lawyer. B.H.'s legal experience with AVENATTI related to a dispute between GBUS and Green Mountain. legal issue, AVENATTI handled it. B.H. said that if there was a B.H. had no knowledge of AVENATTI's law firm doing any work for GBUS. e. B.H. said payroll time was stressful at GBUS because cash was always tight. B.H. heard rumors around the office that GBUS was not paying payroll taxes. B.H. thought he heard these rumors from T.M., M.B., and M.D. when he discussed the need to pay bonuses to GBUS's district managers. B.H. said he did not have first-hand knowledge of GBUS not paying taxes, but stated that not paying taxes went into the "barrel of bad," and believed that AVENATTI would have been aware of such issues. f. The Tully's stores at Boeing facilities were a very important part of business for GBUS. this. Boeing. AVENATTI was aware of B.H. dealt with the paperwork for the GBUS stores at B.H. had never heard of the name GB Hospitality, which was the name AVENATTI used on the Boeing contract in November 2016 (see 9[ 39.d). g. The only name B.H. was aware of was GBUS. B.H. spoke with AVENATTI about once or twice a month, and saw AVENATTI once a month at most. Most of B.H.'s conversations with AVENATTI related to the IMSA sponsorship. B.H. said he never understood why AVENATTI wanted to have GBUS at IMSA when GBUS already had enough problems. 54 B.H. felt that Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 90 of 198 Page ID #:90 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:311 Filed 02/22/19 Page 77 of GBUS was losing money on the IMSA sponsorship, and said that AVENATTI could have been using the money he spent on IMSA on coffee supply. h. B.H. said he left GBUS because AVENATTI did not follow through on the future plans for GBUS. AVENATTI did not reinvest into the company and the stores were failing. B.H. said there was a ~~steady bleeding" of GBUS and AVENATTI placed "band aids" on it. The big reason B.H. decided to work for GBUS was AVENATTI's promise of growing the business, but this never happened. B.H. assumed T.M. left for similar reasons. i. GBUS stored its corporate records on a server hosted by Amazon Web Services (~~AWS"). j. B.H. would call REGNIER to schedule things with AVENATTI. 29. with V.S. On October 22, 2018, I participated in an interview V.S. provided the following information: a. 2003 or 2004. V.S. started working at Tully's Coffee Inc. in He worked for Tully's Coffee Inc., TC Global, and then eventually GBUS. 2018. He resigned from GBUS on September 18, V.S. stopped working for GBUS because his paycheck bounced. b. V.S. became the Assistant Controller when GBUS bought out TC Global. V.S. then became the Controller when M.B. left GBUS in 2015 or 2016. c. of GBUS. V.S. knew AVENATTI to be the owner and operator AVENATTI was the CEO, and T.M. was the CFO. 55 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 91 of 198 Page ID #:91 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:312 d. to M.B. Filed 02/22/19 Page 78 of When he was Assistant Controller, V.S. reported For financial decisions, M.B. reported to T.M., who in turn reported to AVENATTI. e. AVENATTI was T.M.'s boss. V.S. said that AVENATTI was not physically present at GBUS's corporate office, but was actively involved in T.M. would relay messages to AVENATTI operating the company. regarding the day-to-day operations of the company. f. After T.M. left GBUS, AVENATTI communicated with M.B. and B.H. regarding GBUS's day-to-day operations. Once M.B. left, V.S. reported directly to AVENATTI, who was effectively the head of the financial department. V.S. communicated with AVENATTI by email 90 percent of the time and by phone 10 percent of the time. AVENATTI used his EA LLP email address, rather than his GBUS email address. g. When T.M. left GBUS, he received bonus and severance pay from GBUS. AVENATTI authorized those payments, and REGNIER handled the wire transfers. V.S. saw the wires on the bank account records, but did not have wiring authority for GBUS's bank accounts. h. V.S. would email AVENATTI cash reports daily. V.S. said that the accounts payable department wanted bills to be paid weekly, but there was never enough money to pay all of the bills. i. AVENATTI moved money in and out of GBUS bank accounts on a regular basis. of GBUS's operations. This happened from the beginning V.S. had access to GBUS's bank account 56 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 92 of 198 Page ID #:92 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:313 Filed 02/22/19 Page 79 of V.S. saw the movement of funds when he would do the records. bank account reconciliations for GBUS. j. V.S. said he reported to AVENATTI because AVENATTI was the CEO and owner of GBUS. V.S.'s primary discussions with AVENATTI were about what bills to pay and what was in the bank account. V.S. said he often could not tell how much money was in the bank accounts because money moved in and out frequently. k. V.S. said he asked AVENATTI for supporting documents for some bank account activities once or twice. AVENATTI's response was that he was the CEO and owner, and that he makes the final decisions. 1. V.S. described the accounts payable process. V.S. said that the invoices were entered into the accounting system. A list of invoices that were due soon was sent to AVENATTI. AVENATTI would then decide which invoices were to be paid and which invoices were to have their payments held off. AVENATTI would tell S.F. to cut a check for the invoice payments he approved. For the invoices AVENATTI did not approve, V.S. would wait another week and then bring the invoices up to AVENATTI again. If payment of the outstanding invoices became more imperative, V.S. would bring the issue to AVENATTI's attention more quickly. V.S. said he knew what invoices needed to be paid, but still needed AVENATTI's approval to pay the invoices. m. Ceridian handled the payroll for GBUS. Ceridian was also responsible for paying the payroll tax withholdings on 57 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 93 of 198 Page ID #:93 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* Filed 02/22/19 Page 80 of 184 Page ID #:314 behalf of GBUS. In approximately 2015 or 2016, however, GBUS had Ceridian stop paying the payroll tax withholdings. V.S. did not know why this change occurred. n. withholdings. V.S. said that GBUS did not pay the payroll tax Ceridian would calculate the payroll withholdings, and M.E. would book the accounting entry in Microsoft Dynamics Nav, GBUS's accounting software. M.E. would email AVENATTI, with a copy to V.S., the amount needed to pay the payroll tax withholdings. that he would take care of it. AVENATTI would respond by saying V.S. said that AVENATTI knew that the payroll tax withholdings were not being paid to the IRS before RO 1 first showed up to GBUS's corporate office in October 2016. V.S. said AVENATTI made the decision not to pay the payroll tax withholdings and no one else at GBUS could have made that decision. o. V.S. said that the State of Washington also contacted GBUS and AVENATTI regarding GBUS's failure to pay state tax withholdings. p. IRS notices and levies were received at GBUS's corporate office, and then emailed to AVENATTI. V.S. said that AVENATTI did not respond to the IRS notices or the levies. Initially, the IRS notices and levies GBUS received were sent to AVENATTI only, but later the IRS notices and levies were sent to AVENATTI and REGNIER. q. V.S. said that AVENATTI knew what was levied because the bank made notations of what money was levied on the Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 94 of 198 Page ID #:94 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:315 bank account statements.20 Filed 02/22/19 Page 81 of V.S. also emailed AVENATTI daily cash reports that included the levy notations. r. After GBUS's bank account at KeyBank was levied, AVENATTI told M.G. to hold cash deposits at the stores. The cash deposits were collected, brought to the office to be counted, and then deposited to a different bank account with a different account name. M.G. would forward a copy of the deposit slips to AVENATTI. This made V.S. feel uncomfortable because he thought it was being done to avoid the levies. V.S. discussed this with M.G., who eventually stopped collecting and depositing cash for GBUS. s. V.S. had never heard of GB Hospitality except seeing it on the November 2016 contract with Boeing. been given a copy of the contract. V.S. had There were not separate books and records for GB Hospitality, and V.S. did not think GB Hospitality was registered. The revenue from the Boeing stores was transferred into a GBUS account, and not to a GB Hospitality account. t. Boeing. late. GBUS had to make quarterly commission payments to V.S. said that some of the commission payments were M.G. told V.S. that AVENATTI justified the late payment b y saying that the wire transfer had been lost, but V.S. did not see a wire out of the GBUS accounts' payable account that corresponded to when AVENATTI had said the wire to Boeing had been lost. 20 I have reviewed bank records for GBUS's bank accounts at CB&T and KeyBank, and confirmed that the monthly account statements referenced the IRS levies. 59 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 95 of 198 Page ID #:95 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:316 u. Filed 02/22/19 Page 82 of V.S. was aware that there were different company names for Global Baristas on contracts, but V.S. did not want to question AVENATTI about the different company names. One of the reasons V.S. thought there were different company names listed for Global Baristas on contracts was to avoid liens and levies. v. In September or early-October 2017, GBUS changed its merchant IDs for its merchant accounts with TSYS. change was made at AVENATTI's direction. The AVENATTI wanted to make the change fast, and dealt directly with a representative from TSYS (~~TSYS Rep. 1") to make the change. w. V.S. reviewed an October 2, 2017, email from TSYS Rep. 1 to V.S. in which TSYS Rep. 1 wrote the following: Michael Avenatti called me on Friday. The accounts should be under Global Baristas LLC, not Global Baristas "US" LLC. We have to make changes as the IRS with [sic] withholding funds. Michael has asked that I rush this as much as possible. After reviewing this email, V.S. said that AVENATTI had instructed V.S. to give him TSYS Rep. 1's contact number. V.S. also said that AVENATTI knew the purpose of the change was to avoid the IRS liens and levies. V.S. said that changing the merchant IDs was a big deal because every store had to be changed. The new merchant IDs was also associated with a different bank account. x. V.S. said that TSYS later dropped GBUS as a client, at which point GBUS changed its merchant accounts from TSYS to Chase. V.S. reviewed the Chase merchant account application, which listed Doppio Inc. as the parent company of GB LLC. V.S. did not know the purpose of Doppio, did not .1 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 96 of 198 Page ID #:96 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:317 Filed 02/22/19 Page 83 of believe Doppio owned GBUS, and said that GBUS had never done any work for Doppio. y. LLP. V.S. knew that AVENATTI was a lawyer and owned EA V.S. never saw AVENATTI as the General Counsel of GBUS. He only heard from reports in the media that AVENATTI was the General Counsel for GBUS.21 z. AVENATTI's salary at GBUS was approximately $250,000 a year, and it was the highest salary at GBUS. AVENATTI was paid this salary as the CEO of GBUS. not paid as a lawyer. AVENATTI was The money that AVENATTI was transferring in and out of GBUS's bank account was not compensation to AVENATTI or his law firm. Some money went to EA LLP, but GBUS never received an invoice from EA LLP. V.S. believed that there was more outflow than inflow of cash from EA LLP into GBUS's bank account. aa. V.S. remembered a $100,000 wire being sent to EA LLP in March 2017. V.S. said that REGNIER sent the wire from GBUS's bank account to EA LLP. Based on my review of EA LLP's bank account records, I know that AVENATTI used the proceeds of this $100,000 wire transfer to pay EA LLP's lawyers in connection with the EA LLP bankruptcy. bb. March 2018. V.S said that the last Tully's stores closed in After that, there was no work to be done. V.S. was waiting to find out what the next plan of action would be for 21 After the Clifford lawsuit was filed, a number of press articles regarding AVENATTI and GBUS appeared. In some of these articles, AVENATTI or a GBUS spokesperson were quoted as saying that AVENATTI no longer owned GBUS and was only acting as its General Counsel. 61 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 97 of 198 Page ID #:97 Case 8:19-mj-00103-DUTY xSEALED* Document 4-1 *SEALED* 184 Page ID #:318 GBUS, but never heard from GBUS. riled 02/22/19 Page 84 of M.E. emailed AVENATTI to ask him to lay off the remaining GBUS employees after the last Tully's stores closed, but never heard back from AVENATTI. result, M.E. kept the remaining employees on payroll. As a GBUS's payroll continued to be funded until September 2018, at which point V.S. and the remaining employees' checks bounced. cc. cloud. GBUS's accounting records were stored in the In April or May 2017, V.S. asked A.G. to back up GBUS's accounting data from the cloud because 2nd Watch (the company that managed GBUS's cloud-based server from AWS) was discontinuing GBUS's services. 30. . On September 25, 2018, I participated in an interview with M.E., GBUS's former Human Resources Director. M.E. provided the following information: a. M.E. started working for Tully's (i.e., TC Global) in 2009 as a temporary employee. M.E. became the human resources coordinator in 2010 and the payroll coordinator at the end of 2013. M.E. was promoted to Human Resources Director in April 2016 after M.D. left GBUS. M.E. resigned from GBUS in September 2018 after her payroll paycheck bounced. b. AVENATTI was the owner and manager of GBUS. one point, AVENATTI said he was the Chairman and CEO. At AVENATTI received payroll paychecks in his capacity as the CEO of GBUS. AVENATTI made $250,000 per year as the CEO and Chairman of GBUS. c. AVENATTI was the final decision maker for GBUS. M.E. would copy REGNIER on emails to AVENATTI to make sure that 62 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 98 of 198 Page ID #:98 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:319 AVENATTI saw the emails. Filed 02/22/19 Page 85 of M.E. emailed payroll figures to AVENATTI every other week. d. M.E. said that S.F. and V.S. would send AVENATTI emails regarding accounts payable, and AVENATTI would tell them what they could or could not pay. e. M.E. never heard AVENATTI refer to himself as the General Counsel of GBUS. company's lawyer. M.E. never dealt with AVENATTI as the M.E. said that GBUS was AVENATTI's company and that AVENATTI happened to be a lawyer. M.E. read in the newspaper that AVENATTI said he was the General Counsel of GBUS, but not the owner. in disbelief. When M.E. read that statement, she laughed No one at GBUS knew or was aware of AVENATTI being GBUS's General Counsel. f. M.E. once dealt with AVENATTI on a tricky personnel issue. M.E., however, said that if AVENATTI had not been a lawyer she would have still brought the issue to him in his capacity as CEO. M.E. also believed that AVENATTI may have given legal advice regarding employee issues, employee policies, and the employee guidebook for GBUS. M.E. was not aware of AVENATTI handling any other legal issues for GBUS. g. M.E. knew that GBUS had not been paying its payroll taxes to the IRS. M.E. said that AVENATTI did not pay the payroll withholdings, but still withheld taxes from the employees' payroll checks. h. M.D. told M.E. that Ceridian stopped paying the payroll withholdings because GBUS did not have the funds to pay the withholdings. M.E. thought that M.D. was preparing the 63 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 99 of 198 Page ID #:99 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:320 Filed 02/22/19 Page 86 of federal payroll tax returns, but not filing them. M.E. said that M.D. believed that payroll tax returns could not be filed without paying the tax liabilities. i. M.E. found out later that GBUS's federal payroll tax returns for the third-quarter of 2015 and subsequent quarters had not been filed with the IRS. AVENATTI asked M.E. to sign and file the IRS Forms 940 and IRS Forms 941 for 2015 and 2016. M.E. did not feel comfortable doing so and thought there might be negative implications for her, but signed the returns because she did not think she was responsible for them. M.E. sent AVENATTI the returns at the same time as she filed them with the IRS. returns. There were no payments made with the M.E. informed the accounting team, V.S. and S.F., of the amounts of payroll taxes owed. j. M.E. learned from M.D. and V.S. that M.B. sent AVENATTI an email explaining to him the consequences of GBUS not paying its payroll taxes. k. M.E. spoke with REGNIER twice on the phone in 2017 when she filed GBUS's IRS Forms 940 and IRS Forms 941s with the IRS. M.E. said that REGNIER knew how to file the forms online, but REGNIER wanted to mail the forms instead. AVENATTI instructed M.E. to sign the forms. 1. M.E. was interviewed by RO 1 in November 2017. M.E. spoke to AVENATTI a few days later, and told AVENATTI everything that she had told RO 1. When M.E. told AVENATTI that she had told RO 1 that AVENATTI instructed her not to file the tax returns, AVENATTI was shocked. ~i M.E. then reminded AVENATTI Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 100 of 198 Page ID #:100 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:321 Filed 02/22/19 Page 87 of that he had sent her an email telling her not to file the tax returns. m. M.G. told M.E. that the merchant accounts had changed, but M.G. did not understand why the change had been made. n. V.S. told M.E. that AVENATTI had instructed him to change the bank account for GBUS. o. M.E. took part in collecting cash deposits from the Tully's stores. M.E. would help M.G. count the cash that had been collected. Store managers were told to hold all the cash from the stores, and then the GBUS's district managers were supposed to collect the cash. This occurred in late 2017 or early 2018 when the Tully's stores were being closed down. M.G. told M.E. that the directive to hold the cash deposits came from AVENATTI. M.E. also said that the IRS liens were common knowledge throughout GBUS when the stores were holding the cash deposits. p. When the last Tully's stores closed in approximately March 2018, M.E. emailed AVENATTI to ask him what the next step was. AVENATTI did not respond. M.E. did not understand why employees were still being paid until September 2018 or why GBUS was still operating after the stores closed. M.E. wasn't doing much for GBUS during this time period other than processing unemployment claims and payroll. M.E. was on ~~autopilot" and was just processing the payroll every week. This continued until September 2018, when her last paycheck from 65 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 101 of 198 Page ID #:101 Case 8:19-mj-00103-DUTYSEALED* Document 4-1 *SEALED* 184 Page ID #:322 GBUS bounced. Filed 02/22/19 Page 88 of M.E. did not know how AVENATTI was paying for payroll after the stores closed. On September 26, 2018, I participated in an interview 31. of M.G., GBUS's former Director of Retail Operations. M.G. provided the following information: a. M.G. started working at Tully's as a barista in 2004 and became a store manager in 2005. In approximately 2012, M.G. became a District Manager and was responsible for the Tully's stores at Boeing facilities. the Director of Retail Operations. In March 2016, M.G. became M.G. resigned her position at GBUS in April 2018, after the last of the Tul1y's stores M.G.'s sister, S.F., also worked for GBUS. closed. b. GBUS. AVENATTI was the owner, CEO, and Chairman of As the Director of Retail Operations, M.G. reported to AVENATTI. c. M.G. never heard AVENATTI referred to as the General Counsel for GBUS, and did not consider AVENATTI to be GBUS's General Counsel. M.G.'s interactions with AVENATTI involved standard business decisions, and were not legal discussions. M.G. was also unaware of AVENATTI's law firm being hired to represent GBUS. M.G. said that she asked AVENATTI for legal advice regarding eviction notices, legal documents, and the firing of a store manager on one occasion. She discussed these issues with AVENATTI because he was the owner of the company, not because she considered him to be GBUS's General Counsel. .. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 102 of 198 Page ID #:102 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* ,Filed 02/22/19 Page 89 of 184 Page ID #:323 d. GBUS was the operating company for the Tully's stores, and GB LLC was GBUS's parent company. e. Ceridian handled the payroll for GBUS. M.E. told M.G. that Ceridian also handled the payment of payroll taxes until there was not enough money in GBUS's accounts to make the tax payments. At that point, GBUS was responsible for paying its payroll taxes itself. f. payroll taxes. M.G. had heard that GBUS was not paying its M.G. believes that B.H. told her that GBUS's payroll taxes were not being paid. M.G. also saw an email from M.B. that warned AVENATTI about the consequences of not paying taxes. M.G. believes that B.H. was copied on this email and that she saw it because she had access to B.H.'s emails after he left GBUS in 2016. g. In connection with discussions to renew a lease for GBUS's training facility in 2016, M.G. forwarded an email to AVENATTI about an IRS lien relating to unpaid taxes. M.G. told AVENATTI that these things needed to be addressed to move forward. AVENATTI asked her how she learned about the lien, told her that it had nothing to do with GBUS's revenues, and said it was not her concern. h. M.G. spoke with M.E. and V.S. about AVENATTI not paying the payroll taxes and withholdings. M.G. felt that AVENATTI's actions were questionable, and that she needed to make sure she would not be held personally responsible. M.G. was worried that it would be her word against AVENATTI's word, so she backed up her work files on her personal laptop in case 67 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 103 of 198 Page ID #:103 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:324 Filed 02/22/19 Page 90 of As noted in paragraph she needed them for proof down the road. 79 below, I understand that these records are contained on SUBJECT DEVICE 3. i. Around September 2017, either AVENATTI or REGNIER told M.G. that the Tully's stores could no longer make deposits into GBUS's KeyBank account because there was a lien on the account and the money would be gone. M.G. was instructed to tell the Tully's stores to hold all of their cash deposits. AVENATTI later instructed M.G. to deposit the cash from Tully's stores into GB Auto's account at BofA. M.G. said that AVENATTI texted her GB Auto's bank account information and instructed her to text him a picture of the deposit slip whenever she made a cash deposit. j. On or about September 7, 2017, M.G. sent AVENATTI a text message with a picture of the deposit slip for the first deposit she made to the GB Auto account. M.G. continued to send AVENATTI a picture of the deposit slip whenever she made a cash deposit into the GB Auto account. copy of the deposit slip to V.S. M.G. would give the physical M.G. said that the last deposit was made in December 2017, at which point she told AVENATTI that she was not going to make any more cash deposits into the GB Auto account. After this, the Tully's stores began depositing cash into a KeyBank account again. k. M.G. was shown a spreadsheet detailing approximately 27 cash deposits made into GB Auto BofA Account 7412 between September 2017 and December 2017, totaling Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 104 of 198 Page ID #:104 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:325 approximately $882,884. Filed 02/22/19 Page 91 of M.G. confirmed that these were the cash deposits she made at AVENATTI's direction. 1. M.G. said that she was aware of the IRS liens and GBUS's non-payment of payroll taxes and withholdings when she made the first cash deposit into GB Auto BofA Account 7412. m. M.G. was asked about the change in the merchant accounts for the Tully's stores. M.G. said that GBUS's merchant accounts were initially with TSYS. When TSYS eventually terminated its agreement with GBUS, GBUS switched its merchant accounts to Chase. M.G. understood that the change in the merchant IDs for the TSYS merchant account was made at AVENATTI's direction. M.G. said nobody at GBUS other than AVENATTI could make that type of decision. V.S. told M.G. that the change in the merchant IDs for the TSYS account was done because of the liens on the account. n. M.G. was responsible for overseeing the Tully's stores at Boeing facilities. The Boeing stores were GBUS's most profitable stores. o. M.G. was shown a redlined draft of the November 2016 contract with Boeing in which the name of the contracting party had been changed from GBUS to GB Hospitality. that AVENATTI handled the Boeing contract. M.G. said When M.G. asked AVENATTI about this change, he told her not to worry about it. M.G. and V.S. looked to see if GB Hospitality was a Global Baristas subsidiary, but couldn't find a record of it anywhere. The Boeing contract was only time M.G. ever saw the name GB Hospitality. .• Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 105 of 198 Page ID #:105 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* filed 02/22/19 Page 92 of 184 Page ID #:326 p. 2017. The Boeing contact was cancelled in September M.G. understood that the contract was cancelled because GBUS had not paid Boeing the commissions GBUS owed. In connection with the cancellation of the contract, GBUS agreed to sell certain equipment to Boeing as payment for the unpaid commissions GBUS owed Boeing. two coffee kiosks to Boeing. Separately, GBUS agreed to sell M.G. was shown redline drafts of the two bills of sale for these transactions, in which the name GB Hospitality had been replaced with GB LLC. who made that change. M.G. did not know M.G. had received copies of the two bills of sale from Boeing and shared them with V.S. q. GBUS was evicted from its corporate headquarters in Seattle, Washington, in November 2017. All of GBUS's business records stayed at the corporate office when GBUS was evicted. AVENATTI said he would deal with getting the business records back.z2 r. M.G. told AVENATTI about the summons she received from RO 1 in November 2017 and sent him a copy of the summons. AVENATTI called M.G. and asked her if she went to the hearing to which she had been summonsed, what documents she brought to the hearing, and what was said in the hearing. When M.G. told AVENATTI she brought documents regarding the change in GBUS's bank accounts, AVENATTI was livid. AVENATTI told her that she 22 Based on my discussions with representatives from Unico, which served as the property manager for GBUS's corporate offices, I learned that GBUS's property, including any remaining business records, were abandoned and either sold at auction or destroyed. 70 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 106 of 198 Page ID #:106 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:327 Filed 02/22/19 Page 93 of should not have given the records to RO 1, and should have instead sent them to AVENATTI. s. As of January 2018, it was getting more difficult to get answers from AVENATTI. M.G. began copying REGNIER on emails because AVENATTI was passing GBUS matters on to REGNIER. t. M.G. was aware that in March 2018 AVENATTI made statements to the press indicating that he was not the owner of GBUS. M.G.'s understanding was that AVENATTI had always been GBUS's owner and believed these statements to be false. On March 8, 2018, M.G. sent AVENATTI a text message confronting him. M.G. asked AVENATTI if he was not the owner of GBUS, then who should she go to for GBUS business decisions. AVENATTI responded that everything still went through him and that M.G. should discuss all matters with him. u. Sometime after the Tully's stores closed in March 2018, AVENATTI called M.G. and yelled at her because a store manager had released confidential information to the press. AVENATTI told M.G., ~~I will fucking destroy him." AVENATTI also said that if he was willing to sue the President then he was willing to sue an employee. After that conversation, M.G. felt that AVENATTI was no longer responsive to GBUS employees. v. During her interview, M.G. consented to have the IRS retrieve text messages between her and five specific contacts that were stored on her personal cell phone, including all text messages between her and AVENATTI. IRS SA John Medunic captured images of the text messages, returned the phone to M.G., and then mailed a copy of the images to the Privilege 71 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 107 of 198 Page ID #:107 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:328 Filed 02/22/19 Page 94 of Review Team AUSA assigned to this investigation. I understand that a privilege review of the text messages is ongoing. 32. On or about September 25, 2018, I participated in an interview of S.F., GBUS's former Accounts Manager. S.F. provided the following information: a. S.F started working for Tully's in 2008, but eventually resigned due to health reasons. In December 2013, S.F. returned to work for GBUS as an assistant store manager. In October 2015, S.F. became the office manager at GBUS's corporate headquarters. In September 2016, she was promoted to Accounts Manager and Franchise License Business Manager. S.F. resigned in September 2018, after her last paycheck bounced. S.F.'s sister, M.G., also worked at GBUS. b. S.F.'s role as Accounts Manager was to enter vendor invoices into GBUS's accounts payable system. invoices for GBUS went through S.F. Most S.F. had little involvement with account receivables. c. owner of GBUS. S.F. understood that AVENATTI was the CEO and AVENATTI operated GBUS from EA LLP's office in Newport Beach, California. S.F. used AVENATTI's EA LLP email address to communicate with him. S.F. only met AVENATTI once and did not speak to him frequently. d. S.F. never saw AVENATTI act as the General Counsel for GBUS. S.F. also did not prepare any payments to AVENATTI's law firm. The first time S.F. heard AVENATTI referred to as General Counsel was in connection with statements AVENATTI made to the press in 2018. 72 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 108 of 198 Page ID #:108 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:329 e. payroll taxes. piled 02/22/19 Page 95 of M.G. told S.F. that GBUS was not paying its S.F. recalled seeing a detailed email to AVENATTI explaining the consequences of GBUS not paying its payroll taxes. f. S.F. recalled RO 1 visiting GBUS's corporate offices in the fall of 2017. visit. RO 1 gave S.F. a letter during his S.F. remembered that the letter referenced a possible criminal prosecution. S.F. said that she either scanned the letter and emailed it to AVENATTI or typed out its contents in an email to AVENATTI. S.F. spoke to AVENATTI later that day. AVENATTI seemed rattled and concerned. AVENATTI asked what RO 1 wanted, what RO 1 had asked, what S.F. told RO 1, and whether RO 1 came with other people. At the end of the conversation, AVENATTI thanked her for letting him know about the visit, and asked her to keep the situation between the two of them. g. S.F. was aware of the IRS levies on the GBUS bank accounts because she had access to GBUS bank account information. S.F. said that the State of Washington had also placed levies on GBUS's bank accounts at one point. h. REGNIER worked at EA LLP, and was AVENATTI's paralegal and assistant. S.F. said the best way to get a hold of AVENATTI was through REGNIER. i. When GBUS received IRS notices, S.F. scanned and emailed the notices to AVENATTI and REGNIER. j. S.F. was aware that AVENATTI told M.G. to collect the cash deposits from the Tully's stores and deposit the cash into a bank account held in the name of GB Auto. 73 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 109 of 198 Page ID #:109 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:330 k. Filed 02/22/19 Page 96 of S.F. was aware that GBUS had changed its merchant accounts with TSYS. The company associated with the TSYS merchant accounts was changed from GBUS to GB LLC. this was done to avoid liens. S.F. assumed Later, GBUS switched its merchant accounts from TSYS to Chase. 1. S.F. heard from V.S. that AVENATTI was withdrawing money from GBUS's bank account. m. In November 2017, GBUS was evicted from its corporate offices in Seattle, Washington. The locks were changed and GBUS did not have an opportunity to move out of the office. n. GBUS used Microsoft Dynamics NAV for its accounting software. The information was stored in an AWS cloud-based server through a company called 2nd Watch. In approximately May 2018, GBUS lost access to its cloud-based server. 33. On November 14, 2018, I participated in an interview of B.C., who previously worked in GBUS's accounting department. B.C. provided the following information: a. B.C. started working for TC Global/Tully's in 2011 or 2012 as a contractor setting up its point-of-sales ("POS") system. After GBUS took over Tully's stores, T.M. asked B.C. to come back and help with other projects. B.C. worked part-time (20 to 25 hours a week) for GBUS until September 2018 when her final paycheck bounced. from her home. B.C. primarily worked remotely Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 110 of 198 Page ID #:110 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:331 b. Filed 02/22/19 Page 97 of B.C.'s primary role at GBUS was to pull reports for month end sales and book them into the correct accounting entries. B.C. pulled credit-card-sales data, tax-sales data, and reports from the POS system, then inputted this data into the general ledger. At the end of the month, she reconciled cash to sales figures. resigned. B.C. reported to M.B. until M.B. After M.B. resigned, she reported to V.S. c. AVENATTI was GBUS's CEO. as the CFO and C00. AVENATTI appointed T.M. M.B. was GBUS's Controller. B.C. understood from M.B. that AVENATTI was very involved in the financial aspects of GBUS, and approved payments and contracts for GBUS. d. B.C. did not consider AVENATTI to be GBUS's e. B.C. had seen AVENATTI before, but had never been lawyer. introduced to him. him. She never had a direct conversation with Although she had been copied on emails to or from AVENATTI, she never had direct email communications with AVENATTI. f. GBUS changed the location of its bank accounts from HomeStreet to CB&T. Cash deposits were made at KeyBank while GBUS was banking with CB&T. B.C. did not have direct access to bank reports from CB&T, and would instead receive the reports from M.B. or V.S. B.C. had access to the KeyBank account, and would pull reports from the KeyBank account to do the cash reconciliation. 75 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 111 of 198 Page ID #:111 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:332 g. Filed 02/22/19 Page 98 of GBUS used Ceridian for payroll services. Ceridian used to handle the payroll taxes for GBUS, but later GBUS handled the payroll taxes on its own. h. taxes. B.C. knew that GBUS was not paying its payroll B.C. knew there were levies on all of the GBUS bank accounts because she reconciled the bank accounts. V.S. told B.C. what the levies were for, but did x~ot go into great detail. V.S. told B.C. that GBUS owed the IRS millions of dollars, that AVENATTI was aware of this, and that AVENATTI had decided not to pay the IRS. i. to AVENATTI. B.C. said that anything and everything was sent AVENATTI made all of the decisions for GBUS and no other employees had authority to make decisions. AVENATTI approved all account payable checks, and all GBUS checks had AVENATTI's signature. j. In 2015, GBUS switched its merchant accounts from Heartland to TSYS. TSYS Rep. 1 was GBUS's sales representative at TSYS. k. B.C. was asked about an email TSYS Rep. 1 sent her on October 2, 2017 in which TSYS Rep. 1 said: Michael Avenatti called me on Friday. The accounts should be under Global Baristas LLC, not Global Baristas ~~US" LLC. We have to make changes as the IRS with [sic] withholding funds. B.C. explained that if the merchant IDs were changed, then the credit card terminals at each Tully's store would need to be reprogrammed. B.C. did not understand why AVENATTI would want to make this change. TSYS Rep. 1 told B.C. that AVENATTI had 76 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 112 of 198 Page ID #:112 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:333 Filed 02/22/19 Page 99 of claimed that the merchant IDs were supposed to be under GB LLC's name and EIN, rather than GBUS's name and EIN. AVENATTI had called TSYS Rep. 1 and authorized the name change. B.C. believed this change was made to alter the banking deposits and avoid the IRS levies, which were occurring at the same time. 1. TSYS Rep. 1 provided B.C. with the paperwork to fill out for the changes to the merchant accounts. B.C. partially filed out the paperwork and then sent it to REGNIER. B.C. was not comfortable filing out the paperwork because the change was clearly being made to avoid the levies. She believed that she expressed this concern to V.S. and TSYS Rep. 1 over the phone. m. In November 2017, TSYS Rep. 1 called B.C. and told her that TSYS was dropping GBUS as a client. TSYS Rep. 1 initially offered to help B.C. identify another credit card processing company, but was later advised not to communicate with her further. B.C. believes that TSYS dropped GBUS as a client because of the merchant account changes to avoid the IRS levies. n. B.C. learned from emails between AVENATTI and M.G. that the Tully's stores had been instructed to hold cash for deposit, and then email the cash deposit amounts. B.C. was on the email chain because she had to enter the cash deposits in the general ledger. The cash deposits were made into a BofA account instead of the KeyBank account and then transferred to a CB&T account. 77 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 113 of 198 Page ID #:113 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:334 o. piled 02/22/19 Page 100 of B.C. believed the cash deposits were timed. AVENATTI instructed when to make the cash deposit, when to transfer the funds, and when to sweep the account. B.C. said that these actions were designed to avoid the levies. p. randomly. AVENATTI took money from the KeyBank account M.B. instructed B.C. on how to record the money AVENATTI was transferring in and out of GBUS's bank account in GBUS's accounting records. q. GBUS used Microsoft Dynamics NAV for its accounting records. The accounting data was stored and backed up on an AWS cloud-based server. Eventually, GBUS's AWS cloud account was shut down because of non-payment. 34. On November 13, 2018, I participated in an interview with A.H., who previously worked in GBUS's accounting department. a. A.H. provided the following information: A.H. worked in the accounting department at GBUS from approximately April 2014 to October 2016. A.H. did basic accounting work involving accounts payable and accounts receivable. b. daily basis. A.H. reported to M.B. and worked with V.S. on a After M.B. left GBUS, A.H. reported to V.S. A.H. participated in weekly conference calls with AVENATTI, M.G., and V.S. c. A.H. was aware from discussions she had or overheard in the office that GBUS was not paying its payroll taxes. M.B. told her she was leaving GBUS because AVENATTI was not paying GBUS's payroll taxes. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 114 of 198 Page ID #:114 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:335 d. Filed 02/22/19 Page 101 of A.H. recalled telling AVENATTI that GBUS had received another IRS letter. GBUS employees would ask AVENATTI to get on a payment plan with the IRS, but AVENATTI would say no. AVENATTI would say that he was negotiating with the IRS and taking care of it. e. payments. A.H. dealt with vendors who were waiting for GBUS was frequently late paying its vendors. A.H. said that AVENATTI was well aware of what was owed to vendors, as well as what was owed to the IRS. f. A.H. recalls telling AVENATTI that A.H. could not pay vendors because AVENATTI had pulled money out of the GBUS bank account. AVENATTI responded by saying it was his money. AVENATTI always made it clear that he was the boss and it was his company. GBUS could not pay bills without AVENATTI's approval, and he approved all vendor payments. g. writing. A.H. said that AVENATTI never wanted anything in AVENATTI would not respond by email, but would instead either call or email back saying ~~call me." 35. On October 25, 2018, I participated in an interview with A.G., GBUS's former Information Technology (~~IT") Manager. A.G. provided the following information: a. A.G. started working for Tully's (TC Global) before GBUS took over operations. A.G. was a System Engineer and then took over as IT Manager. He stopped working for GBUS when his last paycheck bounced in September 2018. 79 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 115 of 198 Page ID #:115 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:336 b. of GBUS. I=iled 02/22/19 Page 102 of A.G. understood AVENATTI to be the owner and CEO A.G. never heard of AVENATTI being GBUS's General Counsel and never had any legal discussions with him. c. A.G. said that AVENATTI approved the expenses at d. A.G. heard that GBUS changed its bank accounts to GBUS. avoid IRS levies. A.G. also heard that GBUS owed a lot of taxes and was getting IRS notices. e. A.G. knew that M.G. picked up cash deposit bags from the Tully's stores and counted the cash at the corporate office. M.G. eventually told AVENATTI that she did not want to do that anymore. f. In April or May 2018, AVENATTI told A.G. that, if A.G. was ever approached by the IRS, A.G. should contact AVENATTI first. g. AVENATTI had a GBUS email address, but instead used his law firm email account for GBUS business. h. GBUS's corporate computer system was setup on a h ybrid environment through a managed cloud service called 2nd Watch.23 2nd Watch managed GBUS's desktop operating system and server. GBUS's desktop operating system used a cloud computing service called Microsoft Azure that included programs like Microsoft Office Online 365. GBUS used a cloud-based server 23 Based on documents received from 2nd Watch and a preliminary review of GBUS bank records, it appears that GBUS paid 2nd Watch on a monthly basis throughout the life of the contract. The contract with 2nd Watch was, however, entered into by "Tully's Coffee." :t Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 116 of 198 Page ID #:116 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:337 Filed 02/22/19 Page 103 of called Amazon Elastic Compute Cloud (Amazon EC2) that stored its data in the AWS cloud. i. A.G. showed the interviewers an email he sent to AVENATTI on April 5, 2018. In the email, A.G. told AVENATTI that 2nd Watch had turned off GBUS's server access to AWS and that GBUS was without functioning email. A.G. had begged AVENATTI to keep paying 2nd Watch for the cloud services. AVENATTI initially paid for the services, but he later stopped. j. J.S., an IT contractor, made a backup of GBUS's data and emails from the AWS cloud-based server before 2nd Watch turned off access to the servers. Based on my discussions with A.G., I understand that this data is contained on SUBJECT DEVICE 5, SUBJECT DEVICE 6, and SUBJECT DEVICE 7. (See supra 9[4 81- 82.) 4. 36. Infozmation Regarding TSYS Merchant Solutions IRS-CI's investigation has revealed that AVENATTI attempted to evade the collection of payroll taxes and obstruct the IRS collection case by directing TSYS to change the business name, EIN, and bank account information for GBUS's merchant accounts. 37. On November 6, 2018, I participated in an interview with TSYS Rep. 1. Based on my review of documents obtained from TSYS and the interview with TSYS Rep. 1, I have learned, among other things, the following information: a. On or about June 29, 2015, GBUS entered into a Merchant Transaction Processing Agreement with TSYS. The merchant name on the agreement was GBUS, and the agreement was Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 117 of 198 Page ID #:117 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:338 signed by M.B. piled 02/22/19 Page 104 of The sponsoring bank under the TSYS agreement was FNB Omaha.24 b. On or about July 10, 2015, AVENATTI signed an ACH Agreement with TSYS and provided a blank check for GBUS's CB&T operating account ending in 2240 (~~GBUS CB&T Account 2240"). GBUS CB&T Account 2240 began receiving deposits from TSYS via FNB Omaha in or around July 2015. c. On or about August 16, 2017, the IRS issued a levy for GBUS's merchant accounts with FNB Omaha. FNB Omaha began withholding funds from GBUS's account by no later than September 25, 2017. d. TSYS Rep. 1. On Friday, September 29, 2017, AVENATTI called This was the first time TSYS Rep. 1 had ever spoken to AVENATTI, as he primarily dealt with M.B. or B.C. TSYS Rep. 1 believes he spoke with AVENATTI multiple times that day. During these calls, AVENATTI told TSYS Rep. 1 that TSYS was holding GBUS's money, and that he did not know what was going on. TSYS Rep. 1 told AVENATTI that there were no normal holds on the GBUS account. After AVENATTI mentioned the IRS, TSYS Rep. 1 suggested that it could be the result of an IRS "1099 hold." B.V. explained that a "1099 hold" related to a new IRS reporting requirement and occurred when there were issues z4 TSYS Rep. 1 explained that the sponsoring bank must be a registered financial institution and is responsible to Visa and Master Card. TSYS processed the credit card transaction data. The funds would be paid to FNB Omaha, and then transferred from FNB Omaha to the GBUS's bank account, after the fees were paid to TSYS. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 118 of 198 Page ID #:118 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:339 with the company's name or EIN.25 filed 02/22/19 Page 105 of AVENATTI told TSYS Rep. 1 that TSYS had made a mistake and placed the accounts under the wrong company name. AVENATTI said that the merchant accounts should have been under GB LLC, not GBUS. AVENATTI told TSYS Rep. 1 that TSYS needed to get this changed. AVENATTI never disclosed to TSYS Rep. 1 that there was an IRS tax lien on GBUS, that the IRS had issued levies on GBUS's bank accounts, or that GBUS had outstanding payroll tax obligations. Rather, AVENATTI suggested to TSYS Rep. 1 that he had no idea why TSYS was holding its funds. e. TSYS Rep. 1 and AVENATTI also exchanged multiple emails on September 29, 2017. TSYS Rep. 1 asked AVENATTI to confirm the `correct tax ID" and provide him with "the exact legal name as filed with the IRS." AVENATTI responded by providing TSYS Rep. 1 with GB LLC's name and federal tax ID number (EIN) TSYS Rep. 1 then emailed AVENATTI a list of items that would be "needed to perform the change of ownership." TSYS Rep. 1 said that the ~~change in ownership will create new merchant accounts under the correct business info." At AVENATTI's direction, V.S. also emailed TSYS Rep. 1 a spreadsheet detailing the GBUS funds that were being held by TSYS and FNB Omaha. f. On October 2, 2017, TSYS Rep. 1 emailed B.C. and V.S. to obtain information he needed to change the merchant accounts, which would be a complicated process. 25 When B.C. asked A call-log received from TSYS shows that on September 29, 2017, TSYS Rep. 1 called TSYS's client services department to check if there was a 1099 hold on GBUS's account. Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 119 of 198 Page ID #:119 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:340 piled 02/22/19 Page 106 of TSYS Rep. 1 what he had been asked to do, TSYS Rep. 1 responded as follows: Michael Avenatti called me on Friday. The accounts should be under Global Baristas LLC, not Global Baristas ~~US" LLC. We have to make changes as the IRS with [sic] withholding funds. Michael has asked that I rush this as much as possible. g. On October 2, 2017, TSYS Rep. 1 emailed AVENATTI and V.S. to request the banking information for each Tully's store, as well as bank letters for each account. responded that the ~~accounts will likely change." AVENATTI In a subsequent email that day, AVENATTI told TSYS Rep. 1 that ~~ [w]e want to do it the same way we have done it in the past. The account number and ownership merely changes." h. Later on October 2, 2017, TSYS Rep. 1 emailed AVENATTI and told him there ~~appears to be a bank levy directed b y [sic] our Sponsor Bank - First National Bank of Omaha." TSYS Rep. 1 explained to AVENATTI that TSYS does not ~~get any details on the levy" and provided AVENATTI with the contact information for FNB Omaha. TSYS Rep. 1 also asked AVENATTI to ~~[1]et me know what you find out and if there are any possible implications when we set up the new accounts with the correct TAX IDs." During his interview, TSYS Rep. 1 said that he believes that he learned of the levy on October 2, 2017. TSYS Rep. 1, however, noted that he did not have any or all of the information from FNB Omaha, and AVENATTI was telling TSYS that TSYS had made a mistake when it set up the merchant accounts. i. On October 3, 2017, TSYS Rep. 1 emailed AVENATTI and V.S. and asked them to send him the bank letters and the :~ Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 120 of 198 Page ID #:120 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:341 signed agreement. Filed 02/22/19 Page 107 of TSYS Rep. 1 also asked AVENATTI again to "let me know if you found out anything yesterday with First National Bank of Omaha and any possible implications or things needed on my end." This was the second time TSYS Rep. 1 had asked AVENATTI that question. AVENATTI never responded to his question or provided TSYS Rep. 1 with any information regarding the IRS levies or his discussions with FNB Omaha. j. Later on October 3, 2017, REGNIER emailed TSYS Rep. 1 the new Merchant Transaction Processing Agreement, which was signed by AVENATTI on behalf of GB LLC in his capacity as CEO. REGNIER also emailed TSYS Rep. 1 a bank letter identifying a GB LLC account at CB&T ending in 3730 (~~GB LLC CB&T Account 3730"). Based on my review of CB&T bank records, I know that GB LLC CB&T Account 3730 was a new bank account that AVENATTI and REGNIER opened in Orange County, California, earlier that same day. AVENATTI and V.S. were copied on all of the emails REGNIER sent TSYS Rep. 1. k. The change in merchant accounts was completed on or about October 7, 2017. 1. On November 7, 2017, TSYS informed AVENATTI and GBUS that it was closing GBUS's and GB LLC's merchant accounts. TSYS Rep. 1 understood that TSYS decided to close the merchant accounts because GBUS had huge tax liens and levies with the IRS. m. TSYS Rep. 1 does not believe that TSYS made a mistake or used the incorrect name when it opened the GBUS merchant accounts in June 2015, as AVENATTI had claimed. TSYS Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 121 of 198 Page ID #:121 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:342 Filed 02/22/19 Page 108 of Rep. 1 said that when the GBUS merchant accounts were first opened there were discussions as to whether the correct legal name should be GBUS or GB LLC. n. TSYS Rep. 1 said that had AVENATTI disclosed the existence of the IRS liens and levies to him he would have raised the issue with TSYS's legal department and risk management team. TSYS Rep. 1 felt that information regarding the IRS tax liens and levies would have been highly valuable information to TSYS. Indeed, TSYS ultimately cancelled the GBUS contract because of the IRS tax liens and levies. 5. 38. Infozmation Regarding The Boeing Company The investigation has also revealed that AVENATTI attempted to evade the collection of payroll taxes and obstruct the IRS collection case by changing the company name on contracts with Boeing. As noted above, GBUS operated a number of Tully's stores at Boeing facilities in Washington. These stores were the most profitable part of GBUS's business. 39. On October 23, 2018, I participated in interviews with three Boeing employees, P.K., C.M, and A.R.G. P.K. and C.M. were both Procurement Agents at Boeing, and A.R.G. was a Senior Counsel in Boeing's legal department. Based on these interviews and my review of documents produced by Boeing, I learned, among other thing the following information: a. On September 2, 2016, AVENATTI submitted a contract renewal proposal to Boeing. AVENATTI signed the proposal as the ~~CEO/Chairman of Global Baristas US, LLC (dba Tully's Coffee)." Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 122 of 198 Page ID #:122 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:343 b. Filed 02/22/19 Page 109 of On October 28, 2016, P.K. emailed AVENATTI the proposed Shared Services contract between Boeing and GBUS. c. On November 15, 2016, AVENATTI emailed P.K. a revised Shared Services contract in which he changed the contracting party's name from "Global Baristas US LLC" to "GB Hospitality LLC." In the email, AVENATTI told P.K. that the name change was "occasioned by us having formed an additional wholly owned subsidiary that serves as the contracting party for all our relationships where we are proving onsite coffee service within corporate environments." d. On November 16, 2016, AVENATTI signed the Shared Services contract with Boeing on behalf of "GB Hospitality LLC." The Shared Services contract required GB Hospitality to make $110,000 quarterly commission payments to Boeing in 2017. contract identified AVENATTI's title as ~~Chairman/CEO." The P.K. said that when he was responsible for the GBUS/GB Hospitality/Tully's account he viewed AVENATTI as the CEO of the contracting party, not as an attorney. e. Between May 24, 2017, and August 15, 2017, P.K. and A.R.G. sent AVENATTI multiple emails and letters regarding GB Hospitality's failure to make the required commission payments for the first and second quarters of 2017. C.M. and A.R.G. both said that AVENATTI repeatedly failed to respond to Boeing's emails and letters. C.M. said that she knew AVENATTI was a lawyer, but was communicating with him because he was the owner of GBUS rather than because he was GBUS's lawyer. ~~ Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 123 of 198 Page ID #:123 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page I D #:344 f. Filed 02/22/19 Page 110 of On August 16, 2017, Boeing received an IRS Notice of Levy relating to GBUS. On or about September 19, 2017, Boeing returned the Notice of Levy to the IRS and indicated that it did not owe GBUS any money. closed. As a result, the levy was A.R.G. was aware of the levy at the time and may have been responsible for filling out and returning the levy form to the IRS. g. On September 5, 2017, Boeing sent AVENATTI via email and FedEx a letter notifying him that Boeing was cancelling its contract with GB Hospitality due to the company's failure to make the required commission payments. A.R.G. said that Boeing sent the cancellation notice to AVENATTI because he was the owner of GB Hospitality/GBUS. h. On September 6, 2017, AVENATTI responded to the cancellation letter. Among other things, AVENATTI claimed that he had never received the prior notice of default from Boeing, even though that notice had been delivered to EA LLP's offices via FedEx. i. On September 7, 2017, A.R.G. spoke to AVENATTI regarding the cancellation of the contract and transition discussions. A.R.G. said that all transition calls had to go through AVENATTI. A.R.G. believed that she was communicating with AVENATTI both as the person operating GBUS and as the lawyer for GBUS. A.R.G. always believed that AVENATTI was the . . Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 124 of 198 Page ID #:124 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:345 decision maker for GBUS. Filed 02/22/19 Page 111 of At one point, however, AVENATTI told Boeing that he had to run a decision by the Board of Directors.26 j. On or about September 18, 2017, A.R.G., C.M. and others met with AVENATTI regarding Boeing's transition from GBUS. During this meeting, Boeing and AVENATTI discussed the sale of GBUS equipment to Boeing. A.R.G. said that AVENATTI asked to be the point of contact for the sale of GBUS equipment. k. On September 20, 2017, REGNIER emailed AVENATTI a list of GBUS equipment at the Boeing stores. AVENATTI then forwarded this email to C.M., with a copy to M.G. from GBUS. A.R.G. said that it made sense for Boeing to buy the equipment from GBUS because it still wanted to supply coffee to its employees. 1. said: On September 22, 2017, AVENATTI emailed C.M. and "We have discussed it internally and we propose that we assign the equipment to Boeing in exchange for any commissions due and owing to Boeing." m. On September 26, 2017, A.R.G. emailed AVENATTI a bill of sale relating to the GBUS equipment at the Boeing stores. A.R.G. drafted the bill of sale. She identified GB Hospitality as the seller on the bill of sale because that was the entity name on the contract with Boeing. Under the terms of the proposed sale, Boeing would pay GB Hospitality $10 and forgive all remaining debt in exchange for the equipment. 26 This statement appears to have been false. Multiple former GBUS employees have said that GBUS did not have a Board of Directors. E:~%7 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 125 of 198 Page ID #:125 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:346 n. Filed 02/22/19 Page 112 of On September 27, 2017, A.R.G. and AVENATTI discussed Boeing purchasing two coffee kiosks27 from GBUS for $155,000. C.M. said that the kiosk discussions occurred at the end of the transition talks. o. On September 28, 2017, AVENATTI emailed A.R.G. and agreed to sell the kiosks for $155,000. A.R.G. to send him a revised bill of sale. AVENATTI asked He also indicated that he would ~~need payment no later than next Friday" (i.e., October 6, 2017). Later that day, A.R.G. emailed AVENATTI two separate bills of sale -- one for the purchase of the equipment and one for the purchase of the kiosks. Both Bills of Sale identified GB Hospitality as the seller. p. On September 29, 2017, A.R.G. emailed AVENATTI revised drafts of the two Bills of Sale in which the name of the seller was changed from GB Hospitality to ~~Global Baristas, LLC." A.R.G. said that AVENATTI asked her to change the seller name because GB LLC was the owner of the equipment, not GB Hospitality. In her email, A.R.G. also wrote the following: As part of my due diligence, I ran a quick UCC search on Global Baristas, LLC. I see one secured credit [sic] for office furniture that doesn't look relevant for our purposes. There is another secured creditor for equipment, Farnam Street Financial? Can you confirm that is also not covering any of this equipment? In an email response just a few minutes later, AVENATTI said ~~You are correct - neither covers any of the equipment." 27 I understand that the coffee kiosks were separate standalone structures that were owned by GBUS, but located at Boeing's facilities. .~ Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 126 of 198 Page ID #:126 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:347 q. Filed 02/22/19 Page 113 of Later on September 29, 2017, AVENATTI emailed A.R.G. and C.M. the executed copies of the two bills of sale. AVENATTI signed the bills of sale on behalf GB LLC and identified his title as ~~Chairman." r. On October 2, 2017, AVENATTI emailed wiring instructions to A.R.G. and C.M. Specifically, AVENATTI instructed Boeing to wire the sale proceeds to an EA LLP attorney trust account at CB&T ending in 8671 ("EA CB&T Trust Account 8671"). sent. AVENATTI also asked when the wire would be C.M. said that AVENATTI seemed anxious to receive the wire payment from Boeing. s. On October 5, 2017, AVENATTI emailed A.R.G. and C.M. a letter on GB LLC letterhead containing the same wiring instructions. REGNIER was copied on the email. According to A.R.G., Boeing had asked AVENATTI to provide Boeing the wiring instructions on GB LLC letterhead. Prior to receiving this letter, neither A.R.G. nor C.M. had ever seen any other documents on GB LLC letterhead. t. A.R.G. indicated that she was concerned that the change of the entity name on the bill of sale may have violated the tax lien or levies, but that Boeing checked and neither ~~GB Hospitality, LLC" nor "Global Baristas, LLC" were identified on the lien and levies. Boeing determined that it was not in violation of the lien because the lien related to GBUS and the seller identified on the two bills of sale was a different legal entity. A.R.G. said that the only other entity name she had seen on the contracts with Boeing prior to the two bills of sale Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 127 of 198 Page ID #:127 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:348 was GB Hospitality. riled 02/22/19 Page 114 of Boeing would not have paid the $155,010 if GBUS's name had been on the two bills of sale or the 2016 contract. 40. Based on a preliminary review2e of bank records relating to GBUS, GB LLC, EA LLP, A&A, and AVENATTI, I have learned the following regarding the $155,010 payment from Boeing for the kiosks and equipment: a. On October 5, 2017, Boeing transferred $155,010 via wire to EA CB&T Trust Account 8671. b. On October 5, 2017, EA LLP transferred $155,010 from EA CB&T Trust Account 8671 to A&A's CB&T account ending in 0661 (~~A&A CB&T Account 0661") AVENATTI then made the following payments from A&A CB&T Account 0661, among others: i. $15,000 wire transfer to AVENATTI and his wife's personal checking account at BofA ending in 5546 ("Avenatti BofA Account 5446"); ii. $8,459 payment to Neiman Marcus in Newport Beach, California on October 10, 2017; and iii. $13,073 payment for rent for AVENATTI's residential apartment in Los Angeles, California on October 10, 2017. c. Out of the $155,010 that Boeing wired to EA CB&T Trust Account 8671 and which was subsequently transferred to A&A 28 IRS-CI's review of the bank account records referenced throughout this affidavit is ongoing. The approximate amounts referenced herein are based on a preliminary analysis of those bank records and my discussions with an IRS-CI revenue agent. These amounts may change as IRS-CI completes its analysis and discovers additional bank account information. 92 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 128 of 198 Page ID #:128 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:349 piled 02/22/19 Page 115 of CB&T Account 0661, it appears that only approximately half was ever transferred to bank accounts associated with GBUS. 6. Preliminary Review of GBUS and GB LLC Bank Account Information In connection with this investigation, IRS-CI has 41. obtained bank records relating to a number of accounts associated with GBUS and GB LLC. Based on a preliminary review of these bank account records, it appears that AVENATTI caused approximately $1.7 million to be transferred from GBUS or GB LLC to other entities AVENATTI controlled during the same time period in which GBUS failed to pay to the IRS approximately $3,121,460 in payroll taxes. Based on a preliminary review of the GBUS and GB LLC 42. bank records, I have learned, among other things, the following: a. In February and March 2015, GBUS opened three new bank accounts with CB&T in Orange County, California, including a payroll account and an operating account (GBUS CB&T Account 2240). AVENATTI and REGNIER were the only two signatories on the GBUS CB&T accounts. b. As noted above, on October 3, 2017, GB LLC opened GB LLC CB&T Account 3730 in Orange County, California. supra 9[ 37.j.) (See AVENATTI and REGNIER were the only two signatories on this GB LLC account. 43. Based on a preliminary review of the GBUS's CB&T bank accounts, I have learned, among other things, the following regarding the transfer of funds from GBUS or GB LLC to bank accounts associated with A&A or EA LLP: Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 129 of 198 Page ID #:129 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:350 a. riled 02/22/19 Page 116 of Between 2015 and 2017, there were a substantial number of wire transfers or payments between GBUS's or GB LLC's bank accounts on one hand, and EA LLP's or A&A's bank accounts on the other hand. b. As detailed in the below chart, between 2015 and 2017, there was a net total of approximately $1,701,800 in payments from GBUS's or GB LLC's bank accounts to A&A's or EA LLP's bank accounts. Transfers (Net) GBUS & GB LLC to A&A GBUS & GB LLC to EA LLP TOTALS c. 2015 -$576,500 2016 $440,500 2017 $1,360,250 TOTALS $1,224,250 -$127,436 $517,400 $87,586 $477,550 -$703,936 $957,900 $1,447,836 $1,701,800 There was a net transfer of approximately $703,936 from A&A and EA LLP into GBUS's or GB LLC's bank accounts in 2015. However, there was a net transfer of approximately $2,406,006 out of GBUS's and GB LLC's bank accounts to A&A and EA LLP during 2016 and 2017, while the IRS collection case was ongoing and payroll taxes were due. 44. As set forth further below in Section IV.D.4, it appears that portions of the approximately $1.7 million that was transferred from GBUS's and GB LLC's bank accounts to A&A or EA LLP were subsequently transferred to AVENATTI's personal bank accounts or used to pay for AVENATTI's personal expenses. 45. It also appears that AVENATTI directly used GBUS funds to pay for personal expenses. For example, on or about March 30, 2016, a total of $200,000 was paid to the G.P. Family Trust ~~ Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 130 of 198 Page ID #:130 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:351 from GBUS CB&T Account 2240. riled 02/22/19 Page 117 of These payments were for two months of rent for AVENATTI's residence in Newport Beach, California. (See infra ~ IV.E.3.b.) 7. 46. GBUS Bankruptcy Proceedings GBUS is currently the debtor in Chapter 7 bankruptcy proceedings pending in the United States Bankruptcy Court for the Western District of Washington, in In re: Global Baristas US LLC, No. 18-14095-TWD (the "GBUS Bankruptcy"). Based on my review of documents filed in the GBUS Bankruptcy, I have learned, among other things, the following: a. On October 24, 2018, a Chapter 7 involuntary bankruptcy petition was filed against GBUS. GBUS did not appear or oppose the involuntary petition. b. On November 30, 2018, an Order for Relief was entered by default. On or about that same date, Nancy L. James was appointed as the Chapter 7 bankruptcy trustee for GBUS (the "GBUS Trustee"). c. On or about November 30, 2018, GBUS was also directed to file financial statements and other documents with the bankruptcy court. To date, GBUS has not filed any such documents. d. On January 25, 2019, the GBUS Trustee filed a motion for an order directing three law firms, Osborn Machler PLLC; Eisenhower Carlson PLLC (~~Eisenhower"); Talmadge/ Fitzpatrick/Tribe, PPLC, to turn over all files and records relating to the law firms' representation of GBUS. Among other things, the GBUS Trustee noted that because the GBUS Trustee now 95 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 131 of 198 Page ID #:131 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:352 riled 02/22/19 Page 118 of manages GBUS, the GBUS Trustee now holds the attorney-client privilege. e. On January 31, 2019, the GBUS Trustee held the creditors meeting required under 11 U.S.C. ~ 341. No one appeared on behalf of GBUS at the meeting. f. On February 8, 2019, Eisenhower, which represented GBUS in the Bellevue Square Litigation, filed an opposition to the GBUS Trustee's motion for turnover. Eisenhower argued, among other things, that AVENATTI may believe that Eisenhower represented him in his personal capacity and that the motion should be denied until AVENATTI was provided notice and an opportunity to respond. Eisenhower stated: During the course of the litigation, Bellevue Square LLC asserted liability against Michael Avenatti personally. While [Eisenhower] was not formally retained by Mr. Avenatti, [Eisenhower] is concerned that Mr. Avenatti may assert attorney-client privilege as to his personal communications with [Eisenhower]. g. On February 15, 2018, the Bankruptcy Court held a hearing on the GBUS Trustee's motion. I understand that during the hearing the Bankruptcy Court held that the GBUS Trustee holds the attorney-client privilege as to communications between GBUS and its lawyers, that the law firms were required to turn over their files to the GBUS Trustee, and ordered the parties to submit an agreed upon order for the Court to sign by February 22, 2018. 47. Although AVENATTI is not personally named in the GBUS Bankruptcy and has not appeared in it, he is aware of the proceedings. On February 13, 2019, AVENATTI sent an email to an .~ Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 132 of 198 Page ID #:132 Case 8:19-mj-00103-DUTY *~tALED* Document 4-1 *SEALED* moiled 02/22/19 Page 119 of 184 Page ID #:353 attorney representing IMSA in a separate civil action, the GBUS Trustee, and the GBUS Trustee's counsel, which stated: It has come to my attention that you are purporting to proceed with a hearing tomorrow in a Florida collection matter in which Global Baristas US, LLC, me [sic] and others are defendants. Separate [sic] apart from the fact that service has never been properly effectuated, your attempt to proceed with this matter is entirely inappropriate as there has long been a bankruptcy stay in place as a result of the attached bankruptcy filing (the Trustee and counsel are copied above). Indeed, your continued pursuit of this matter over the last several months may subject your client to liability for violating the bankruptcy stay, which your client is well aware of. D. Tax Offenses Relating to Eagan Avenatti LLP (EA LLP) and Avenatti & Associates, APC (A&A) 48. As discussed below, there is probable cause to believe that AVENATTI has caused his other companies, EA LLP and A&A, to evade their federal tax obligations. Between 2015 and 2017, EA LLP failed to pay to the IRS approximately $2.4 million in payroll taxes, including approximately $1,279,001 in trust fund taxes that had been withheld from EA LLP employees' paychecks. EA LLP and A&A have also repeatedly failed to file federal income tax returns or pay federal income taxes, despite generating substantial income. Indeed, despite previously filing tax returns, EA LLP has not filed federal tax returns for the 2013 through 2017 tax years, and A&A has not filed federal tax returns for the 2011 through 2017 tax years. 1. 49. The IRS Payroll Tax Collection Case In September 2015, the IRS initiated a collection case against EA LLP due to its failure to file its payroll tax returns and pay payroll taxes. Based on my review of IRS tax ~~ Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 133 of 198 Page ID #:133 Case 8:19-mj-00103-DUTY ~~EALED* Document 4-1 *SEALED* moiled 02/22/19 Page.120 of 184 Page ID #:354 information, including the ICS History, I have learned, among other things, the following information regarding EA LLP's payroll tax obligations: a. Between 2011 and the first quarter of 2014, EA LLP paid its federal tax deposits, including trust fund tax payments, to the IRS on a regular basis. During this time period, EA LLP also filed its IRS Forms 941 each quarter and IRS Forms 940 each year.29 On the various EA LLP IRS Forms 940 and IRS Forms 941 filed with the IRS between 2011 and 2014 that I have reviewed, AVENATTI signed the forms under penalty of perjury as the Managing Partner of EA LLP. b. On or about April 30, 2015, EA LLP filed its IRS Form 941 for the first quarter of 2015. The IRS Form 941 indicated that EA LLP was required to pay to the IRS approximately $194,545 in payroll taxes, including approximately $152,562 in trust fund payments. EA LLP, however, did not make the required payroll tax payments to the IRS. c. On September 26, 2015, the IRS opened a collection case against EA LLP based on a FTDA. d. On September 28, 2015, the collection case was assigned to an IRS revenue officer (~~RO 2"). e. On October 8, 2015, RO 2 made a field visit to EA LLP's office in Newport Beach, California. RO 2 spoke with AVENATTI and told him that the field call was being made because z9 During this time period, Paychex was responsible for filing EA LLP's IRS Forms 941 and paying to the IRS EA LLP's federal tax deposits. (See infra 9[ 52.) These services were discontinued at the end of 2014. (See id.) . ; Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 134 of 198 Page ID #:134 Case 8:19-mj-00103-DUTY A~EALED* Document 4-1 *SEALED* 184 Page ID #:355 EA LLP had not made its federal tax deposits. moiled 02/22/19 Page 121 of RO 2 asked AVENATTI if REGNIER could attend the meeting because she was the POA on file with IRS for EA LLP and was in the office at that time, but AVENATTI said no. RO 2 told AVENATTI that EA LLP last filed a payroll tax return for the first quarter of 2015, but that it had not paid to the IRS the $194,545 in payroll taxes that were due. RO 2 also told AVENATTI that EA LLP had not filed its payroll tax return or paid its federal tax deposits for the second quarter of 2015, and that the payroll tax return and federal tax deposits for the third quarter of 2015 were due that same day. RO 2 explained that unless there was a reduction in EA LLP's payroll since the first quarter of 2015, EA LLP would likely owe the IRS over $200,000 in payroll taxes for each of these additional quarters as well. AVENATTI told RO 2 that he was not aware that the federal tax deposits were not being paid. When asked who prepared the payroll tax returns and made the federal tax deposits, AVENATTI said that Paychex was responsible for the payroll taxes.30 AVENATTI also said that he was not sure what was going on with the taxes. RO 2 set a deadline of October 23, 2015, for EA LLP to make the outstanding payroll tax payments. RO 2 also set deadlines for EA LLP to file its missing IRS Forms 940 and provide certain financial documentation, including bank statements and a balance sheet. Finally, RO 2 instructed AVENATTI to file any other unfiled tax 3o AVENATTI made a nearly identical statement to RO 1 when he was contacted about GBUS failure to pay its payroll taxes one year later on October 7, 2016. (See supra 9[ 23.d.) . . Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 135 of 198 Page ID #:135 Case 8:19-mj-00103-DUTY ~ SEALED* Document 4-1 *SEALED* 184 Page ID #:356 moiled 02/22/19 Page 122 of returns, including his unfiled personal income tax returns for the 2011 to 2014 tax years. f. On October 14, 2015, M.H. contacted RO 2 and advised her that she was the POA for EA LLP. RO 2 advised M.H. of the deadline she had set for EA LLP to make the outstanding payroll tax payments, file its IRS Forms 941, and produce financial documents. g. On October 23, 2015, EA LLP filed its IRS Forms 941 for the second and third quarters of 2015. 941 were signed by AVENATTI. Both IRS Forms Although EA LLP filed these two IRS Forms 941 for the second and third quarters of 2015, EA LLP did not make the required outstanding payroll tax payments nor did it produce the required financial information RO S.M requested. h. On March 14, 2017, RO 2 filed IRS Form 6020B substitute returns for the fourth quarter of 2015 and the first, second, third, and fourth quarters of 2016. i. As discussed below in Section IV.D.2, in March 2017, an involuntary Chapter 11 bankruptcy petition was filed against EA LLP. Due to the automatic stay issued in the EA Bankruptcy, RO 2's efforts to collect the outstanding payroll taxes largely ceased. j. In connection with the EA Bankruptcy, EA LLP and the IRS reached a settlement regarding EA LLP's unpaid payroll taxes in which EA LLP agreed to pay to the IRS approximately $2,389,005, including trust fund taxes of $1,288,277, non-trust 100 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 136 of 198 Page ID #:136 Case 8:19-mj-00103-DUTY •~~EALED* Document 4-1 *SEALED* 184 Page ID #:357 moiled 02/22/19 Page 123 of fund taxes of $311,673, penalties of $635,631, and interest of $153,424. k. On or about September 28, 2017, the IRS received EA LLP's IRS Forms 941 for the fourth quarter of 2015 through the fourth quarter of 2016. The IRS Forms 941 appear to have been signed by AVENATTI. 2. 50. EA LLP Bankruptcy Proceedings Based on my review of documents filed in connection with the EA Bankruptcy, I have learned, among other things, the following information: a. On or about March 1, 2017, an involuntary petition was filed against EA LLP in the Middle District of Florida. b. On or about March 10, 2017, EA LLP filed its answer to the involuntary petition and consented to the order for relief. c. In April 2017, the EA Bankruptcy was transferred to the Central District of California. d. In connection with the EA Bankruptcy, the United States claimed that it was a secured creditor of EA LLP due to the filing of federal tax liens. The United States also filed a number of claims against the bankruptcy estate. e. On or about October 10, 2017, the United States filed its Fifth Amended Proof of Claim in the amount of approximately $2,357,202, which consisted of a secured claim in the amount of $677,410, a priority tax claim of $1,259,355, and a general unsecured claim of $420,436. 101 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 137 of 198 Page ID #:137 Case 8:19-mj-00103-DUTY ~ SEALED* Document 4-1 *SEALED* 184 Page ID #:358 f. ~-filed 02/22/19 Page 124 of On January 30, 2018, EA LLP, AVENATTI, and the United States entered into a stipulation regarding the payment of taxes, in which the parties described the terms of the settlement reached between EA LLP, AVENATTI, and the United States. In the stipulation, the parties agreed that the total amount EA LLP owed to the IRS as of February 28, 2018, would be approximately $2,389,005, consisting of trust fund taxes of $1,288,277, non-trust fund taxes of $311,673, penalties of $635,631, and interest of $153,424. Under the terms of the settlement, EA LLP was required to make an initial payment to the United States Treasury of $1,508,422, which consisted of all of the $1,288,277 in trust fund taxes due to the IRS, and 20% of the non-trust fund taxes, penalties, and interest in the amount of $220,146 within 10 days of the settlement being approved and bankruptcy being dismissed. EA LLP was required to pay the remaining balance of $880,583, plus accrued interest, within 120 days of the dismissal order. Specifically, EA LLP was required to pay $440,291, plus accrued interest of $11,709.07, on the 60th day following the dismissal order, and an additional $440,291 on the 120th day following the dismissal order. g. On March 15, 2018, the Bankruptcy Court issued an order approving the settlement between EA LLP, AVENATTI, and the United States, and dismissed the EA Bankruptcy. h. On March 26, 2018, the IRS received the initial settlement payment of $1,508,422 from a trust account for SulmeyerKupetz, which was the law firm representing A&A and 102 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 138 of 198 Page ID #:138 Case 8:19-mj-00103-DUTY ~~EALED* Document 4-1 *SEALED* 184 Page ID #:359 AVENATTI in the EA Bankruptcy.31 riled 02/22/19 Page 125 of EA LLP and AVENATTI, however, failed to make the remaining payments to the IRS as scheduled. i. On July 3, 2018, the United States filed a motion to enforce the settlement agreement between EA LLP, AVENATTI, and the United States. Among other things, the United States noted that EA LLP had failed to make the required payment of approximately $440,291, plus $11,709 by May 14, 2018, as required under the settlement agreement. j. On August 20, 2018, EA LLP, AVENATTI, and the United States entered into a stipulation to resolve the United States July 2018 motion to enforce the settlement agreement. Under the stipulation, EA LLP agreed to make monthly payments to the United States in the amount of $75,000. 31 Based on information I received from the Newport Beach Police Department and a preliminary review of the relevant bank account records, it appears that this payment was derived from money that AVENATTI had received in trust for two clients, and L.T. AVENATTI represented M.P. and L.T. in connection the divestment and separation from M.P.'s business. Under engagement agreement, AVENATTI was entitled to 7.5 percent the approximately $35.6 million transaction amount (or M.P. with the of approximately $2.67 million). In September 2017, the first portion of the transaction amount was wired to a City National Bank attorney trust account ending in 4704 ("Avenatti CNB Trust Account 4704"). After AVENATTI deducted his entire 7.5 percent fee, he then transferred the remaining proceeds to M.P. On March 14, 2018, the balance of the transaction amount (approximately $8,146,288) was transferred to CNB Trust Account 4704. But AVENATTI did not remit this entire sum to M.P. as he was required to do. Rather, on March 15, 2018, AVENATTI transferred $3,000,000 to an EA LLP CB&T attorney trust account AVENATTI then ending in 4613 ("EA CB&T Trust Account 4613") transferred $2,828,423 from EA CB&T Trust Account 4613 to the SulmeyerKupetz trust account later that same day. The following day, AVENATTI's attorney from SulmeyerKupetz filed a declaration in the EA Bankruptcy indicating that he had received the approximately $2.8 million payment so that it could be distributed to creditors, including the IRS. 103 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 139 of 198 Page ID #:139 Case 8:19-mj-00103-DUTY T~EALED* Document 4-1 *SEALED* moiled 02/22/19 Page 126 of 184 Page ID #:360 k. On or about August 20, 2018, EA LLP paid the United States Department of Treasury approximately $75,000 via a check from one of EA LLP's CB&T bank accounts. I understand that no further payments have been received since August 2018 and that EA LLP and AVENATTI still owe the United States approximately $765,015, plus accrued interest and penalties. 51. As part of the EA Bankruptcy, EA LLP was required to close pre-petition bank accounts and open new ~~debtor in possession" bank accounts. EA LLP and AVENATTI were also required to file with the Bankruptcy Court a monthly operating report ("MOR") detailing all funds received and disbursed by EA LLP. 3. Information Obtained from Paychex Regarding EA LLP's Payroll Taxes 52. As noted above in paragraph 49.e, when AVENATTI was first contacted by RO 2, AVENATTI claimed that Paychex was responsible for preparing the payroll tax returns and paying to the IRS EA LLP's federal tax deposits. have been false. These claims appear to Based on documents produced by Paychex, I have learned, among other things, the following information: a. On or about May 31, 2014, AVENATTI signed a Paychex Proprietor Services Agreement as the Managing Partner of EA LLP. b. On or about January 5, 2015, Paychex mailed two letters to EA LLP and AVENATTI confirming ~~that your Paychex Taxpay0 service has been discontinued at your request, effective December 28, 2014." The letters further advised AVENATTI and EA 104 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 140 of 198 Page ID #:140 Case 8:19-mj-00103-DUTY x~EALED* Document 4-1 *SEALED* 184 Page ID #:361 moiled 02/22/19 Page 127 of LLP that ~~[y]ou will be responsible for making timely tax deposits and filing tax return beginning on December 28, 2014."32 4. 53. Other Tax Infozmation Regarding EA LLP and A&A Based on my review of IRS tax information, I have learned, among other things, the following information regarding EA LLP's filing of federal partnership income tax returns: a. On or about August 13, 2010, Eagan O'Malley & Avenatti LLP, which later became EA LLP, filed its 2009 partnership income federal tax return (IRS Form 1065). The return stated that in the 2009 tax year Eagan O'Malley Avenatti LLP had gross receipts of $12,547,675 and ordinary business income of $5,025,947. The return listed G.M. in Encino, California, as the paid preparer, and O'Malley as the designated Tax Matters Partner (~~TMP") before the IRS. b. On or about April 15, 2011, Eagan O'Malley & Avenatti LLP, filed its 2010 partnership income federal tax return (IRS Form 1065). The return stated that in the 2010 tax year Eagan O'Malley & Avenatti LLP had gross receipts of $7,287,551 and ordinary business income of $1,691,667. The return listed M.H. as the paid preparer, and A&A as the designated TMP before the IRS. 32 At the June 12, 2017, Section 341 hearing as part of the EA Bankruptcy, AVENATTI testified under penalty of perjury that Paychex was EA LLP's payroll service since ~~the inception of the may have been as long as 10 [years]." In response to firm a question regarding EA LLP making deposits for federal and state payroll taxes, AVENATTI testified: `Well, they're made now directly by the firm, but at some point they were being made by Paychex, or at least were to be made by Paychex." When asked when EA LLP switched from sending money to Paychex to pay the payroll taxes to paying the tax deposits directly, AVENATTI testified "sometime in 2016." 105 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 141 of 198 Page ID #:141 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* moiled 02/22/19 Page 128 of 184 Page ID #:362 c. On or about March 17, 2014, EA LLP filed its 2011 The partnership income federal tax return (IRS Form 1065). return stated that in the 2011 tax year EA LLP had gross receipts of $13,819,836 and ordinary business income of $5,850,102. The return indicated that it was `Self Prepared" and appears to have been signed by AVENATTI on March 12, 2014. The return listed A&A as the designated TMP before the IRS, and AVENATTI as the TMP representative. d. On or about October 8, 2014, EA LLP filed its 2012 partnership income federal tax return (IRS Form 1065). The return stated that in 2012 EA LLP had gross receipts of $6,212,605 and an ordinary business loss of 2,128,849. The return appears to have been signed by AVENATTI on October 1, 2014. The return listed M.H. as the paid preparer, and A&A as the designated TMP before the IRS. e. EA LLP never filed a partnership income federal tax return (IRS Form 1065) for the 2013, 2014, 2015, 2016, or 2017 tax years. 54. Based on my review of IRS tax information, I have learned, among other things, the following information regarding A&A: a. A&A's 2009 IRS Form 11205 Corporate Tax Return stated that A&A had total income of $3,391,224 and ordinary business income of $1,578,558 for the 2009 tax year. The return listed AVENATTI as the President of A&A and M.H.'s firm as the return preparer (the return does not state M.H.'s name, simply the firm at which she worked). 106 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 142 of 198 Page ID #:142 Case 8:19-mj-00103-DUTY T~EALED* Document 4-1 *SEALED* 184 Page ID #:363 b. moiled 02/22/19 Page 129 of A&A's 2010 IRS Form 11205 Corporate Tax Return stated that A&A had total income of $1,421,028 and ordinary business income of $821,634 for the 2010 tax year. AVENATTI appears to have signed the return on September 15, 2011, as the President of A&A. The return listed M.H. as the return preparer. c. A&A did not file federal corporate tax returns for the 2011, 2012, 2013, 2014, 2015, 2016, or 2017 tax years. The last federal income tax return that A&A filed was the return for the 2010 tax year. 5. 55. Preliminary Review of EA LLP's and A&A's Bank Account Information A preliminary review of the bank records for accounts associated with EA LLP, A&A, and AVENATTI demonstrates that: (a) EA LLP generated significant income between 2013 and 2017 and would likely have been required to file federal income tax returns for the 2013 to 2017 tax years; (b) A&A generated significant income between 2011 and 2017 and would likely have been required to file income tax returns during the 2011 to 2017 tax years; and (c) EA LLP and AVENATTI had sufficient funds to make the required payroll tax payments due to the IRS in 2015 and 2016. Specifically, based on a preliminary review of bank account records associated with EA LLP, A&A, AVENATTI, I have learned, among other things, the following information: 107 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 143 of 198 Page ID #:143 Case 8:19-mj-00103-DUTY TSEALED* Document 4-1 *SEALED* 184 Page ID #:364 riled 02/22/19 Page 130 of Between 2013 and 2017, EA LLP received a. approximately $137,890,016 of deposits33 into its bank accounts. Between 2011 and 2017, A&A received approximately b. $37,961,633 of deposits into its bank accounts, including net payments of approximately $23,820,816 from EA LLP. Between 2015 and 2017, EA LLP transferred c. approximately $13,360,560 to A&A's bank accounts, and A&A transferred approximately $4,424,740 to EA LLP's bank accounts. Thus, between 2015 and 2017, A&A received a net total of approximately $8,935,820 from EA LLP. Between 2015 and 2017, approximately $3,697,500 d. was transferred from A&A's bank accounts to AVENATTI's personal bank account, and approximately $190,000 was transferred from EA LLP's bank accounts to AVENATTI's personal bank account. Moreover, as discussed further in paragraph 58.c below, AVENATTI repeatedly used A&A funds to pay for personal expenses between 2015 and 2017. E. Tax Offenses Relating to AVENATTI's Personal Income Tax Obligations 56. As discussed below, there is probable cause to believe that AVENATTI committed various tax offenses in connection with his personal income tax obligations. AVENATTI failed to file personal federal income tax returns for the 2011 through 2017 tax years. During these tax years, AVENATTI generated substantial income and lived lavishly, yet largely failed to pay 33 I understand that the $137,890,016 of deposits likely includes some transfers between different EA LLP bank accounts. Therefore, EA LLP's total receipts during this time period could be substantially lower. ~ •, Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 144 of 198 Page ID #:144 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:365 any federal income tax. r=iled 02/22/19 Page 131 of AVENATTI also appears to have evaded the assessment and collection of federal income taxes during these tax years by using the entities he controlled, such as GBUS, EA LLP, and A&A, to hide and conceal his personal income. 1. 57. Information Regarding AVENATTI's Personal Income Tax Obligation Based on my review of IRS tax information, I have learned, among other things, the following regarding AVENATTI's personal income tax obligations: a. On or about October 15, 2010, AVENATTI filed his individual income tax return for the 2009 tax year. The 2009 return indicated that AVENATTI had total income of $1,939,942, and a total tax due to the IRS in the amount of $570,816. According to the return, AVENATTI received $300,000 in W-2 wage income from A&A in 2009, but only had $1,186 withheld in federal taxes. AVENATTI, therefore, owed the IRS approximately $569,630 for the 2009 tax year. AVENATTI, however, did not pay the remaining tax due for the 2009 tax year until November 2015, when he sold his residence in Laguna Beach, California, upon which there was an IRS tax lien. b. On or about October 11, 2011, AVENATTI filed his individual income tax return for the 2010 tax year. The 2010 return indicated that AVENATTI had total income of $1,154,800, and a total tax due to the IRS of $275,947. According to the return, AVENATTI had $77 of taxes withheld during 2010. AVENATTI, therefore, owed the IRS approximately $281,786 for 2010 tax year. AVENATTI, however, did not pay the remaining 109 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 145 of 198 Page ID #:145 Case 8:19-mj-00103-DUTY xSEALED* Document 4-1 *SEALED* 184 Page ID #:366 riled 02/22/19 Page 132 of taxes due to the IRS for the 2010 tax year until November 2015, when he sold his residence in Laguna Beach, California, upon which there was an IRS tax lien. c. return. AVENATTI never filed a 2011 individual tax In April 2012, however, AVENATTI or his tax preparer filed an extension request for his 2011 individual tax return in which $0 in tax liability was reported.34 d. return. AVENATTI never filed a 2012 individual tax In April 2013, however, AVENATTI or his tax preparer filed an extension request for the 2012 individual tax return in which $0 in tax liability was reported. e. return. AVENATTI never filed a 2013 individual tax In April 2014, however, AVENATTI or his tax preparer filed an extension request for the 2013 individual tax return in which $0 in tax liability was reported. f. return. AVENATTI never filed a 2014 individual tax In April 2015, however, AVENATTI or his tax preparer filed an extension request for the 2014 individual tax return in which $0 in tax liability was reported. g. On September 2, 2015, the IRS filed a federal tax lien for approximately $903,987 due to AVENATTI's non-payment of taxes due for the 2009 and 2010 tax years. Based on my review of IRS tax information, I believe that AVENATTI's extension requests for the 2011 to 2015 tax years were submitted to the IRS by M.H. Because we have not interviewed M.H. at this time, it is unclear whether AVENATTI knew the extension requests were being filed or knew what information was being provided on the extension requests. 34 110 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 146 of 198 Page ID #:146 Case 8:19-mj-00103-DUTY SEALED* Document 4-1 *SEALED* 184 Page ID #:367 h. riled 02/22/19 Page 133 of On or about October 23, 2015, AVENATTI's POA, M.H., contacted the IRS and advised it that AVENATTI would file his personal federal income tax returns for the 2012, 2013, and 2014 tax years by November 7, 2015. However, no such returns were ever filed. i. On October 30, 2015, the IRS sent AVENATTI a demand letter indicating that he had an outstanding debt of $1,042,878 for the 2009 and 2010 tax years. A copy of the demand letter was also sent to AVENATTI's POA, M.H. j. On November 2, 2015, as a result of the September 2015 federal tax lien, a copy of which was provided to the escrow company handling the sale of AVENATTI's Laguna Beach, California, residence, the IRS received a payment of $1,042,878 for the unpaid 2009 and 2010 taxes from the escrow company after the completion of the sale of AVENATTI's home. k. return. AVENATTI never filed a 2015 individual tax In April 2016, however, AVENATTI or his tax preparer filed an extension request for the 2015 individual tax return in which $0 in tax liability was reported. 1. AVENATTI never filed an individual tax return for the 2016 or 2017 tax years. To date, AVENATTI has not filed requests for extensions for the 2016 or 2017 tax years. 2. 58. Preliminary Review of AVENATTI's Bank Records A preliminary review of AVENATTI's bank account records demonstrates that AVENATTI generated substantial personal income between 2011 and 2017. Specifically, based on a preliminary review of bank records associated with bank accounts 111 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 147 of 198 Page ID #:147 Case 8:19-mj-00103-DUTY xSEALED* Document 4-1 *SEALED* 184 Page ID #:368 r=iled 02/22/19 Page 134 of for AVENATTI, GBUS, EA LLP, and A&A, I have learned, among other things, the following: a. Between 2011 and 2017, it appears that AVENATTI received net payments of approximately $8,464,064 from EA LLP's and A&A's bank accounts.35 This amount excludes any amounts that may have been transferred to AVENATTI's personal bank accounts from EA LLP's and A&A's attorney trust accounts. b. Between 2014 and 2017, AVENATTI's personal bank accounts appear to have received a total of approximately $556,134 in direct payments from GBUS. c. Between 2011 and 2017, approximately $37,961,633 was deposited into A&A's bank accounts, including approximately $28,541,055 from EA LLP. After deducting the approximately $4,720,240 that A&A paid to EA LLP, A&A appears to have received net payments of approximately $23,820,815 from EA LLP during this time period. d. AVENATTI appears to have used money that was deposited into A&A's bank accounts for a variety of personal expenses and to conceal his personal income. For example, based on a preliminary review of A&A CB&T Account 0661, the investigation has identified the following payments that appear personal in nature and would therefore constitute additional evidence of AVENATTI's unreported personal income and tax evasion: 3s During this same time period, there were total deposits into AVENATTI's personal bank accounts of approximately $18,025,134. 112 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 148 of 198 Page ID #:148 Case 8:19-mj-00103-DUTY SEALED* Document 4-1 *SEALED* 184 Page ID #:369 i. piled 02/22/19 Page 135 of Between 2011 and 2018, A&A paid AVENATTI's ex-wife, C.C, approximately $979,590. The investigation has not yet identified any other payments from AVENATTI to C.C, which supports the inference that these payments constituted either child support or alimony, or both. ii. Between 2011 and 2017, a total of $237,985 in cash was withdrawn from A&A CB&T Account 0661 via check or ATM Withdrawal. iii. Between 2011 and 2017, A&A paid a total of approximately $216,720 to Neiman Marcus. iv. Between March and June 2011, A&A paid approximately $10,500 to Jewelers On Time, a luxury watch store in Newport Beach, California. v. Between 2013 and 2015, A&A paid a total of approximately $462,499 to Chase Home Finance in connection with the mortgage on AVENATTI's residence in Laguna Beach, California.36 vi. In June 2014, A&A paid $58,000 to Jewelers On Time.37 vii. Between 2014 and 2015, A&A paid a total of approximately $1,220,201 to Gallo Builders, Inc., a custom home builder in Newport Beach, California. 36 Based on records Chase submitted to the IRS, I know that between approximately November 2011 and November 2015 AVENATTI paid to Chase a total of approximately $698,909 in mortgage interest payments for his Laguna Beach home. 37 GB Auto also paid Jewelers On Time approximately $48,500 on November 27, 2015. 113 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 149 of 198 Page ID #:149 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* piled 02/22/19 Page 136 of 184 Page ID #:370 Between February and March 2015, A&A viii. paid a total of approximately $82,236 to Porsche. ix. In May 2016, A&A paid approximately $195,000 to Circle Porsche in Long Beach, California. x. Between April 2016 and July 2016, A&A paid a total of approximately $500,000 to the G.P. Family Trust. Based on my review of other records, I understand that these were rent payments made pursuant to the lease on AVENATTI's residence in Newport Beach, California.38 xi. In September 2016, A&A paid approximately $176,500 to Exclusive Resorts, which is described on its website as the ~~World's Elite Private Vacation Club." xii. Between January 2016 and November 2016, A&A paid approximately $65,855 to Halaby Restoration, a custom home painting contractor located in Lake Forest, California. xiii. Between February 2016 and September 2016, A&A paid a total approximately $138,611 to Vincent Builders Inc., a custom home builder in Fountain Va11ey, California.39 A photo of AVENATTI's former residence in Newport Beach is shown on Vincent Builder's website under "Projects." 38 Approximately $200,000 was also paid to the G.P. Family Trust from GBUS CB&T Account 2240 in March 2016. Between December 2015 and April 2016, approximately 39 $187,611 in additional payments were made to Vincent Builders from an EA LLP CB&T bank account ending in 2851 ("EA CB&T Account 2851"), an EA LLP attorney trust account ending in 8541 (`SEA CB&T Trust Account 8541"), GB Auto BofA Account 7412, and one of AVENATTI's personal bank accounts. 114 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 150 of 198 Page ID #:150 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:371 piled 02/22/19 Page 137 of xiv. Between February 2017 and December 2017, A&A paid a total of approximately $39,762 to Ferrari Financial Lease. xv. Between March 2017 and December 2017, A&A paid a total of approximately $123,825 to Ten Thousand in Los Angeles, California, as rent for AVENATTI's residential apartment. 3. 59. Information Regarding the Sale of AVENATTI's Residence in Laguna Beach and Purchase of AVENATTI's Residence in Newport Beach As set forth below, the investigation has revealed that in November 2015 AVENATTI and L.S., AVENATTI's second wife, sold their home on McKnight Drive in Laguna Beach, California (the "Laguna Beach Residence"), for approximately $12.65 million, resulting in proceeds of approximately $5.4 million. It appears that the net proceeds of the sale were transferred to various entities AVENATTI controlled in an effort to conceal the proceeds of the sale. Substantial portions of the sale proceeds were also used for AVENATTI's personal purposes, including to finance the purchase of a $15.75 million home on Via Lido Nord in Newport Beach, California (the ~~Newport Beach Residence"). a. 60. The Laguna Beach Residence Based on my review of mortgage records obtained from Chase, I have learned that AVENATTI and L.S. purchased the Laguna Beach Residence for approximately $7.2 million in October 2011. AVENATTI and L.S. made a down-payment of approximately $2.2 million, and received a loan from Chase for approximately $5 million. 115 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 151 of 198 Page ID #:151 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* f=iled 02/22/19 Page 138 of 184 Page ID #:372 61. Based on my review of records obtained from the escrow company that worked on the sale of the Laguna Beach Residence ("Escrow Company 1") and discussions with Escrow Company 1's manager, J.M., I have learned, among other things, the following information regarding the sale of AVENATTI's Laguna Beach Residence in November 2015: a. On or about October 22, 2015, AVENATTI and L.S. entered into a contract to sell the Laguna Beach Residence for approximately $12,625,000 in cash. Among other things, the contract required that escrow close on or before November 2, 2015, and that the buyer make a $350,000 non-refundable deposit that would be released to AVENATTI and L.S. on October 26, 2015. b. On October 23, 2015, AVENATTI emailed his real estate broker, R.S., and instructed him to have Escrow Company 1 wire the $350,000 deposit funds to GBUS's KeyBank account ending in 6193 ("GBUS KeyBank 6193"). This email was then forwarded to J.M., who confirmed the wiring instructions by phone with AVENATTI on October 26, 2015. c. On or about October 23, 2015, AVENATTI and L.S. also signed a form directing Escrow Company 1 to send the sale proceeds via wire to GBUS KeyBank 6193. d. On or about October 26, 2015, Escrow Company 1 wired $350,000 to GBUS KeyBank Account 6193. e. Escrow Company 1's files included a copy of a demand letter the IRS sent to M.H. on October 30,. 2015. The demand letter indicated that AVENATTI's outstanding tax debt included on the notice of federal tax lien for the 2009 and 2010 116 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 152 of 198 Page ID #:152 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:373 tax years was approximately $1,042,879. Filed 02/22/19 Page 1 - 39 of J.M. did not recall having specific discussions with AVENATTI regarding the tax lien, but said that his standard practice in such situations was to discuss the issue with his client or, if his client was not challenging the lien, to instruct the client to get a demand letter or payoff amount. f. On or about October 30, 2015, AVENATTI and L.S. electronically signed a seller's estimated closing statement, which indicated, among other things, that $1,042,879 would be disbursed to the IRS in connection with the IRS demand. g. On November 2, 2015, Escrow Company 1 wired the remaining sale proceeds of approximately $4,553,889 to GBUS KeyBank 6193. h. On or about November 3, 2015, Escrow Company 1 sent AVENATTI and L.S. a letter via their real estate broker confirming that escrow had closed on November 2, 2015. The letter confirmed the remaining proceeds of the sale in the amount of $4,553,889 had been wired on November 2, 2015. The letter also enclosed a copy of the final settlement and closing costs statement, as well as a copy of an IRS Form 1099-S (Proceeds From Real Estate Transactions), which indicated that the gross proceeds of the sale of the Laguna Beach property were $12,625,000. i. When asked whether Escrow Company 1 submitted the IRS Form 1099-5 to the IRS, J.M. said that Escrow Company 1's standard practice was to file each IRS Form 1099-5 with the IRS through First American Title. During a subsequent conversation, 117 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 153 of 198 Page ID #:153 Case 8:19-mj-00103-DUTY „SEALED* Document 4-1 *SEALED* moiled 02/22/19 Page 140 of 184 Page ID #:374 however, J.M. confirmed that the IRS Form 1099-5 for the sale of AVENATTI's Laguna Beach Residence was never submitted to the IRS due to an error by Escrow Company 1. 40 62. Based on a preliminary analysis of bank records associated with AVENATTI, GBUS, EA LLP, and other entities, it appears that AVENATTI diverted the profits he obtained from the sale of Laguna Beach Residence to a number of different entities that he controlled and to his personal bank accounts. Specifically, I have learned, among other things, the following regarding the proceeds from the sale of the Laguna Beach Residence: a. On or about November 2, 2015, approximately $4,553,889 was transferred from Escrow Company 1 to GBUS KeyBank Account 6193. b. On or about November 2, 2015, approximately $4,620,000 was transferred from GBUS KeyBank Account 6193 to GBUS CB&T Account 2240. c. On or about November 2, 2015, approximately $4,600,000 was transferred from GBUS CB&T Account 2240 to an IOLTA attorney trust account associated with The X-Law Group in Los Angeles, California. d. On or about November 3, 2015, the X-Law Group wired approximately $3,600,000 to GB Auto BofA Account 7412. As set forth in paragraphs 63.b and 63.c below, it appears that the 4o Based on my training and experience, I know that AVENATTI would still have been required to report the proceeds from the sale of the Laguna Beach Residence on his 2015 personal income tax return regardless of whether Escrow Company 1 filed the IRS Form 1099-5 with the IRS. 118 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 154 of 198 Page ID #:154 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:375 piled 02/22/19 Page 141 of remaining $1,000,000 that had been transferred to The X-Law Group was used to pay $1,000,000 in deposits for AVENATTI's purchase of the Newport Beach Residence. e. Between on or about November 3 and November 4, 2015, $2,700,000 was paid from GB Auto Account 7412 to EA CB&T Account 2851. f. On or about November 4, 2015, approximately $300,000 was transferred from EA CB&T Account 2851 to A&A CB&T Account 0661. g. On or about November 4, 2015, approximately $300,000 was transferred from A&A CB&T Account 0661 to AVENATTI's personal bank account. b, 63. The Newport Beach Residence Based on my review of records obtained from Escrow Company 1 and discussions with J.M., I have learned, among other things, the following regarding AVENATTI's Newport Beach Residence: a. On or about September 23, 2015, AVENATTI and L.S. entered into an agreement to purchase the Newport Beach Residence from the G.P. Family Trust for approximately $15,750,000. The purchase agreement required AVENATTI and L.S. to pay an initial $200,000 deposit within three days, an additional non-refundable deposit of $800,000 by November 15, 2015, and monthly rent of $100,000 from December 1, 2015, until August 1, 2016, or the close of escrow. 119 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 155 of 198 Page ID #:155 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:376 b. moiled 02/22/19 Page 142 of On September 28, 2015, AVENATTI paid a $200,000 deposit to Escrow Company 1 via a cashier's check from The X-Law Group. c. On or about November 6, 2015, AVENATTI paid an additional $800,000 deposit to Escrow Company 1 via two wire transfers from The X-Law Group's IOLTA attorney trust account in the amounts of $450,000 and $350,000. d. In August 2016, approximately two days before escrow on the Newport Beach Residence was supposed to close, a lawsuit was filed in the Superior Court of California for Orange County by a Swiss company named Maseco, S.A., in which Maseco claimed that it was entitled to possession and title of the Newport Beach Residence. As a result, the close of escrow was delayed significantly due to litigation. e. Ultimately, AVENATTI and L.S. never completed their purchase of the Newport Beach Residence. 64. As noted above, in 2016, AVENATTI paid to the G.P. Family Trust a total of $500,000 from A&A CB&T Account 0661 (see supra 9[ 58.d.x) and a total of $200,000 from GBUS CB&T Account 2240 (see supra 9[ 45). 4. 65. Information from AVENATTI's Divorce Proceedings On or about January 2, 2018, L.S. filed a declaration in connection with the divorce proceedings regarding her marriage to AVENATTI. In the declaration, L.S. said, among other things, the following: a. AVENATTI and L.S. were married in May 2011 and separated in October 2017. 120 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 156 of 198 Page ID #:156 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* riled 02/22/19 Page 143 of 184 Page ID #:377 b. Until November 2017, AVENATTI and L.S. ~~enjoyed a lavish marital lifestyle due to [AVENATTI's] multi-million dollar annual income." c. In November 2016, AVENATTI told L.S. he had earned $3.7 million in 2016. d. L.S. suspected that AVENATTI's actual earnings are "substantially higher" than $3.7 million based on his selfpublished verdicts, their family's monthly expenses, and the fact that AVENATTI failed to share with her his tax returns or bank account records. e. In 2016, L.S. spent approximately $215,643 per month on expenses for her and her son. f. AVENATTI and L.S. made an approximately $5.4 million profit when they sold the Laguna Beach Residence in 2015. g. AVENATTI's and L.S.'s home in Newport Beach was worth approximately $19 million and they were leasing the home for a monthly rent of $100,000. L.S. said that they spent "hundreds of thousands of dollars to fully remodel the Newport Beach residence." h. AVENATTI and L.S. employed two nannies and various housekeepers at a cost of approximately $15,000 per month. i. AVENATTI made quarterly payments to L.S. in the amount of $60,000 to $80,000 that AVENATTI and L.S. agreed could be added to her personal savings. 121 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 157 of 198 Page ID #:157 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* moiled 02/22/19 Page 144 of 184 Page ID #:378 j. AVENATTI and L.S. spent approximately $30,000 per month on travel, entertainment, and gifts. k. L.S. spent approximately $20,000 per month on 1. L.S.'s monthly American Express bill typically clothing. ranged from $60,000 to $70,000 and was always paid in full. m. AVENATTI and L.S. owned two different private jets -- one through A&A and one through an entity called Passport 420. L.S. believed each private jet was worth approximately $4.5 million. n. Resorts. AVENATTI and L.S. had an investment in Exclusive (See supra 9[ 58.d.xi.) L.S. indicated that the total yearly cost for the investment in, and use of, Exclusive Resorts was approximately $158,000. o. In 2017, AVENATTI and L.S. bought an antique Ferrari at Ferrari Southbay. p. AVENATTI drives a 2016 Ferrari GT Spider, leased in L.S.'s name, valued at $410,000. q. AVENATTI has an extensive watch collection, including three or four Patek Phillippe watches AVENATTI told L.S. were worth $60,000 to $70,000 each. 5. 66. AVENATTI's Statements Regarding His Net Worth Based on my review of documents collected in connection with this investigation, I have learned that AVENATTI previously provided various banks with the following information regarding his net worth: 122 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 158 of 198 Page ID #:158 Case 8:19-mj-00103-DUTY T~EALED* Document 4-1 *SEALED* 184 Page ID #:379 a. moiled 02/22/19 Page 145 of On or about May 19, 2013, AVENATTI provided HomeStreet with a ~~Personal Balance Sheet." The Personal Balance Sheet indicated that he had: (1) total assets of $40,039,000; (2) liabilities of $5,463,000; and (3) a net worth of $34,576,000. b. On or about March 11, 2014, AVENATTI provided The Peoples Bank with a "Personal Balance Sheet." The Personal Balance Sheet indicated that AVENATTI had (1) total assets of $69,583,000; (2) total liabilities of $5,495,000; and (3) a net worth of $64,088,000. At the bottom of the Personal Balance Sheet there is a handwritten note signed by AVENATTI which states: ~~The above is true and correct to the best of my knowledge as of March 11, 2014." c. On or about November 1, 2014, AVENATTI provided The Peoples Bank with an updated "Personal Balance Sheet." The updated Personal Balance Sheet stated that AVENATTI had: (1) total assets of $75,698,000; (2) total liabilities of $5,456,000; and (3) a net worth of $70,242,000. 67. Despite claiming that he had a net worth in 2013 and 2014 ranging from $34 million to $70 million, AVENATTI did not file any personal income tax returns during these tax years. F. Fraud Offenses Relating to The Peoples Bank 68. As discussed below, there is probable cause to believe that between approximately January 2014 and April 2016 AVENATTI engaged in a scheme to defraud The Peoples Bank in Mississippi b y submitting false documents, including false tax returns and 123 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 159 of 198 Page ID #:159 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:380 riled 02/22/19 Page 146 of balance sheets, in connection with three separate loans AVENATTI and his companies sought and obtained. 69. Based on my review of publicly available information, I know that The Peoples Bank, which is located in Biloxi, Mississippi, has been federally insured by the Federal Insurance Deposit Commission ("FDIC") since approximately 1934. 70. Based on my review of records obtained from The Peoples Bank, I have learned, among other things, that AVENATTI obtained three separate loans from The Peoples Bank during 2014: (1) a loan to GB LLC for $850,500 on January 16, 2014 to mature on April 15, 2014; (2) a loan to EA LLP for $2,750,000 on March 14, 2014 to mature on June 15, 2014; and (3) a loan to EA LLP for $500,000 on December 12, 2014 to mature on December 12, 2015.41 I have also reviewed IRS tax records and other bank account records that are relevant to these loans. 1. 71. $850,000 Loan to GB LLC in January 2014 In or about January 2014, AVENATTI sought a three- month loan from The Peoples Bank for GB LLC in the amount of $850,500 for the specific purpose of "working capital." I have learned, among other things, the following regarding this loan: a. AVENATTI personally guaranteed the loan, as did Doppio, and AVENATTI signed the loan documents as Manager of GB LLC. AVENATTI told C.S. -- the President and CEO of The Peoples 41 Based on the interview with T.M. and the records obtained from The Peoples Bank, I have learned that M.C., an individual with whom AVENATTI had a business and litigation relationship in Seattle, Washington, introduced AVENATTI to C.S., the president and CEO of The Peoples Bank. 124 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 160 of 198 Page ID #:160 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:381 riled 02/22/19 Page 147 of Bank -- that AVENATTI ~~own[ed] 900 of [GB] LLC through Doppio, Inc., which [he] wholly own[ed]." b. The Peoples Bank provided a list of information they would need from AVENATTI before the bank could approve the loan. AVENATTI provided numerous documents to The Peoples Bank, including financial statements for GB LLC that listed over $41 million in assets for the company (including over $22 million in "International rights") and nearly $38 million in member's equity. AVENATTI also provided GB LLC's Operating Agreement dated December 12, 2012, the stock certificates for GB LLC and Doppio, and an irrevocable stock transfer signing over the stock certificates as collateral for the loan. c. The Peoples Bank also told AVENATTI that, prior to authorizing the loan, the bank needed a "Taxpayer Statement and copy of most recent filed tax return." The Peoples Bank had a copy in its files of AVENATTI's 2011 U.S. Individual Income Tax Return (Form 1040). The AVENATTI 2011 Form 1040 that was provided to the bank listed AVENATTI's total income and adjusted gross income as $4,562,881, and indicated that he owed the IRS $1,506,707 in taxes for the 2011 tax year. listed M.H. as the preparer. The 2011 Form 1040 Based on a review of IRS records, however, I know that AVENATTI did not file any IRS Form 1040 for the 2011 tax year nor did he pay any taxes to the IRS for the 2011 tax year. d. The Peoples Bank approved the loan and wired the loan proceeds to GB LLC's HomeStreet account, pursuant to AVENATTI's wire instructions. A third party, J.R.C., then 125 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 161 of 198 Page ID #:161 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:382 riled 02/22/19 Page 148 of accepted assignment of the loan and became the "grantor" on the loan requiring AVENATTI to repay the loan to J.R.C. 2. $2,750,000 Loan to EA LLP in March 2014 In early March 2014, AVENATTI sought and obtained a 72. three-month loan from The Peoples Bank for EA LLP in the amount of $2.75 million. I have learned, among other things, the following information regarding this loan: a. AVENATTI told The Peoples Bank that the $2.75 million loan to EA LLP would be used to repay J.R.C. for the earlier $850,000 loan (plus interest), and for "working capital." b. When seeking the loan, AVENATTI said that his firm was due approximately $19 million shortly from the settlement of the Scott v. SCI litigation, and that EA LLP and AVENATTI would sign a commercial pledge agreement requiring the escrow company in charge of the settlement proceeds to pay off the loan from The Peoples Bank first upon disbursement of the settlement funds. AVENATTI submitted a commercial loan application, which he signed both individually and on behalf of EA LLP. In the loan application, AVENATTI claimed that, as of March 10, 2014, EA LLP had assets and a net worth of approximately $21 million, and had income and revenues of approximately $15.7 million. AVENATTI also submitted Balance Sheets and Profit and Loss Statements for EA LLP through March 10, 2014, which stated, among other information, that the firm earned over $40 million in total income from January 2011 through March 10, 2014. 126 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 162 of 198 Page ID #:162 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* riled 02/22/19 Page 149 of 184 Page ID #:383 c. Additionally, AVENATTI emailed The Peoples Bank what purported to be EA LLP's 2012 U.S. Partnership Return, Form 1065 ("Peoples Bank 2012 Form 1065"). The Peoples Bank 2012 Form 1065, which stated that it was "Firm Prepared," declared that in 2012 EA LLP had gross receipts and total income of slightly over $11.4 million, and ordinary business income (calculated after subtracting expenses and deductions from the total income) of approximately $5.8 million. The Peoples Bank 2012 Form 1065 also attached a Schedule K-1, which showed the distribution of income or loss to the partners. The Schedule K- 1 attached to the Peoples Bank 2012 1065 showed that AVENATTI, through A&A, received $4,364,592 in income from EA LLP in 2012. d. I have reviewed the 2012 U.S. Partnership Return, Form 1065, that EA LLP actually filed with the IRS ("IRS 2012 Form 1065") on October 8, 2014, and compared it to the Peoples Bank 2012 Form 1065 AVENATTI submitted in March 2014. AVENATTI signed the IRS 2012 Form 1065 under penalty of perjury as the member manager. The IRS 2012 Form 1065 was prepared by M.H. (the CPA in Los Angeles, California, who served as the POA for GBUS). The IRS 2012 Form 1065 listed gross receipts and total income of approximately $6.2 million, and an ordinary business loss of approximately $2.13 million. The Schedule K-1 attached to the IRS 2012 Form 1065 listed an ordinary loss of approximately $1.6 million to A&A. Thus, the 2012 Form 1065 AVENATTI provided to The Peoples Bank claimed over $5.2 million more of gross receipts and nearly $8 million in additional ordinary business income (the difference between the business 127 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 163 of 198 Page ID #:163 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:384 riled 02/22/19 Page 150 of income on the Peoples Bank 2012 Form 1065 and the business loss on the IRS 2012 Form 1065) than was reported on the actual Form 1065 that was filed with the IRS. e. On or about March 14, 2014, the loan in the amount of $2.75 million was approved with a maturity date of June 15, 2014. In support of the loan, AVENATTI signed commercial pledge agreements on behalf of EA LLP, GB LLC, and Doppio, and a personal commercial guaranty. AVENATTI also signed a loan disbursement request, which instructed The Peoples Bank to repay J.R.C. the approximately $884,165.63 that was owed from the January 2014 $850,000 loan (plus interest), and to wire the remaining $1,824,584 to an EA LLP bank account at CB&T. f. On or about May 23, 2014, after the Scott v. SCI settlement was finalized, the escrow company wired approximately $2,787,430 to The Peoples Bank to pay off the outstanding balance of the March 2014 loan. 3. 73. $500,000 Loan to EA I~LP in December 2014 In December 2014, AVENATTI obtained a $500,000 loan from The Peoples Bank to EA LLP. I have learned, among other things, the following information regarding this loan: a. On November 10, 2014, AVENATTI emailed C.S. at The Peoples Bank to follow up on a prior discussion in which AVENATTI sought a $2.5 million line of credit from the bank for EA LLP to provide working capital for the needs of the law firm. AVENATTI offered certain guarantees and protections to the bank, including pledging an interest in an ongoing litigation to the 128 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 164 of 198 Page ID #:164 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:385 riled 02/22/19 Page 151 of bank and a full security agreement to secure the loan, and to provide any further financial information the bank needed. b. Two days later, on November 12, 2014, AVENATTI sent an additional email to C.S. attaching a spreadsheet that included EA LLP's ~~expected and estimated contingency fees in 2015." The spreadsheet indicated that the firm expected to receive approximately $165 million in gross recoveries from contingency cases, and the net costs and attorneys' fees due to EA LLP from these contingency cases would be approximately $47.6 million. AVENATTI further explained that the attached expected earnings of the firm "obviously does not reflect our projected gross hourly revenue from non-contingency cases in 2015." c. On November 15, 2014, the bank told AVENATTI that for the bank to consider and move forward on the credit facility, AVENATTI would need to provide: an updated personal balance sheet; personal income tax returns for 2012 and 2013; interim internal financials of EA LLP through September or October 2014; and an audited financial statement for GB LLC and its subsidiaries. d. Later on November 15, 2014, AVENATTI emailed back his personal balance sheet as of November 1, 2014, and stated that he would get the bank the other requested documents later. AVENATTI noted, however, that GB LLC and its subsidiaries did not have audited financials on an annual basis, but that there had been no material change to the audited GB LLC balance sheet from sixteen months earlier, which AVENATTI had previously provided to the bank. On the personal balance sheet, AVENATTI 129 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 165 of 198 Page ID #:165 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:386 riled 02/22/19 Page 152 of listed over $75 million in total personal assets and a net worth of over $70 million. e. (See supra 9[ 66.c.) On November 16, 2014, AVENATTI emailed The Peoples Bank the updated financials for EA LLP, including a Profit and Loss Statement, and a Balance Sheet for January 2014 through September 2014. The Profit and Loss Statement listed EA LLP's total income for the year up through September 2014 as approximately $23.4 million and its net income as approximately $18.2 million. The EA LLP Balance Sheet for the same time period claimed total current assets of over $31 million and net income of over $27 million (which is $9 million more than listed on the Profit and Loss statement for the same period). In addition, the EA LLP Balance Sheet that AVENATTI provided the bank indicated that EA LLP had approximately $712,729 in its operating account with CB&T (~~EA LLP CB&T Account 8461"), as of September 30, 2014. Based on a review of the CB&T bank records, however, I know that EA LLP CB&T Account 8461 had a balance of approximately $27,710 as of September 30, 2014. f. On November 22, 2014, C.S. at The Peoples Bank emailed AVENATTI stating that the bank still needed financial information on GB LLC (even if not audited) and AVENATTI's personal tax returns for 2012 and 2013. Soon thereafter, AVENATTI replied that he "had asked that the remaining info be forwarded to you [C.S.] and will follow-up in short order." g. On November 25, 2014, AVENATTI emailed C.S. and attached a Profit and Loss Statement and Balance Sheet for GB LLC as of November 2, 2014, which listed the company's total 130 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 166 of 198 Page ID #:166 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:387 piled 02/22/19 Page 153 of assets as approximately $41.3 million and total equity of approximately $35.4 million. h. On or about December 1, 2014, AVENATTI provided The Peoples Bank with what were purported to be his 2012 and 2013 U.S. Individual Income Tax Returns (IRS Forms 1040).42 i. The 2012 IRS Form 1040 that AVENATTI provided to the Peoples Bank, included the following information: AVENATTI's filing status was ~~single;"43 AVENATTI's total income and adjusted gross income were $5,423,099; the total tax due was $1,790,744; AVENATTI had made $1,600,000 in estimated tax payments in 2012 and still owed $190,744 in taxes; and the return was prepared by M.H. According to IRS records, however, AVENATTI did not file a 2012 Form 1040, and did not make any tax payments toward his 2012 individual tax liability. j. Both the ~~draft" and subsequent version of the 2013 Form 1040 that AVENATTI provided to The Peoples Bank included the following information: AVENATTI's filing status was `single;" AVENATTI's total income and adjusted gross income were $4,082,803; AVENATTI had paid $1,353,511 to the IRS in 2013 ($1,250,000 in estimated tax payments and $103,511 in 42 The Peoples Bank deemed the 2013 IRS Form 1040 they received from AVENATTI via email on December 1, 2014, as a draft because they received a slightly different and updated 2013 IRS Form 1040 soon thereafter. The Peoples Bank also received 2011 and 2012 IRS Forms 1040 for AVENATTI. However, neither the 2011 Form 1040, 2012 Form 1040, nor the updated 2013 Form 1040 were attached to an email, so the bank is not certain if they received the documents via United States Postal Service or another method. 43 AVENATTI married L.S. in 2011, however, the 2012 Form 1040 listed AVENATTI as single rather than married filing jointly or separately. 131 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 167 of 198 Page ID #:167 Case 8:19-mj-00103-DUTY ~~EALED* Document 4-1 *SEALED* moiled 02/22/19 Page 154 of 184 Page ID #:388 withholdings from W-2s or 1099s); and the return was prepared by M.H. The "draft" 2013 Form 1040 stated AVENATTI owed $1,305,482 in taxes for calendar year 2013, and based on his tax payments durinc~~the year, he wanted $48,029 applied to his 2014 estimated tax. The subsequent 2013 Form 1040 provided to The Peoples Bank claimed AVENATTI owed $1,459,000 in taxes for calendar year 2013, and that based on his tax payments during the year, he owed $105,489 to the IRS. According to IRS records, however, AVENATTI did not file a 2013 Form 1040, did not make any estimated tax payments toward his 2013 individual tax liability, and did not have any tax withholdings in 2013. k. Although AVENATTI initially requested a $2.5 million line of credit for EA LLP, after receiving the required documentation from AVENATTI, The Peoples Bank issued EA LLP a $500,000 loan on December 12, 2014, which was set to mature on December 12, 2015. The loan was guaranteed by AVENATTI individually and by AVENATTI on behalf of EA LLP, GB LLC, and Doppio. AVENATTI also signed a Commercial Pledge Agreement in which EA LLP agreed to the "Assignment of the first $500,000 plus interest of settlement proceeds in the Meridian related cases, said attorney's fees to be $10.5 million plus out of pocket costs for class counsel [EA] LLP." M.C., who was the individual that initially put AVENATTI in touch with C.S. at The Peoples Bank, was serving as the Meridian Liquidating Trustee on the litigation. As part of the loan documents, on December 12, 2014, AVENATTI also signed a disbursement request and 132 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 168 of 198 Page ID #:168 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:389 riled 02/22/19 Page 155 of authorization, which stated that the ~~specific purpose of this loan is: Case Costs and Working Capital." 1. On December 12, 2014, The Peoples Bank wired the loan proceeds, $494,500, to EA CB&T Account 8461. The same day, $350,000 was wired to a bank account for a lawyer who worked for EA LLP, and $105,000 was transferred to A&A CB&T Account 0661. m. On February 24, 2015, M.C. informed C.S. at The Peoples Bank that the Meridian case settled and AVENATTI would be receiving approximately $2.5 million as part of the settlement. M.C. wanted to know if he had signed an assignment of proceeds to The Peoples Bank so he could determine where to send AVENATTI's money. C.S. told M.C. that EA LLP was obligated to pay off the loan, and said the bank could give AVENATTI the pay-off amount if he called. n. On June 6, 2015, C.S. sent M.C. an email (forwarding the February 24, 2015 emails) after realizing that neither EA LLP nor AVENATTI had paid off the $500,000 loan to The Peoples Bank in February 2015 after the Meridian settlement. M.C. then forwarded the email to AVENATTI (copying C.S.) asking AVENATTI what his status or plan for the loan was. The bank's records do not show AVENATTI replied to the email. o. On November 14, 2015, The Peoples Bank emailed AVENATTI regarding the $500,000 loan to EA LLP, which would be maturing on December 12, 2015. The Peoples Bank wanted to get an update because the bank's files showed it was supposed to be paid off months earlier with the proceeds of the Meridian settlement. Approximately 30 minutes later, C.S. emailed 133 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 169 of 198 Page ID #:169 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:390 piled 02/22/19 Page 156 of AVENATTI thanking him for the quick response to the prior email (presumably, AVENATTI responded by phone), and C.S. told AVENATTI that he would need to pay off his current loan before The Peoples Bank could establish a line of credit for EA LLP as AVENATTI sought. C.S. also provided a list of documentation that AVENATTI would need to provide before the bank could authorize a line of credit. p. On December 23, 2015, C.S. responded to the above emails and informed AVENATTI that the loan matured on December 12, 2015, and wanted to make sure the loan was paid off by the end of the year. q. From February through April 2016, C.S. and others from The Peoples Bank reached out to AVENATTI on numerous dates to get an update on the past-due loan and find out when AVENATTI was going to pay off the loan. On a couple of occasions, AVENATTI said that a wire to pay off the loan would be coming by a certain date, but the money was never transferred to the bank. r. In April 2016, C.S. informed AVENATTI that the bank would send the loan to its collections department on April 20, 2016, if the loan was not paid off by then, which would result in additional costs and fees to AVENATTI. On April 20, 2016, AVENATTI emailed the bank attaching documentation establishing that he would soon receive proceeds from a case and would instruct that the first part of the settlement proceeds be used to pay The Peoples Bank. s. On April 22, 2016, the $500,000 EA LLP loan was finally paid off. 134 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 170 of 198 Page ID #:170 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:391 riled 02/22/19 Page 157 of G. Fraud Offenses Relating to the $1.6 Million G.B. Settlement 74. As discussed below, there is probable cause to believe that AVENATTI: (a) defrauded EA LLP's client, G.B., out of his portion of an approximately $1.6 million settlement payment; (b) used the settlement proceeds for AVENATTI's own purposes; and (c) failed to disclose in the EA Bankruptcy that he had received the $1.6 million settlement payment, despite being aware that he was required to do so. 75. On or about January 14, 2019, G.B. filed an arbitration claim alleging that AVENATTI received $1.6 million in settlement proceeds from a prior arbitration proceeding against a Colorado-based company ("Company 1") and failed to turn over G.B.'s portion of the settlement proceeds to G.B. G.B. also reported the alleged fraud to the Federal Bureau of Investigation and Newport Beach Police Department. I have reviewed various records relating to G.B.'s claim, including, but not limited to, documents provided to the government by G.B.'s present counsel and by D.S., Company 1's counsel in the arbitration, and bank records from City National Bank.44 Based on my review of these documents and records, I have learned, among other things, the following: a. In approximately July 2014, G.B. retained EA LLP to represent him in various litigation matters, including an intellectual property dispute against Company 1. The fee I have learned that G.B. pleaded guilty to a felony theft count and received a term of probation. As such, I have relied primarily on the documentary evidence I have reviewed as it relates to possible fraud committed against G.B. 44 135 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 171 of 198 Page ID #:171 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:392 riled 02/22/19 Page 158 of agreement entered into by G.B. and AVENATTI on behalf of EA LLP, included a 40 percent contingency agreement based on the amount of the recovery. After AVENATTI and EA LLP initially filed a civil complaint in federal court on behalf of G.B. against Company 1, the parties agreed to handle the case through private arbitration in Colorado. b. On December 22, 2017, D.S. sent AVENATTI a draft settlement agreement to resolve the arbitration, which required Company 1 to pay G.B. $1.9 million, with $1.6 million due on January 10, 2018, and $100,000 due on January 10 of the three subsequent years. c. On December 26, 2017, AVENATTI sent an email to D.S. with a Microsoft Word document entitled, "MJA Revised Draft," which still had the same payment amounts and dates. AVENATTI also stated in the email that he would provide wire instructions immediately prior to the execution of the agreement. d. On December 27, 2017, AVENATTI sent another Microsoft Word document titled "Further Revised," to D.S., which was a revised version of the settlement agreement, with redlines of the revisions AVENATTI made to the document. This revised settlement agreement also set the payment due dates as January 10, 2018 through 2021. The primary change AVENATTI made to this draft of the settlement agreement was to remove the requirement that the settlement payment be sent via wire transfer to a specific account identified in the agreement and instead required that the settlement payment be sent via wire 136 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 172 of 198 Page ID #:172 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:393 i-riled 02/22/19 Page 159 of transfer to an account that AVENATTI would identify to D.S. via email by January 3, 2018. e. On December 28, 2017, D.S. emailed AVENATTI a copy of the fully executed settlement agreement with both parties' signatures, as well as a stipulation to dismiss the matter from arbitration. The settlement agreement again listed the payment dates as January 10, 2018 through 2021. f. The copy of the settlement agreement that was provided to G.B., however, listed the payment dates for the $1.9 million settlement as $1.6 million on March 10, 2018, and $100,000 on March 10 of each of the next three years. g. On January 2, 2018, AVENATTI emailed D.S. with instructions to wire the settlement money to a City National Bank attorney trust account ending in 5566 ("CNB Trust Account AVENATTI also wanted to confirm ~~that we are on 5566").45 D.S. responded that they were ~~on track." track." h. On January 5, 2018, Company 1 wired the $1.6 million settlement into CNB Trust Account 5566 as directed by AVENATTI. City National Bank records confirm that the $1.6 million wire transfer was received in CNB Trust Account 5566. Prior to the $1.6 million wire transfer, CNB Trust Account 5566 had a balance of $0. i. None of the $1.6 million in settlement funds that were deposited into CNB Trust Account 5566 were ever paid to G.B. Rather, between January 5, 2018, and March 14, 2018, 4s City National Bank records show that AVENATTI opened CNB Trust Account 5566 on December 28, 2017, the same date the settlement agreement was finalized and executed. 137 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 173 of 198 Page ID #:173 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:394 i~iled 02/22/19 Page 160 of AVENATTI caused approximately $1,599,058 to be paid out of CNB Trust Account 5566 for his own personal purposes, including the following payments: i. approximately $617,000 to a Florida-based attorney AVENATTI worked with on an unrelated contingency case; ii. a total of approximately $350,000 paid to EA LLP bank accounts; iii. a total of approximately $200,000 to GBUS and vendors of GBUS; iv. a total of approximately $112,000 to a bank account in the name of "Michael Avenatti, Esq."; v. approximately $46,000 to The X-Law Group; vi. approximately $27,000 to Dennis Brager, the and lawyer who was representing GBUS in the IRS payroll collection case. j. G.B. sent numerous text messages and emails to AVENATTI between January 2018 and November 2018. These text messages are consistent with G.B.'s claims that he believed the first settlement payment was due on March 10, 2018; did not know that Company 1 had made the $1.6 million settlement payment; and did not know that AVENATTI had received the settlement payment in January 2018. k. As set forth below, beginning on March 10, 2018, the date that G.B. believed the settlement proceeds from Company 1 would be arriving, G.B. repeatedly asked AVENATTI if he had received the settlement proceeds, whether AVENATTI had heard 138 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 174 of 198 Page ID #:174 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:395 Filed 02/22/19 Page 161 of anything from Company 1 regarding when the money would arrive, and what, if anything, G.B. and AVENATTI could do to get the money G.B. was owed. It appears that AVENATTI did not respond to most of the messages from G.B. to AVENATTI relating to the settlement payment from Company 1. G.B. also made clear to AVENATTI that he had would be having financial difficulties without the settlement proceeds and that it was imperative for G.B. to get the money. i. On or about March 10, 2018, G.B. sent a text message to AVENATTI stating "I was just thinking is this a big day from our friends at [Company 1]?" ii. On March 12, G.B. sent AVENATTI a text message in which he said "[h]ere is my account information for the wire." iii. On March 13, 2018, G.B. sent AVENATTI a text message saying, among other things, "any word on that wire from [Company 1]?" iv. On March 14, 2018, G.B. sent AVENATTI a text message saying that he needed the settlement money and would be in trouble without the cash because he had made investments over the last four months in reliance on the settlement money coming in. The next day, March 15, 2018, AVENATTI replied, ~~Let's chat today - I'm sure it will be resolved." v. Over the next couple weeks, G.B. sent several additional text messages to AVENATTI explaining how concerned G.B. was and expressing his need for the settlement money. On March 23, 2018, AVENATTI texted G.B. back and told 139 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 175 of 198 Page ID #:175 Case 8:19-mj-00103-DUTY SEALED* Document 4-1 *SEALED* 184 Page ID #:396 him ~~don't worry. Let's chat tmrw. riled 02/22/19 Page 162 of We will figure this out. Michael." vi. Through the rest of March to May 2018, G.B. repeatedly asked AVENATTI about the money, whether AVENATTI had heard from Company 1 about when the money was going to be sent, and what actions G.B. and AVENATTI could take to cause Company 1 to pay the agreed-upon settlement. money had already come in. AVENATTI never told G.B. the AVENATTI, however, agreed via text message to provide G.B. `advances" of money to assist him with expenses. Based on records provided by G.B.'s attorney, it appears that AVENATTI "advanced" G.B. approximately $130,000 between April 2018 and November 2018. vii. Throughout October 2018 and up until approximately November 16, 2018, G.B. sent numerous text messages and emails to AVENATTI again describing G.B.'s dire financial situation and asking numerous questions about what actions they could take going forward to get G.B. his money. AVENATTI did not respond to most of the messages, but on a few occasions, AVENATTI replied, saying he was working on a solution and they could set a time to talk. AVENATTI never responded in writing to G.B.'s specific questions regarding the Company 1 settlement. 1. On or about November 16, 2018, after retaining new counsel to attempt to collect his settlement proceeds, G.B., through his counsel, learned that the actual settlement agreement had provided for the initial $1.6 million dollars to be paid on January 10, 2018, as opposed to March 10, 2018, as 140 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 176 of 198 Page ID #:176 piled 02/22/19 Page 163 of Case 8:19-mj-00103-DUTY SEALED* Document 4-1 *SEALED* 184 Page ID #:397 G.B. had been led to believe, and that Company 1 had in fact made the $1.6 million settlement payment on January 5, 2018. m. On November 17, 2018, G.B.'s new counsel sent a letter to AVENATTI via email, which stated that G.B. had been led to believe that Company 1 had not made the initial $1.6 million payment required under the settlement agreement and sought confirmation of this fact. The letter also requested a true and correct copy of the Settlement Agreement and any fee agreements AVENATTI and EA LLP had with G.B. Finally, the letter requested that if the settlement money had actually already been paid, to provide an immediate accounting concerning the funds. n. At approximately 10:12 p.m. on November 17, 2018, AVENATTI sent two text messages to G.B. stating ~~Pls call me" and ~~What is this all about? Pls call me ASAP."46 AVENATTI also called G.B.'s phone twice that night and left a voicemail at approximately 10:14 p.m., which included, in part, AVENATTI stating, "Give me a call when you get a chance. I mean as soon as possible if you get this please it's urgent. Thank you." At approximately 10:26 p.m., AVENATTI sent G.B. an email saying, "I just tried you on your cell. Thanks, Michael." this. Please call me when you receive To date, AVENATTI never responded to or provided documents as requested in the letter G.B.'s counsel sent AVENATTI on November 17, 2018. Although AVENATTI was on notice that G.B. was represented b y new counsel and had been contacted by said counsel rather than by G.B., AVENATTI contacted G.B. directly and made no known effort to communicate with G.B.'s new counsel. 46 141 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 177 of 198 Page ID #:177 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:398 76. piled 02/22/19 Page 164 of As noted in paragraph 51 above, in connection with the EA Bankruptcy, EA LLP and AVENATTI were required to file with the Bankruptcy Court a MOR each month. AVENATTI, however, never disclosed the $1.6 million settlement payment from the G.B. case nor the existence of CNB Trust Account 5566 to the Bankruptcy Court, as he was required to do.47 Rather, on February 15, 2018, AVENATTI signed and filed EA LLP's January 2018 MOR under penalty of perjury, which falsely stated that EA LLP had total receipts of approximately $232,221 during January 2018, based solely on deposits into the EA LLP's DIP CB&T bank account. Additionally, approximately $141,113 out of the $232,221 reported on the MOR was made up of two cashier's checks written from CNB Trust Account 5566, which came from the settlement proceeds. By using cashier's checks for these payments from CNB Trust Account 5566, AVENATTI hid the existence of this bank account from the Bankruptcy Court and EA LLP's creditors. Finally, based on the records it is clear that G.B. was represented by EA LLP in his case against Company 1; thus, I understand that any payment AVENATTI received from the G.B. case would be property of the bankruptcy estate. V. ADDITIONAL INFORMATION REGARDING THE SUBJECT DEVICES A. Collection of the Subject Devices 77. SUBEJECT DEVICE 1: On October 5, 2018, M.E. was served with a subpoena demanding that she produce certain 47 It appears that AVENATTI also failed to disclose in the EA Bankruptcy the payments he received in connection with his representation of M.P. and L.T. and the CNB bank account into which such payments were deposited. (See supra page 103 n. 31.) 142 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 178 of 198 Page ID #:178 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:399 Filed 02/22/19 Page 165 of records relating to GBUS and GB LLC, including any digital devices used to conduct business on behalf of GBUS, GB LLC, and other related entities. On October 22, 2018, M.E. met with me and IRS-CI SA John Weeks48 to produce responsive records. M.E. consented to have IRS-CI copy and secure evidence from her laptop computer. SA John Weeks took possession of the laptop, created an image of the laptop's hard drive (SUBJECT DEVICE 1), and returned the laptop to M.E. M.E. also produced a number of hard copy GBUS emails responsive to the subpoena. The hard copy emails were sealed in an envelope, marked as potentially tainted, and sent to a PRTAUSA in Los Angeles.49 Neither the contents of SUBJECT DEVICE 1 nor the hard copy records produced b y M.E. have been reviewed by me or any other member of the prosecution team. Based on my discussions with M.E., however, I understand that SUBJECT DEVICE 1 contains copies of her GBUS emails and other GBUS records. 78. SUBJECT DEVICE 2: On October 5, 2018, S.F. was served with a subpoena demanding that she produce certain records relating to GBUS and GB LLC, including any digital devices used to conduct business on behalf of GBUS, GB LLC, and other related entities. On October 21, 2018, SA James Kim and I met with S.F. to obtain records responsive to the subpoena. S.F. produced to SA Weeks is an IRS Computer Investigative Specialist SA Weeks is not part of the investigative team. (~~CIS") Rather, SA Weeks involvement in this investigation has been limited to the forensic collection of digital evidence. 48 49 Because the hard copy documents were produced by M.E. in response to specific requests in the subpoena, the government is not seeking a warrant to search these documents. 143 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 179 of 198 Page ID #:179 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:400 piled 02/22/19 Page 166 of us two boxes of documents, which she indicated consisted of GBUS mail and invoices. S.F. also consented to have IRS agents copy and secure evidence from her laptop computer, and allowed us to take temporary custody of the computer. SA Weeks subsequently created a forensic image of S.F.'s laptop (SUBJECT DEVICE 2), which we returned to her on October 25, 2018. The contents of SUBJECT DEVICE 2 have not been reviewed by me or any other member of the prosecution team. Based on my discussions with S.F., however, I understand that SUBJECT DEVICE 2 contains copies of her GBUS emails and other GBUS records. The hard copy documents were mailed to IRS-CI's office in Laguna Niguel and reviewed by an IRS-CI privilege review SA. The privilege review SA confirmed, after consulting with a PRTAUSA, that the hard copy documents did not contain potentially privileged information, and then released them to me to review. 79. SUBJECT DEVICE 3: On October 5, 2018, M.G. was served with a subpoena demanding that she produce certain records relating to GBUS and GB LLC, including any external hard drives that she used to store business records relating to GBUS, GB LLC, and other entities. On October 22, 2018, M.G. met with me and SA Weeks to produce responsive records. M.G. consented to have IRS-CI copy and secure evidence from her external hard drive. SA Weeks took possession of the hard drive, created a forensic image of the hard drive (SUBJECT DEVICE 3), and returned the hard drive to M.G. M.G. also consented to have IRS-CI secure all text messages between her and RO 1, which SA Weeks retrieved from her cell phone. 144 Neither the contents of Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 180 of 198 Page ID #:180 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:401 Filed 02/22/19 Page 167 of SUBJECT DEVICE 3 nor the text messages have been reviewed by me or any other member of the prosecution team. Based on my discussions with M.G., however, I understand that SUBJECT DEVICE 3 contains copies of M.G.'s GBUS emails and other GBUS records. 80. SUBJECT DEVICE 4: On October 22, 2018, V.S. was served with a subpoena demanding that he produce certain records relating to GBUS and GB LLC, including any digital devices used to conduct business on behalf of GBUS, GB LLC, and other related entities. In response to the subpoena, on October 29, 2018, I received SUBJECT DEVICE 4 and certain hard copy records from V.S. SUBJECT DEVICE 4 was sent to IRS-CI SA John Weeks to The hard copy documents were download and secure the evidence. sealed and then provided to an IRS-CI privilege review SA. The privilege review SA confirmed, after consulting with a PRTAUSA, that the hard copy documents did not contain potentially privileged information, and then released the documents to me to review. The contents of SUBJECT DEVICE 4 have been not reviewed b y me or any other member of the prosecution team. Based on my discussions with V.S., however, I understand that SUBJECT DEVICE 4 contains copies of V.S.'s GBUS emails and other GBUS records. 81. SUBJECT DEVICE 5 and SUBJECT DEVICE 6: On October 25, 2018, A.G. was served with a subpoena demanding that he produce certain records relating to GBUS and GB LLC, including any digital devices used to conduct business on behalf of GBUS, GB LLC, and other related entities. On November 13, 2018, A.G. met with me and an IRS CIS, and provided us with a Seagate external hard drive and Veeam 2GB flash drive. 145 A.G. consented to have Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 181 of 198 Page ID #:181 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:402 Filed 02/22/19 Page 168 of IRS-CI copy and secure the evidence from these devices. An IRS CIS took possession of the devices, created forensic images of the hard drive (SUBJECT DEVICE 5) and the flash drive (SUBJECT DEVICE 6), and then returned the devices to A.G. the next day. Based on my discussions with A.G., I understand that SUBJECT DEVICE 5 and SUBJECT DEVICE 6 contain GBUS business records, including GBUS business records that an IT consultant, J.S., downloaded from the AWS cloud server before AWS and 2nd Watch discontinued GBUS's services for non-payment of its fees. The contents of SUBJECT DEVICE 5 and SUBJECT DEVICE 6 have not been reviewed by me or any other member of the prosecution team. 82. SUBJECT DEVICE 7: On November 20, 2018, SA Weeks received from A.G. a Seagate external hard drive50 containing additional records responsive to the October 25, 2018, subpoena. SA Weeks then created a forensic image of the hard drive (described herein as SUBJECT DEVICE 7) device back to A.G. on December 3, 2018. I then mailed the Based on my discussions with A.G. and SA Weeks, I understand that SUBJECT DEVICE 7 contains approximately 1.5 million emails that J.S. downloaded from the AWS cloud server before GBUS's services were discontinued. SA Weeks further advised me that SUBJECT DEVICE 7 contains a number of GBUS email mailboxes, including email mailboxes associated with the following former GBUS employees: A.G.; B.H.; M.D.; M.E.; M.G.; S.F.; T.M.; and V.S. Notably, so I understand that A.G. used the same Seagate external hard drive he provided to IRS-CI on November 13, 2018, to produce this additional data to IRS-CI. 146 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 182 of 198 Page ID #:182 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:403 Filed 02/22/19 Page 169 of SUBJECT DEVICE 7 does not appear to contain any email mailboxes associated with AVENATTI.51 Although SA Weeks provided me with a list of the email mailboxes stored on SUBJECT DEVICE 7, the specific contents of SUBJECT DEVICE 7 have not been reviewed by me or any other member of the prosecution team. B. The SUBJECT DEVICES Are Unlikely to Contain AttorneyClient Privileged Communications or Records 83. Although AVENATTI is a licensed attorney and has previously claimed in connection with the IRS collection case that he served as GBUS's General Counsel, it is highly unlikely that the SUBJECT DEVICES will contain information protected by the attorney-client privilege for the following reasons: a. First, on February 19, 2019, the GBUS Trustee (see supra Section IV.C.7) executed a written waiver of the attorney-client privilege as to any communications between GBUS's officer, directors, employees, and agents, and any lawyer acting on GBUS's behalf, including any communications with AVENATTI.52 The Trustee has also consented to a search of the sl As noted in Section IV.C.3 above, multiple former GBUS employees indicated that although AVENATTI had a GBUS email account, he did not use it to conduct business on behalf of GBUS, and used his EA LLP email account instead. 5z The written waiver is limited to attorney-client communications prior to the filing of the involuntary bankruptcy petition on October 24, 2018, and does not cover communications between the GBUS Trustee and any lawyers acting on behalf of the GBUS Trustee. Based on when the SUBJECT DEVICES were collected and my discussions with the former GBUS employees regarding the general contents of the SUBJECT DEVICES, I do not believe the SUBJECT DEVICES include any communications that occurred or records that were created after October 24, 2018, or any communications involving the GBUS Trustee. 147 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 183 of 198 Page ID #:183 Case 8:~9-mj-00103-DU~~Y *SEALED* Document 4-1 *SEALED* 184 Page 4D #:404 SUBJECT DEVICES. Filed 02/22/19 Page 170 of A copy of the Trustee's written waiver of the attorney-client privilege is attached hereto as Exhibit 1. b. Second, the former GBUS employees who have been interviewed during the investigation have all indicated that AVENATTI primarily, if not exclusively, served in a business capacity, and did little to no legal work for GBUS. Indeed, all of the former GBUS employees considered AVENATTI to be the CEO and Chairman of GBUS, as opposed to its General Counsel. It is therefore highly unlikely that any of the former GBUS employees' emails contained on the SUBJECT DEVICES would constitute attorney-client privileged communications. But, to the extent AVENATTI was acting as GBUS's lawyer, any of the individual GBUS employees' communications with AVENATTI are covered by the Trustee's written waiver of the attorney-client privilege referenced in paragraph 83.a above and attached hereto as Exhibit 1. 84. Third, I understand AVENATTI could potentially assert that he had an individual attorney-client relationship with certain lawyers that also represented GBUS, such as the Eisenhower law firm, which represented GBUS in the Bellevue Square Litigation, or The Brager Tax Law Group. I have no reason to believe, however, that communications between AVENATTI and any lawyers representing him in an individual capacity are contained on the SUBJECT DEVICES. Based on the evidence collected to date and witness interviews, I understand that AVENATTI exclusively used his EA LLP email account to conduct business on behalf of GBUS. Further, to the best of my ~ ~: Case Document 1 Filed 03/22/19 Page 184 of 198 Page ID #:184 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 185 of 198 Page ID #:185 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *.SEALED* 184 Page ID #:405 Filed .02/22/1 Page 171 of knowledge, the SUBJECT DEVICES do not contain a backup of AVENATTI's GBUS email account, which in any case GBUS employees said AVENATTI never used.s3 85. For the foregoing reasons, I believe that the SUBJECT DEVICES will contain limited, if any, attorney-client communications and that any such attorney-client communications on the SUBJECT DEVICES are subject to the written waiver of the attorney-client privilege executed by the Trustee for GBUS. Accordingly, a privilege review search protocol that encompasses all of AVENATTI's communications with GBUS employees is unnecessary and would significantly delay this investigation. Nevertheless, as set forth in Attachment B to the search warrant application, a privilege review team will conduct a limited search of the devices for communications with the following five law firms with which AVENATTI may claim that he had an individual attorney-client relationship: (a) Foster Pepper PLLC; (b) Osborn Machler PLLC; (c) Eisenhower Carlson PLLC; (d) T almadge/Fitzpatrick/Tribe, PPLC; and (e) The Brager Tax Law Group. The search team will also be advised of the possibility that AVENATTI could claim that he had an individual attorneyclient relationship with other law firms or lawyers. To the extent the search team discovers any individual communications between AVENATTI and lawyers from the five identified law firms 53 To the extent any of the SUBJECT DEVICES do in fact contain a backup of AVENATTI's GBUS email accounts, paragraph 8 of Attachment B to the search warrant application requires that any such email accounts be immediately segregated and not searched or reviewed absent further authorization from the Court. 149 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 186 of 198 Page ID #:186 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:406 Filed 02/22/19 Page 172 of or any other law firms, the search team will immediately cease its review of those communications and provide them to the PRTAUSA for further review and, if necessary, relief from the Court. VI. 86. TRAINING AND EXPERIENCE ON DIGITAL DEVICES As used herein, the term "digital device" includes any electronic system or device capable of storing or processing data in digital form, including central processing units; desktop, laptop, notebook, and tablet computers; personal digital assistants; wireless communication devices, such as telephone paging devices, beepers, mobile telephones, and smart phones; digital cameras; gaming consoles (including Sony PlayStations and Microsoft Xboxes); peripheral input/output devices, such as keyboards, printers, scanners, plotters, monitors, and drives intended for removable media; related communications devices, such as modems, routers, cables, and connections; storage media, such as hard disk drives, floppy disks, memory cards, optical disks, and magnetic tapes used to store digital data (excluding analog tapes such as VHS); and security devices. 87. Based on my knowledge, training, and experience, as well as information related to me by agents and others involved in the forensic examination of digital devices, I know that it is not always possible to search digital devices for digital data in a single day or even over several weeks for a number of reasons, including the following: 150 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 187 of 198 Page ID #:187 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page I D #:407 a. Filed 02/22/19 Page 173 of Searching digital devices can be a highly technical process that requires specific expertise and specialized equipment. There are so many types of digital devices and software programs in use today that it takes time to conduct a thorough search. In addition, it may be necessary to consult with specially trained personnel who have specific expertise in the type of digital device, operating system, and software application being searched. b. Digital data is particularly vulnerable to inadvertent or intentional modification or destruction. Searching digital devices can require the use of precise, scientific procedures that are designed to maintain the integrity of digital data and to recover "hidden," erased, compressed, encrypted, or password-protected data. As a result, a controlled environment, such as a law enforcement laboratory or similar facility, is essential to conducting a complete and accurate analysis of data stored on digital devices. c. Based on my discussions with IRS-CI SA John Weeks, I understand the SUBJECT DEVICES may contain a substantial of data. A single megabyte of storage space is the equivalent of 500 double-spaced pages of text. A single gigabyte of storage space, or 1,000 megabytes, is the equivalent of 500,000 double-spaced pages of text. d. Electronic files or remnants of such files can be recovered months or even years after they have been downloaded 151 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 188 of 198 Page ID #:188 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:408 Filed 02/22/19 Page 174 of onto a hard drive, deleted, or viewed via the Internet.s4 Electronic files saved to a hard drive can be stored for years with little or no cost. Even when such files have been deleted, they can be recovered months or years later using readilyavailable forensics tools. Normally, when a person deletes a file on a computer, the data contained in the file does not actually disappear; rather, that data remains on the hard drive until it is overwritten by new data. Therefore, deleted files, or remnants of deleted files, may reside in free space or slack space, i.e., space on a hard drive that is not allocated to an active file or that is unused after a file has been allocated to a set block of storage space, for long periods of time before they are overwritten. In addition, a computer's operating system may also keep a record of deleted data in a swap or recovery file. Similarly, files that have been viewed on the Internet are often automatically downloaded into a temporary directory or cache. The browser typically maintains a fixed amount of hard drive space devoted to these files, and the files are only overwritten as they are replaced with more recently downloaded or viewed content. Thus, the ability to retrieve residue of an electronic file from a hard drive depends less on when the file was downloaded or viewed than on a particular user's operating system, storage capacity, and computer habits. Recovery of residue of electronic files from a hard drive s4 These statements do not generally apply to data stored in volatile memory such as random-access memory, or "RAM," which data is, generally speaking, deleted once a device is turned off. 152 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 189 of 198 Page ID #:189 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:409 Filed 02/22/19 Page 175 of requires specialized tools and a controlled laboratory environment. e. Recovery also can require substantial time. Although some of the records called for by this warrant might be found in the form of user-generated documents (such as word processing, picture, and movie files), digital devices can contain other forms of electronic evidence as well. In particular, records of how a digital device has been used, what it has been used for, who has used it, and who has been responsible for creating or maintaining records, documents, programs, applications and materials contained on the digital devices are, as described further in the attachments, called for b y this warrant. Those records will not always be found in digital data that is neatly segregable from the hard drive image as a whole. Digital data on the hard drive not currently associated with any file can provide evidence of a file that was once on the hard drive but has since been deleted or edited, or of a deleted portion of a file (such as a paragraph that has been deleted from a word processing file). Virtual memory paging systems can leave digital data on the hard drive that show what tasks and processes on the computer were recently used. Web browsers, e-mail programs, and chat programs often store configuration data on the hard drive that can reveal information such as online nicknames and passwords. Operating systems can record additional data, such as the attachment of peripherals, the attachment of USB flash storage devices, and the times the computer was in use. Computer file systems can record data about the dates files were created and the sequence 153 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 190 of 198 Page ID #:190 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:410 in which they were created. Filed 02/22/19 Page 176 of This data can be evidence of a crime, indicate the identity of the user of the digital device, or point toward the existence of evidence in other locations. Recovery of this data requires specialized tools and a controlled laboratory environment, and also can require substantial time. f. Further, evidence of-how a digital device has been used, what it has been used for, and who has used it, may be the absence of particular data on a digital device. For was example, to rebut a claim that the owner of a digital device not responsible for a particular use because the device was being controlled remotely by malicious software, it may be necessary to show that malicious software that allows someone on else to control the digital device remotely is not present the digital device. Evidence of the absence of particular data on a digital device is not segregable from the digital device. Analysis of the digital device as a whole to demonstrate the a absence of particular data requires specialized tools and tial controlled laboratory environment, and can require substan time. g. Digital device users can attempt to conceal data ng within digital devices through a number of methods, includi the use of innocuous or misleading filenames and extensions. For example, files with the extension ".jpg" often are image files; however, a user can easily change the extension to ".txt" s to conceal the image and make it appear that the file contain text. Digital device users can also attempt to conceal data by 154 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 191 of 198 Page ID #:191 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:411 Filed 02/22/19 Page 177 of using encryption, which means that a password or device, such as a `~dongle" or "keycard," is necessary to decrypt the data into readable form. In addition, digital device users can conceal data within another seemingly unrelated and innocuous file in a process called "steganography." For example, by using steganography a digital device user can conceal text in an image file that cannot be viewed when the image file is opened. Digital devices may also contain "booby traps" that destroy or alter data if certain procedures are not scrupulously followed. A substantial amount of time is necessary to extract and sort through data that is concealed, encrypted, or subject to booby traps, to determine whether it is evidence, contraband or instrumentalities of a crime. In addition, decryption of devices and data stored thereon is a constantly evolving field, and law enforcement agencies continuously develop or acquire new methods of decryption, even for devices or data that cannot currently be decrypted. h. The search of the SUBJECT DEVICES will likely take a considerable amount of time for multiple reasons. First, as noted above, the SUBJECT DEVICES contain a substantial amount of data. For example, I understand that SUBJECT DEVICE 7 alone contains approximately 1.5 million emails. Second, the search of the SUBJECT DEVICES will require the use of a Privilege Review Team and the search protocols set forth in Attachment B to the search warrant application. 155 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 192 of 198 Page ID #:192 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:412 88. Filed 02/22/19 Page 178 of Other than what has been described herein, to my knowledge, the United States has not attempted to obtain this data by other means. VII. REQUEST FOR SEALING 89. I request that the search warrant, the search warrant application, and this affidavit be kept under seal to maintain the integrity of this investigation until further order of the Court, or until the government determines that these materials are subject to its discovery obligations in connection with criminal proceedings, at which time they may be produced to defense counsel. a. I make this request for several reasons. First, this criminal investigation is ongoing and is neither public nor known to AVENATTI and other subjects of the investigation. Disclosure of the search warrant, application, and this affidavit could cause AVENATTI and others to accelerate any existing or evolving plans to, and give them an opportunity to, destroy or tamper with evidence, tamper with or intimidate witnesses, change patterns of behavior, or notify confederates. b. Second, based on evidence collected to date and described herein, there is probable cause to believe that AVENATTI took a number of affirmative actions to obstruct the IRS civil collection action relating to GBUS's unpaid payroll taxes by, among other things, lying to RO 1, changing contracts, merchant accounts, and bank account information to avoid liens and levies imposed by the IRS, and instructing employees to deposit over $800,000 in cash from Tully's stores, which were 156 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 193 of 198 Page ID #:193 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:413 Filed 02/22/19 Page 179 of owned and operated by GBUS, into a bank account associated with a separate entity to avoid liens and levies by the IRS. If AVENATTI were to learn of the instant investigation he might engage in similarly obstructive conduct. c. Third, a number of former GBUS employees have expressed concerns that AVENATTI might attempt to retaliate against them if he learned they were cooperating with the government's investigation. d. Fourth, there is a possibility that some evidence relating to GBUS's operations may have already been lost when GBUS was evicted from its corporate offices and AVENATTI refused to pay the bill for GBUS's cloud-based server. Although IRS-CI has been able to obtain some GBUS records, including the data stored on the SUBJECT DEVICES, from other sources, AVENATTI's apparent willingness to allow GBUS records to be lost or destroyed raises a concern that, were AVENATTI to learn of the instant investigation, he might not hesitate to destroy any remaining GBUS records and other relevant evidence. e. Fifth, the government is still attempting to locate additional documentary evidence that is relevant to the investigation, including emails and electronic records that may be stored by AVENATTI, EA LLP, A&A, or other related entities. As noted herein, AVENATTI appears to have worked primarily out of EA LLP's office and used solely his EA LLP email address to conduct business. The government is still attempting to identify the Internet service provider AVENATTI used for EA LLP's email accounts and/or the location of his email server. 157 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 194 of 198 Page ID #:194 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:414 Filed 02/22/19 Page 180 of Additionally, EA LLP was recently evicted from its offices in Newport Beach, California, and investigators have yet to determine where EA LLP's records are being currently stored. If alerted to the government's investigation, it is therefore possible that AVENATTI would attempt to destroy such records and that the government would have no other means to obtain this evidence. V222. 90. CONCLUSION For the reasons described above, I respectfully submit there is probable cause to believe that evidence, fruits, and instrumentalities of the Subject Offenses, as described with particularity in Attachment B, will be found on the SUBJECT DEVICES, as described with particularity in Attachment A. /s/ Remoun Karlous, Special Agent Internal Revenue Service Criminal Investigation Subscribed to and sworn before me this 22nd day of February, 2019. DOUGLAS F. McCORMICK HONORABLE DOUGLAS F. McCORMICK UNITED STATES MAGISTRATE JUDGE 158 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 195 of 198 Page ID #:195 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page ID #:415 E~HI}3IT Filed 02/22/19 Page 181 of Z Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 196 of 198 Page ID #:196 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* Filed 02/22/19 Page 182 of 184 Page ID #:416 Y~IMITED WAIVER OF ATTURNEY-CLIENT PRIVILEGE AND CONSENT T0► SEARCH SY NANCY L. JAMES IN HER CAPACITY AS TRUSTEE FUk ~LUBAL ~ARISTAS US,PLC I,Nancy L. James, in my capacity as the Trustee far Global Baristas US LLC, hereby agree and state as follows. 1. On or about 4o#ober 24, ~U18, s Chapter 7 ~tvoluntary bankruptcy petition was filed against Global Baristas US, LLC ("G$US"), in the United States Bank~vptcy Court for the Western District of Washiington, in In re: Global Baristas US LLC, No. 18-14095~TVfiD (the "GBUS Bankruptcy"). fln Navem6er 30, 2018, an Qrder for Relief was issued in connection with GBUS Bankruptcy, andIwas apgoint,~cl as ~Ct~e Tres#ee fer GBUS. 2. Iunderstand that the Internal Revenue Services — Crimina] tnvestigation~ {"IRS- ~P'~ is in g~ssessan o~ certain GBUS business recc3rds and communieatic~ns it obtained from ft~rmer GBUS employees in both hard-copy and electronic form, as described xn paragraph 3, below. 3. In my capacity as Tru~ttee for GBUS,Iconsent to the seaz~~ of the ~a~lawing items Curren#y in the possession of IRS-CI. a, A, ~o~rensic image of a Dell XPS I28 GB Samsung SSD, bearing serial number SiD2NSAG5(}00'7?7, provided to TRS-CI by ~ia~~an or about Oc#ober 22, 2D18. b. Hard-cagy GBUS records provided by Ni-E~on or about October c, A forensic image of a Dell Frecision,, Nfodel M4800, bearing service tag 22, 2018. number ~52~+1262, provided to SRC-CI by S~F~~n car about Qctaber 21, 2018. d. Hard-copy GSUS records grov died by S~F~nn ar abau~ O~ctot~er 21, 2418. 1 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 197 of 198 Page ID #:197 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* Filed 02/22/19 Page 183 of 184 Page ID #:417 e, A far~nsia image ofa Seagate External Hard Drive, mode number SRDO~~'1, wring seriat number NA44~IIL,QH, provided to IRS-CI by N1-G■on or about October 2~, 208. f. Cflpies of i~xt messages betweenM~t'~a~d other GBUS employees obtained from Grice can or about September 2b, 2418. g. A farms c image ofa Samsung flash drive provided to IRS-CI by V- 5~an or about October 31, 2~1S, h. Hardcopy BUS business xecords provided to IRS-CI by V~5' on or abau# acto6er 31, 2418. i. A forensic image of a Seagate Hazd Drive,. wring serial number SVJ+C1GXV provided to IRSRCI by A~CJ~ on er about November 13, 2018. j. A fames c image of a Veeam 2GB flash drive provided tc> IRS-CI by A~G~on or about November 13, 2Ui8. k. A forensic rage of a Seagate Hard Drive,. bearing serial number an ar about November ZU, 2018. SV~CIG~V provided to TRS-CI by A~G 4. With respect to any GBUS business m:cor~s, including those records and canununicatians ~n the possession of TRS-CI described in paragraph 3 above, in my capacity as the Trustee for IiBUS,Iagree to waive any claims of the attarneylclient privilege that may exist between GBUS and any legal counsel acting ran its be~al£ More s~cificalty, and sul~jeet to the limitations below,Iagree to waive the attorney-client privilege as to any attorney-client communications which may exist between. any officear, director, employee, or agent of GBUS on tt~e one hand, and an the c~thex Ind any lawyer acting on b~balf of GBUS, including, but not limited t4, the following indivi+ uais and law firms. Michael Avenatti; Eagan Avenat~ LLP; Avenatti &Associates ~1PC; Foste;~ Pepper PLL~; 4sbc►rn Machter PLLC Eisenhower Carlson PLLC, and Tatmadg~elTFitzpatrck/'~"ribe, PPI.G, S. This v~aiver of the attorney-client privilege is limited in that it does not apply to any attorr~.ey-client privileged ~ornmuc~icatians that took place after the involuntary pefition was 2 Case 8:19-mj-00241-DUTY Document 1 Filed 03/22/19 Page 198 of 198 Page ID #:198 Case 8:19-mj-00103-DUTY *SEALED* Document 4-1 *SEALED* 184 Page I D #:418 Filed 02/22/19 Page 184 of filed in the GBUS Bai~icruptcy on October 24,?018. Nor does it apply #o any communications between the Trustee of GBUS and any lawyers acting oii behalf pf tl~e Trustee, including, but not limited to, Rory C. Livesey and the Livesey Law Firm. This waiver ofthe attorney-client privilege is further limited to the United States government and its employees and agenfis,for any purpose related to the official performance oftheir duties, and does not extend to any other individual, entity or third party. In my capacity as Trustee for GBUS,I also authorize any former or current 6. officer, directors, employees, or agents of GBUS to disclose to the United States governmeizt all materials, written or oral., relating to any attorney-client privileged communications covered by the limited attorney-client privilege waiver set forth in paragraphs S and 6 above. I have read this Limited Waiver ofthe Attorney-Client Privilege and Consent to 7. Search ca~•efiilly and understand it thoroughly. I, in my capacity as Trustee for GBUS,have agreed to this Linuted Waiver ofthe Attorney-Client Privilege and Consent to Search freely and. voluntarily. 2 - J ~/-~ Date L. J Trustee for Global Baristas US LLC 3 EXHIBIT 6 PANSKYMARKLE ADVISORS TO THE LEGAL PROFESSION• 1010 Sycamore Ave., Suite 308 I South Pasadena, CA 91030 I T 213.626.7300 I F 213.626.7330 panskymarkle.com March 29, 2019 VIA EMAIL: Joy.Nunley@calbar.ca.gov AND U.S. FIRST CLASS MAIL Joy Nunley, Investigator Office ofthe Chief Trial Counsel Enforcement State Bar of California 845 S. Figueroa Street Los Angeles, CA 90017 Re: State Bar Matter Nos: 19-0-10483 (Bledsoe) and 18-0-17172 (Brown) My client: Michael Avenatti, Esq. Dear Ms. Nunley: As you know, I am representing Mr. Avenatti ibn cmmection with these pending State Bar investigations. As I am sure you also are well aware, Mr. Avenatti was atTested in New York last Monday, m1d he is being charged in criminal proceedings in both New York a11d California. As he was compiling infmmation for me to use to provide the responses due to your office, his computers and files were seized by the authorities, and he also is now precluded from conmmnicating with his assistant. Consequently, it is not possible for him to provide me with the information and materials needed to complete my letters of explanation. He has a court appearance in California on Monday, and expects to request the judge to permit him access to his files and records so that we will be able to provide you with the written explanations in the very near future. Please feel free to call me to discuss. Otherwise, I will be in touch with you again next week with a status update for you. As always, thmlk you for your professional courtesies and cooperation, which I much appreciate. r;;:;;u · Ellen A. Pansky EAP/vm Ellen Pansky, Esq. I epansky@panskymarkle.com R. Gerald Markle (1950-2004) Art Barsegyan, Esq. I abarsegyan@panskymarkle.com EXHIBIT 7 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 1 of 61 Page ID #:255 Z 0p GL~RK U.SuDISTRiCT COURT 2 3 4 CEN7FiAL DISTRICT ~~' RV CALIFORNIA 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE CENTRAL DISTRICT OF CALIFORNIA 10 SOUTHERN DIVISION 11 September 2018 Grand Jury 12 UNITED STATES OF AMERICA, ~ACR19 SA CR No. l ~000 ~~ S 13 Plaintiff, I N D I C T M E N T 14 v. 15 MICHAEL JOHN AVENATTI, [18 U.S.C. ~ 1343: Wire Fraud; 26 U.S.C. ~ 7202: Willful Failure to Collect and Pay Over Withheld Taxes; 26 U.S.C. ~ 7212(a): Endeavoring to Obstruct the Administration of the Internal Revenue Code; 26 U.S.C. ~ 7203: Willful Failure to File Tax Return; 18 U.S.C. ~ 1344(1): Bank Fraud; 18 U.S.C. ~ 1028A(a)(1) Aggravated Identity Theft; 18 U.S.C. ~ 152(3): False Declaration in Bankruptcy; 18 U.S.C. ~ 152(2): False Testimony Under Oath in Bankruptcy; 18 U.S.C. § 2(b): Causing an Act to Be Done; 18 U.S.C. ~~ 981(a)(1) (C), 982, 1028 and 28 U.S.C, ~ 2461(c): Criminal Forfeiture] 16 Defendant. 17 18 i 19 20 21 22 23 P .L] The Grand Jury charges: 25 26 27 28 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 2 of 61 Page ID #:256 1 COUNTS ONE THROUGH TEN 2 [18 U.S.C. ~ 1343] 3 A. 4 INTRODUCTORY ALLEGATIONS 1. At all relevant times: Defendant MICHAEL JOHN AVENATTI (~~AVENATTI") was a a. 5 6 resident of Orange and Los Angeles Counties, within the Central 7 District of California. Defendant AVENATTI was an attorney licensed to b. 8 practice law in the State of California. 9 Defendant AVENATTI provided legal services to clients in exchange for attorneys' fees. 10 Defendant AVENATTI practiced law through Eagan c. 11 EA 12 Avenatti LLP (~~EA LLP") and Avenatti & Associates, APC (~~A&A") 13 LLP and A&A's principal offices were located in Newport Beach and Los 14 ( Angeles, California. A&A was a professional corporation organized in d. 15 Defendant AVENATTI was A&A's Chief Executive Officer 16 California. 17 ("CEO"), Secretary, Chief Financial Officer, and sole director. 18 Defendant AVENATTI owned 100 percent of A&A. ~, 20 I'~ in California. 21 ( managing partner. 22 23 24 e. EA LLP was a limited liability partnership organized 19 f. Defendant AVENATTI was also the effective owner and controlled a number of other entities, including: i. Global Baristas US LLC (~~GBUS"), which operated Tully's Coffee (`~Tu11y's") stores in Washington and California; ii. 27 28 Through A&A, defendant AVENATTI owned at least 75 percent of EA LLP. 25 26 Defendant AVENATTI was EA LLP's managing member and Global Baristas, LLC ("GB LLC"), which wholly owned GBUS; 2 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 3 of 61 Page ID #:257 iii. GB Autosport, LLC (~~GB Auto"), which managed 1 2 defendant AVENATTI's car racing team; and iv. 3 4 Passport 420, LLC (`Passport 420"), which held title to a private airplane defendant AVENATTI used. g. 5 Defendant AVENATTI was a signatory on and exercised 6 control over the following bank accounts, which were all maintained 7 in Orange and Los Angeles Counties, within the Central District of 8 California: i. 9 California Bank & Trust (~~CB&T") attorney trust 10 account ending in x8541 in the name of "The State Bar of California, 11 Eagan Avenatti LLP, Attorney Client Trust Fund" (~~EA Trust Account 12 8541"). 13 ii. CB&T attorney trust account ending in x3714 in 14 the name of ~~The State Bar of California, Eagan Avenatti LLP, 15 Attorney Client Trust Account" (~~EA Trust Account 3714"). 16 iii. CB&T attorney trust account ending in x4613 in 17 the name of ~~State Bar of California, Eagan Avenatti LLP, Attorney 18 Client Trust Account" (~~EA Trust Account 4613"). 19 iv. CB&T attorney trust account ending in x8671 in 20 the name of ~~The State Bar of California, Eagan Avenatti LLP, 21 Attorney Client Trust Account" (~~EA Trust Account 8671"). 22 23 24 25 26 v. CB&T account ending in x2851 in the name of ~~Eagan Avenatti LLP" (~~EA Account 2851"). vi. CB&T account ending in x8461 in the name of ~~Eagan Avenatti LLP, Operating Account" (~~EA Account 8461"). vii. CB&T account ending in x0313 in the name of 27 "Eagan Avenatti LLP, Debtor-in-Possession Case 8:17-BK-11961-CB, 28 General Account" (~~EA DIP Account 0313"). 3 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 4 of 61 Page ID #:258 2 CB&T account ending in x0661 in the name of viii. 1 ~~Avenatti & Assoc. A Professional Corp." (~~A&A Account 0661"). ix. 3 City National Bank ("CNB") attorney trust account 4 ending in x5566 in the name of "Michael J. Avenatti, Attorney Client 5 Trust Account" (~~Avenatti Trust Account 5566"). x. 6 CNB attorney trust account ending in x4705 in the 7 name of ~~Michael J. Avenatti, Esq., Attorney Client Trust Account" 8 (~~Avenatti Trust Account 4705"). xi. 9 CB&T account ending in x2240 in the name of 10 "Global Baristas US LLC, Operating Account" (~~GBUS Operating Account 11 2240"). xii. CB&T account ending in x3730 in the name of 12 13 ~~Global Baristas LLC" (~~GB LLC Account 3730"). h. 14 Defendant AVENATTI was a signatory on and exercised 15 control over a KeyBank account ending in x6193 in the name of "Global 16 Baristas US LLC" (`~GBUS KeyBank Account 6193"), which was maintained 17 in Seattle, Washington. i. 18 As a member of the State Bar of California, defendant 19 AVENATTI was obligated to comply with the California Rules of 20 Professional Conduct. 21 things, to promptly notify a client of the receipt of any funds the 22 client was entitled to receive, and to promptly pay or deliver to the 23 client or such payees as designated by the client any such funds that 24 defendant AVENATTI held in trust for the client upon the client's 25 request. 26 j. Defendant AVENATTI was required, among other Money transmitted through the Fedwire Funds Transfer 27 System (the "Fedwire system") was routed from its origin to its 28 destination through Texas and New Jersey. 4 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 5 of 61 Page ID #:259 1 k. A "Special Needs Trust" was a specialized trust that 2 allowed for a disabled person to maintain his or her eligibility for 3 public assistance benefits, despite having assets that would 4 otherwise make the person ineligible for those benefits. 5 `Client 1" was an individual who resided in Los Angeles 2. Beginning as 6 County, within the Central District of California. 7 early as in or about 2012 and continuing until in or about March 8 2019, defendant AVENATTI and EA LLP had a formal attorney-client 9 relationship with Client 1. Specifically, defendant AVENATTI and EA 10 LLP agreed to represent Client 1 in connection with a lawsuit against 11 the County of Los Angeles and others, alleging violations of Client 12 1's constitutional rights that led to severe emotional distress and 13 severe physical injuries, including paraplegia (the "L.A. County 14 Lawsuit"). 15 3. `Client 2" was an individual who resided in Los Angeles Beginning as 16 County, within the Central District of California. 17 early as in or about December 2016 and continuing until in or about 18 March 2019, defendant AVENATTI and EA LLP had a formal attorney- 19 client relationship with Client 2. 20 and EA LLP agreed to represent Client 2 in connection with potential 21 litigation against an individual with whom Client 2 had a personal 22 relationship (`Individual 1"). 23 4. Specifically, defendant AVENATTI ~~Client 3" was an individual who resided in Orange County, Beginning as early as in 24 within the Central District of California. 25 or about July 2014 and continuing until in or about November 2018, 26 defendant AVENATTI and EA LLP had a formal attorney-client 27 relationship with Client 3. Specifically, defendant AVENATTI and EA 28 5 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 6 of 61 Page ID #:260 1 LLP agreed to represent Client 3 in connection with an intellectual 2 property dispute against a Colorado-based company ("Company 1"). 5. 3 "Client 4" and "Client 5" were both individuals who resided 4 in Los Angeles County, within the Central District of California. 5 Beginning as early as in or about August 2017 and continuing until in 6 or about August 2018, defendant AVENATTI had a formal attorney-client 7 relationship with both Client 4 and Client 5. 8 defendant AVENATTI agreed to represent both Client 4 and Client 5 in 9 connection with their separation and divestment from one of the Specifically, 10 companies in which Client 4 and Client 5 owned shares ("Company 2"). 11 B. 12 THE SCHEME TO DEFRAUD 6. Beginning as early as in or about January 2015 and 13 continuing through at least in or about March 2019, in Orange and Los 14 Angeles Counties, within the Central District of California, and 15 elsewhere, defendant AVENATTI, knowingly and with intent to defraud, 16 devised, participated in, and executed a scheme to defraud victim- 17 clients to whom defendant AVENATTI had agreed to provide legal 18 services, including, but not limited to, Client 1, Client 2, Client 19 3, Client 4, and Client 5, as to material matters, and to obtain 20 money and property from such victim-clients by means of material 21 false and fraudulent pretenses, representations, and promises, and 22 the concealment of material facts that defendant AVENATTI had a duty 23 to disclose. 24 C. 25 26 THE MANNER AND MEANS OF THE SCHEME TO DEFRAUD 7. The fraudulent scheme operated, in substance, in the following manner: 27 28 D Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 7 of 61 Page ID #:261 a. 1 Defendant AVENATTI would negotiate a settlement on 2 behalf of a client that would require the payment of funds to the 3 client. b. 4 Defendant AVENATTI would misrepresent, conceal, and 5 falsely describe to the client the true terms of the settlement 6 and/or the disposition the settlement proceeds. c. 7 Defendant AVENATTI would cause the settlement proceeds 8 to be deposited in or transferred to attorney trust accounts 9 defendant AVENATTI controlled. d. 10 11 Defendant AVENATTI would embezzle and misappropriate settlement proceeds to which he was not entitled. e. 12 Defendant AVENATTI would lull the client to prevent 13 the client from discovering the embezzlement and misappropriation by, 14 among other things, falsely denying the settlement proceeds had been 15 paid, sending funds to the client under the false pretense that such 16 funds were "advances" on the purportedly yet-to-be received 17 settlement proceeds, and falsely claiming that payment of the 18 settlement proceeds to the client had been delayed for legitimate 19 reasons and would occur at a later time. Embezzlement of Client 1's Funds 20 f. 21 On or about January 21, 2015, defendant AVENATTI 22 negotiated a settlement of the L.A. County Lawsuit on behalf of 23 Client 1. 24 the County of Los Angeles agreed to pay $4,000,000 to Client 1 in 25 exchange for Client 1 dismissing the L.A. County Lawsuit. 26 was entitled to receive the $4,000,000 settlement payment, less EA 27 LLP's attorneys' fees, costs, and expenses. Under the terms of the negotiated settlement agreement, ~:~ 7 Client 1 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 8 of 61 Page ID #:262 g. 1 In or around January 2015, defendant AVENATTI told 2 Client 1 that the County of Los Angeles had agreed to a settlement. 3 Defendant AVENATTI falsely represented to Client 1 that the 4 settlement agreement had to remain confidential, the County of Los 5 Angeles could not pay the settlement to Client 1 in one lump-sum, and 6 the settlement proceeds could not be paid until the County of Los 7 Angeles approved a Special Needs Trust for Client 1. 8 fact, as defendant AVENATTI then well knew, the settlement agreement 9 did not contain a confidentiality provision, the County of Los In truth and in 10 Angeles had agreed to make a lump-sum $4,000,000 settlement payment 11 to Client 1, and the settlement payment from the County of Los 12 Angeles was not conditioned on the approval of a Special Needs Trust 13 for Client 1. h. 14 On or about January 26, 2015, defendant AVENATTI 15 caused the approximately $4,000,000 settlement payment to be 16 deposited into EA Trust Account 8541 to be held in trust for Client 17 1. 18 County of Los Angeles, defendant AVENATTI concealed and failed to 19 disclose to Client 1 that EA LLP had received the $4,000,000 20 settlement payment. 21 and did not transfer Client 1's portion of the settlement payment to 22 Client 1. 23 Knowing that the full settlement amount had been paid by the i. Further, defendant AVENATTI and EA LLP retained Between on or about January 26, 2015, and on or about 24 March 30, 2015, defendant AVENATTI caused approximately $3,125,000 of 25 the $4,000,000 settlement payment to be transferred from EA Trust 26 Account 8541 to EA Account 2851. 27 28 Thereafter, defendant AVENATTI ( caused substantial portions of the settlement proceeds to be transferred from EA Account 2851 to A&A Account 0661, and then : ~ Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 9 of 61 Page ID #:263 1 (further transferred to other bank accounts defendant AVENATTI 2 controlled, including defendant AVENATTI's personal bank account and 3 bank accounts associated with GBUS and GB Auto, or used to pay 4 defendant AVENATTI's personal expenses. 5 2015, defendant AVENATTI had drained all of the settlement proceeds 6 l out of EA Trust Account 8541. By no later than July 6, Defendant AVENATTI concealed and 7 Mailed to disclose to Client 1 that the entire $4,000,000 settlement 8 payment had been expended and that substantial portions of the 9 settlement proceeds had been used for defendant AVENATTI's own 10 11 purposes. j. In order to lull Client 1 and prevent Client 1 from 12 discovering that defendant AVENATTI had embezzled Client 1's portion 13 of the $4,000,000 settlement payment, defendant AVENATTI committed 14 and caused to be committed the following acts: i. 15 Starting as early as in or about July 2015 and 16 continuing to in or about March 2019, defendant AVENATTI caused at 17 least 69 payments, each ranging from approximately $1,000 to 18 approximately $1,900 and together totaling at least approximately 19 $124,000, to be made to Client 1. 20 During this same time period, ( defendant AVENATTI also caused payments to be made to various 21 assisted living facilities to pay for rent on Client 1's behalf. 22 Defendant AVENATTI falsely represented to Client 1 that the payments 23 made to Client 1 and to the assisted living facilities where Client 1 24 resided were "advances" on the settlement payment from the County of 25 Los Angeles, which defendant AVENATTI falsely represented had not yet 26 been received.. 27 28 ii. In or about 2017, after Client 1 told defendant AVENATTI that Client 1 wanted to purchase his own residence, D Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 10 of 61 Page ID #:264 1 defendant AVENATTI agreed to help Client 1 find a real estate broker 2 and purchase a house. 3 Client 1 that Client 1 would be able to use the settlement proceeds 4 to fund the purchase of a house. 5 purchase of a house, however, defendant AVENATTI falsely told Client 6 1 that Client 1 could not purchase the house after all because the 7 County of Los Angeles still had not approved the Special Needs Trust 8 and therefore could not make the settlement payment to Client 1. 9 Client 1 was unable to close escrow and did not purchase the house. Defendant AVENATTI represented and promised to After Client 1 was in escrow on the iii. On or about November 26, 2018, defendant AVENATTI 10 11 M old Client 1 that defendant AVENATTI would respond on Client 1's 12 behalf to a request that Client 1 provide the United States Social 13 Security Administration ("SSA") information it requested to evaluate 14 Client 1's continued eligibility for Supplemental Security Income 15 ("SSI") benefits, including information regarding the settlement 16 agreement with the County of Los Angeles, the purported Special Needs 17 Trust, and the monthly payments from defendant AVENATTI. Knowing 18 Mull well that the requested information could lead to inquiries that 19 could reveal that defendant AVENATTI had embezzled Client 1's portion 20 of the settlement proceeds, defendant AVENATTI failed to provide the 21 requested information to SSA, which resulted in Client 1's SSI 22 benefits being discontinued in or about February 2019. 23 24 k. On or about March 22, 2019, defendant AVENATTI was questioned regarding the alleged embezzlement of the Client 1 25 ( Settlement Proceeds during a public judgment-debtor examination Shortly 26 conducted in federal court in Los Angeles, California. 27 thereafter, in order to lull Client 1 and prevent Client 1 from 28 discovering that defendant AVENATTI had embezzled Client 1's portion ~[I Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 11 of 61 Page ID #:265 1 of the $4,000,000 settlement, defendant AVENATTI falsely told Client 2 1 that the County of Los Angeles had finally approved the Special 3 Needs Trust for Client 1 and that Client 1 would begin receiving 4 settlement payments from the County of Los Angeles through the 5 Special Needs Trust. 6 1. In order to further lull Client 1 and to attempt to 7 establish a defense against any claims Client 1 could bring against 8 defendant AVENATTI, on or about March 23, 2019, and on or about March 24, 2019, defendant AVENATTI caused Client 1 to sign a document 10 defendant AVENATTI claimed was necessary to effectuate the settlement 11 agreement and finalize the Special Needs Trust that defendant 12 AVENATTI claimed was required before Client 1 could begin receiving 13 payments due under the settlement, and a document stating that Client 14 1 was satisfied with defendant AVENATTI's representation of Client 1. 15 Embezzlement of Client 2's Funds 16 m. On or about January 7, 2017, defendant AVENATTI 17 negotiated a settlement on behalf of Client 2 with Individual 1. 18 Under the terms of the settlement agreement, Individual 1 was 19 required to make an initial payment to Client 2 of approximately 20 $2,750,000 by on or about January 28, 2017, and an additional payment 21 to Client 2 of approximately $250,000 on or about November 1, 2020, 22 if certain additional specified conditions were met, for a total of 23 approximately $3,000,000. Client 2 was entitled to receive the 24 ' initial $2,750,000 settlement payment, less EA LLP's attorneys' fees 25 (i.e., 33 percent of the total $3,000,000 settlement amount), costs, 26 and expenses. 27 28 n. In order to conceal the true details of the settlement agreement from Client 2, defendant AVENATTI did not provide a copy of ail Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 12 of 61 Page ID #:266 Rather, in or about January 1 the settlement agreement to Client 2. 2 2017, defendant AVENATTI falsely represented to Client 2 that 3 Individual 1 would make an initial lump-sum payment, the entirety of 4 which would be used to pay EA LLP's attorney fees (i.e., 33 percent 5 of the total settlement amount) and costs, and then approximately 96 6 monthly payments over the course of the next eight years by which the 7 remaining settlement funds would be paid to Client 2. 8 in fact, as defendant AVENATTI then well knew, the actual settlement 9 agreement required Individual 1 to make the initial $2,750,000 In truth and 10 ' settlement payment, which far exceeded the money owed to EA LLP for 11 attorneys' fees, by on or about January 28, 2017, and Individual 1 12 was not required to make any monthly payments to Client 2 thereafter. o. 13 On or about January 25, 2017, defendant AVENATTI 14 caused the initial $2,750,000 settlement payment from Individual 1 to 15 be transferred to EA Trust Account 8671 to be held in trust for 16 Client 2. 17 Client 2 that EA LLP had received the initial $2,750,000 settlement 18 payment. 19 transfer Client 2's portion of the $2,750,000 settlement payment to 20 Client 2. Defendant AVENATTI concealed and failed to disclose to Further, defendant AVENATTI and EA LLP retained and did not p. 21 On or about January 26, 2017, defendant AVENATTI 22 caused $2,500,000 of the $2,750,000 settlement payment to be 23 transferred to an attorney trust account for another law firm ("Law 24 Firm 1") 25 transfer the entire $2,500,000 to Honda Aircraft Company, LLC, to 26 purchase a private airplane for defendant AVENATTI's company, 27 Passport 420. 28 of the $2,750,000 settlement payment to be transferred first to EA That same day, defendant AVENATTI caused Law Firm 1 to Defendant AVENATTI also caused the remaining $250,000 12 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 13 of 61 Page ID #:267 1 Account 2851 and then to A&A Account 0661. Defendant AVENATTI 2 ( concealed and failed to disclose to Client 2 that defendant AVENATTI 3 4 had used the settlement proceeds in this manner. q. In order to lull Client 2 and prevent Client 2 from 5 discovering that defendant AVENATTI had embezzled Client 2's portion 6 of the initial $2,750,000 settlement payment, defendant AVENATTI 7 committed and caused to be committed the following acts: 8 9 i. Between on or about March 15, 2017, and on or about June 18, 2018, defendant AVENATTI caused approximately 11 10 payments totaling approximately $194,000 to be deposited into Client 11 2's bank account. 12 that these payments constituted the monthly settlement payments that 13 were purportedly due from Individual 1. 14 February 20, 2018, defendant AVENATTI caused a $16,000 cashier's 15 check drawn on EA Account 4613 to be deposited into Client 2's bank 16 account, which falsely identified Individual 1 as the "remitter." 17 ii. Defendant AVENATTI falsely represented to Client 2 For example, on or about Between in or about June 2018 and in or about 18 March 2019, after defendant AVENATTI stopped making the purported 19 monthly payments to Client 2, defendant AVENATTI falsely represented 20 to Client 2 that Individual 1 was not complying with the settlement 21 agreement and falsely told Client 2 that defendant AVENATTI was 22 working on obtaining the missing monthly settlement payments 23 purportedly due to Client 2 from Individual 1. 24 iii. On or about March 24, 2019, at a meeting with 25 ( Client 2 at defendant AVENATTI's residence in Los Angeles, 26 California, defendant AVENATTI falsely represented to Client 2 that 27 Client 2 would soon be receiving a payment from Individual 1 to make 28 13 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 14 of 61 Page ID #:268 1 up for the purportedly missing monthly settlement payments from 2 Individual 1 for July 2018 through March 2019. Embezzlement of Client 3's Funds 3 r. 4 Between on or about December 22, 2017, and on or about 5 December 28, 2017, defendant AVENATTI negotiated a settlement 6 agreement with Company 1 on behalf of Client 3. 7 agreement required Company 1 to make an initial payment of $1,600,000 8 b y January 10, 2018, and three additional payments of $100,000 by 9 January 10 of 2019, 2020, and 2021, respectively, for a total of The settlement Client 3 was entitled to receive the initial $1,600,000 10 $1,900,000. 11 settlement payment, less EA LLP's attorneys' fees of $760,000 (i.e., 12 13 ~ 40 percent of the total $1,900,000 settlement amount), costs, and expenses. s. 14 On or about December 28, 2017, at a meeting with 15 Client 3 at EA LLP's offices in Newport Beach, California, to discuss 16 the proposed settlement agreement with Company 1, defendant AVENATTI 17 , provided an altered copy of the settlement agreement to Client 3 for 18 ( Client 3's review, which copy falsely represented the payment 19 schedule as $1,600,000 due by March 10, 2018, and $100,000 due by 20 March 10 of each of the three subsequent years. 21 defendant AVENATTI emailed the attorney for Company 1 the signature 22 page for the actual settlement agreement, bearing Client 3's 23 signature. 24 25 t. That same day, On or about December 29, 2017, defendant AVENATTI ! received a complete copy of the fully executed settlement agreement 26 with Client 3's and Company 1's signatures from Company 1's attorney, 27 which included the payment schedule that had actually been negotiated 28 b y defendant AVENATTI but had been concealed from Client 3, namely, 14 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 15 of 61 Page ID #:269 1 ~an initial $1,600,000 payment due by January 10, 2018, and additional 2 payments of $100,000 due by January 10 of each of the three 3 subsequent years. u. 4 On or about January 2, 2018, defendant AVENATTI 5 emailed instructions to Company 1's attorney to wire the initial 6 $1,600,000 settlement payment to Avenatti Trust Account 5566. 7 v. On or about January 5, 2018, as instructed by 8 defendant AVENATTI, Company 1 wired the initial $1,600,000 settlement 9 payment to Avenatti Trust Account 5566 to be held in trust for Client Defendant AVENATTI concealed and failed to disclose to Client 3 10 3. 11 that defendant AVENATTI had received the initial $1,600,000 12 settlement payment from Company 1. 13 retained Client 3's portion of the $1,600,000 settlement payment and 14 did not transfer Client 3's portion of the $1,600,000 settlement 15 payment to Client 3. 16 w. Further, defendant AVENATTI Between on or about January 5, 2018, and on or about 17 March 14, 2018, defendant AVENATTI caused approximately $1,599,400 of 18 the initial $1,600,000 settlement payment to be used for his own 19 purposes, including to pay for expenses relating to GBUS. 20 AVENATTI concealed and failed to disclose to Client 3 that defendant 21 AVENATTI used the settlement proceeds for his own purposes. 22 x. Defendant In order to lull Client 3 and prevent Client 3 from 23 discovering that defendant AVENATTI had embezzled Client 3's portion 24 of the initial $1,600,000 settlement payment, defendant AVENATTI 25 committed and caused to be committed the following acts: 26 i. Between on or about March 10, 2018, and in or 27 about November 2018, defendant AVENATTI falsely represented to Client 28 3 that Company 1 had not made the initial $1,600,000 settlement 15 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 16 of 61 Page ID #:270 1 payment, and that defendant AVENATTI was working on obtaining the 2 purportedly missing $1,600,000 settlement payment from Company 1. ii. 3 Between in or about April 2018 and in or about 4 November 2018, defendant AVENATTI caused multiple payments totaling 5 approximately $130,000 to be paid to Client 3 and/or Client 3's 6 spouse, which payments defendant AVENATTI falsely claimed represented 7 "advances" on Client 3's portion of the $1,600,000 settlement payment 8 from Company 1, so that Client 3 could meet certain financial 9 obligations while Client 3 was purportedly "waiting" for his portion 10 ~ of the $1,600,000 settlement payment from Company 1. Embezzlement of Client 4's Funds 11 12 y. On or about September 17, 2017, defendant AVENATTI 13 negotiated a "Common Stock Repurchase Agreement" with Company 2 on 14 behalf of Client 4 and Client 5. 15 Common Stock Repurchase Agreement, Company 2 agreed to repurchase 16 from Client 4 361,565 shares of Company 2 for approximately 17 $27,478,940, and thereafter an additional 107,188 shares of Company 2 18 for approximately $8,146,288, which resulted in a total repurchase 19 20 Under the terms of Client 4's '. amount of approximately $35,625,228. z. On or about September 18, 2017, Company 2 wired 21 approximately $27,414,668 to Avenatti Trust Account 4705. 22 Approximately $2,787,651 of this amount constituted defendant 23 AVENATTI's and/or EA LLP's attorneys' fees (i.e., 7.5 percent of the 24 total $35,625,228 repurchase amount), costs, and expenses. 25 on or about September 21, 2017, and on or about October 3, 2017, 26 defendant AVENATTI caused the remainder of the initial $27,414,668 27 payment to be transferred to bank accounts associated with Client 4. 28 16 Between Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 17 of 61 Page ID #:271 1 aa. On or about March 13, 2018, after Company 2 informed 2 Client 4 and Client 5 that Company 2 was ready to repurchase the 3 remaining 107,188 shares of Company 2 from Client 4 as contemplated 4 in the Common Stock Purchase Agreement, defendant AVENATTI told 5 Client 5 that Company 2 should wire the remaining $8,146,288 payment 6 due to Client 4 to Avenatti Trust Account 4705, and that defendant 7 AVENATTI would then wire the $8,146,288 payment from Avenatti Trust 8 Account 4705 to Client 4. bb. 9 On or about March 14, 2018, following defendant 10 AVENATTI's instructions, Company 2 transferred approximately 11 $8,146,288 to Avenatti Trust Account 4705 to be held in trust for 12 Client 4. 13 $8,146,288 payment to Client 4 as defendant AVENATTI had promised to 14 do. 15 I Defendant AVENATTI retained and did not transfer the cc. Between on or about March 15, 2018, and on or about 16 May 4, 2018, defendant AVENATTI caused approximately $4,000,000 out 17 of the $8,146,288 payment from Company 2 due to Client 4 to be used 18 for defendant AVENATTI's own purposes, including the following: 19 i. On or about March 15, 2018, defendant AVENATTI ~1~ caused approximately $3,000,000 of Client 4's funds to be transferred ~~ to EA Trust Account 4613. Later that same day, defendant AVENATTI ~ ~ then caused approximately $2,828,423 to be transferred from EA Trust 23 Account 4613 to an attorney trust account for SulmeyerKupetz, a law 24 firm representing A&A and defendant AVENATTI in bankruptcy 25 proceedings involving EA LLP, so that SulmeyerKupetz could use the 26 money to pay some of EA LLP's creditors in the bankruptcy 27 proceedings, including the Internal Revenue Service. 28 17 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 18 of 61 Page ID #:272 ii. 1 Between on or about March 20, 2018, and on or 2 about May 1, 2018, defendant AVENATTI caused a total of approximately 3 $780,000 of Client 4's funds to be paid to EA Trust Account 4613, 4 which defendant AVENATTI then used for his own purposes, including 5 transferring the funds to bank accounts associated with defendant 6 AVENATTI's other companies, namely, GBUS, GB LLC, A&A, and Passport 7 C~i.I1~ iii. Between on or about March 20, 2018, and May 1, 8 2018, defendant AVENATTI caused a total of approximately $260,000 of 9 Client 4's funds to be paid to EA DIP Account 0313. 10 iv. 11 In order to lull Client 1 and prevent Client 1 12 from discovering that defendant AVENATTI had embezzled Client 1`s 13 portion of the $4,000,000 settlement payment from the County of Los 14 Angeles, on or about April 9, 2018, defendant AVENATTI used Client 15 4's funds, which had been transferred from Avenatti Trust Account 16 4705 to EA DIP Account 0313 and then to EA Trust Account 4613, to 17 make an approximately $1,900 payment to Client 1. v. 18 In order to lull Client 2 and prevent Client 2 19 from discovering that defendant AVENATTI had embezzled Client 2's 20 portion of the $2,750,000 settlement payment from Individual 1, on or 21 about April 17, 2018, defendant AVENATTI used Client 4's funds, which 22 had been transferred from Avenatti Trust Account 4705 to EA Trust 23 Account 4613, to make an approximately $34,000 payment to Client 2. 24 ~ dd. Between on or about March 14, 2018, and on or about 25 May 3, 2018, defendant AVENATTI failed to disclose to Client 4 and 26 Client 5 that defendant AVENATTI had used approximately $4,000,000 of 27 Client 4's funds for defendant AVENATTI's own purposes. 28 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 19 of 61 Page ID #:273 1 ee. In order to lull Client 4 and Client 5 and prevent 2 them from discovering that defendant AVENATTI had embezzled 3 approximately $4,000,000 from the approximately $8,146,288 payment 4 defendant AVENATTI received from Company 2, between on or about 5 March 14, 2018, and on or about May 3, 2018, defendant AVENATTI 6 falsely represented and promised Client 4 and Client 5 that defendant 7 AVENATTI would transfer Client 4's funds to Client 4 at a later date, 8 and that defendant AVENATTI needed to go to the bank to fill out 9 paperwork to effectuate the wire transfers. In truth and in fact, as 10 defendant AVENATTI then well knew, he had already caused 11 approximately $4,000,000 of Client 4's funds to be transferred or 12 paid to other bank accounts defendant AVENATTI controlled, and then 13 used for defendant AVENATTI's own purposes. 14 ff. In order to lull Client 4 and Client 5 and prevent 15 them from discovering that he had embezzled approximately $4,000,000 16 of Client 4's funds, on or about May 4, 2018, defendant AVENATTI 17 caused two wire transfers in the amounts of $4,000,000 and $146,288 18 to be sent from Avenatti Trust Account 4705 to a bank account 19 associated with Client 4. 20 transfer to Client 4 the remainder of the $8,146,288 payment that 21 Company 2 had transferred on or about March 14, 2018, to Avenatti 22 Trust Account 4705 for the benefit of Client 4. 23 gg. Defendant AVENATTI retained and failed to Between on or about May 4, 2018, and on or about 24 June 4, 2018, defendant AVENATTI and another attorney with whom 25 defendant AVENATTI worked ("Attorney 1") falsely represented to 26 Client 4 and Client 5 that the entire $8,146,288 payment from Company 27 2 had been transferred to Client 4 in three separate wire transfers. 28 For example, in response to a request from Client 5 that defendant ~L!' Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 20 of 61 Page ID #:274 1 AVENATTI provide the wire transfer information for the remaining 2 $4,000,000 of Client 4's funds, on or about May 11, 2018, defendant 3 AVENATTI emailed Attorney 1 a wire transfer confirmation document 4 purporting to reflect a second $4,000,000 wire transfer to Client 4. 5 In truth and in fact, as defendant AVENATTI then well knew, defendant 6 AVENATTI had never transferred the remaining $4,000,000 to Client 4, 7 defendant AVENATTI had already used the remaining $4,000,000 for his 8 own purposes, and the wire transfer confirmation document that 9 defendant AVENATTI provided on or about May 11, 2018, related to the 10 first $4,000,000 wire transfer from Avenatti Trust Account 4705 that 11 Client 4 had already received on May 4, 2018. 12 D. THE USE OF THE WIRES 8. 13 On or about the following dates, within the Central 14 District of California, and elsewhere, defendant AVENATTI, for the 15 purpose of executing the above-described scheme to defraud, 16 transmitted and caused to be transmitted by means of wire and radio 17 communications in interstate commerce the following items: 18 COUNT DATE ITEM WIRED 19 ONE 1/30/2015 Wire transfer of approximately $250,000 sent from A&A Account 0661 through the Fedwire system to GBUS's Homestreet bank account in Seattle, Washington. TWO 2/10/2015 Wire transfer of approximately $50,000 from A&A Account 0661 through the Fedwire s ystem to defendant AVENATTI's personal Bank of America bank account. THREE 1/26/2017 Wire transfer of approximately $2,500,000 from EA Trust Account 8671 through the Fedwire system to Law Firm 1's JP Morgan Chase Bank, N.A. (~~Chase") IOLTA trust account. 20 21 22 23 24 25 26 27 28 20 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 21 of 61 Page ID #:275 1 COUNT DATE ITEM WIRED 2 FOUR 1/5/2018 Wire transfer of approximately $1,600,000 sent from Company 1's Silicon Valley Bank account through the Fedwire system to Avenatti Trust Account 5566. FIVE 1/10/2018 Wire transfer of approximately $60,000 sent from Avenatti CNB Trust Account 5566 through the Fedwire system to EA Trust Account 3714. SIX 3/15/2018 Wire transfer of approximately $3,000,000 from Avenatti Trust Account 4705 through the Fedwire system to EA CB&T Trust Account 4613. SEVEN 3/15/2018 Wire transfer of approximately $2,828,423 from EA CB&T Trust Account 4613 through the Fedwire system to an attorney trust account for SulmeyerKupetz at CNB. EIGHT 3/20/2018 Wire transfer of approximately $200,000 from Avenatti CNB Trust Account 4705 through the Fedwire system to EA Trust Account 4613. NINE 6/18/2018 Wire transfer of approximately $16,000 from EA Trust Account 4613 through the Fedwire system to Client 2's Chase bank account. TEN 7/13/2018 Wire transfer of approximately $1,900 from EA Trust Account 4613 through the Fedwire system to Client 1's Bank of America bank account. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 22 of 61 Page ID #:276 1 COUNTS ELEVEN THROUGH EIGHTEEN 2 [26 U.S.C. ~ 7202; 18 U.S.C. ~ 2(b)] 3 I A. INTRODUCTORY ALLEGATIONS Background 4 5 9. The Grand Jury re-alleges and incorporates by reference 6 paragraph 1 through 7 of this Indictment as though fully set forth 7 herein. 8 10. At all relevant times: a. 9 GBUS was a limited liability company organized in 10 Washington, which operated Tully's stores in Washington and 11 California. 12 office was in Seattle, [n~ashington. b. 13 Until in or around November 2017, GBUS's corporate GB LLC was a limited liability company organized in Defendant MICHAEL JOHN AVENATTI (~~AVENATTI") was the 14 Washington. 15 sole managing member of GB LLC. c. 16 17 Washington. d. 18 GB Auto was a limited liability company organized in Defendant AVENATTI was the sole manager of GB Auto. Doppio, Inc. ("Doppio") was a for-profit corporation 19 incorporated in Washington. 20 of Doppio. 21 e. Defendant AVENATTI was the sole governor Defendant AVENATTI was the effective owner of GBUS. 22 In or around June 2013, defendant AVENATTI's company GB LLC acquired 23 TC Global Inc., which previously operated Tully's, at a bankruptcy 24 auction for approximately $9.15 million, namely, $6.95 million in 25 cash and $2.2 million in assumed liabilities. 26 2013, defendant AVENATTI caused a wire transfer in the amount of 27 $7,000,000 from EA Trust Account 8541 to a bank account for Foster 28 Pepper PLLC, the law firm representing GB LLC in Tully's bankruptcy 22 On or about June 25, Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 23 of 61 Page ID #:277 A&A owned 100 percent of Doppio, which in turn owned at 1 auction. 2 least 80 percent of GB LLC. 3 the day-to-day business operations of Tully's. f. 4 GB LLC wholly owned GBUS, which handled Defendant AVENATTI served as GBUS's CEO, for which he As GBUS's CEO, 5 was paid a yearly salary of approximately $250,000. 6 defendant AVENATTI exercised control over every aspect of GBUS's 7 business affairs, including approving payments GBUS made and 8 controlling GBUS's bank accounts. 9 exercised control over GBUS's business affairs from Orange and Los 10 Defendant AVENATTI managed and Angeles Counties, within the Central District of California, and 11 I elsewhere. g. 12 The Internal Revenue Service ("IRS") was an agency of 13 the United States within the Department of Treasury of the United 14 States and was responsible for enforcing and administering the tax 15 laws of the United States. 16 11. Beginning in or about February 2015 and continuing until at 17 least in or about July 2018, GBUS maintained multiple bank accounts 18 at CB&T in Orange County, California, including GBUS's payroll 19 account ending in x2976 ("GBUS Payroll Account 2976") and GBUS 20 Operating Account 2240. 21 ("EA Employee 1") were the only signatories on GBUS Payroll Account 22 2976 and GBUS Operating Account 2240. 23 12. Defendant AVENATTI and an EA LLP employee In addition to defendant AVENATTI's yearly salary as GBUS's 24 CEO, between as early as in or about September 2015 and continuing 25 until at least in or about December 2017, defendant AVENATTI caused 26 GBUS to make substantial payments for defendant AVENATTI's personal 27 benefit and the benefit of other entities defendant AVENATTI 28 ~3 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 24 of 61 Page ID #:278 1 controlled, while, at the same time, failing to pay over to the IRS 2 payroll taxes withheld from GBUS employees' paychecks. a. 3 For example: Between on or about September 1, 2015, and on or about 4 December 31, 2017, defendant AVENATTI caused a net of approximately 5 $2.5 million to be transferred from GBUS's and GB LLC's bank accounts 6 I to bank accounts associated with A&A and EA LLP. 7 b. On or about March 30, 2016, defendant AVENATTI caused 8 GBUS to transfer $200,000 to the G.P. Family Trust as payment for two 9 months of rent for defendant AVENATTI's residence in Newport Beach, 10 ( California. c. 11 In order to lull Client 1 and prevent Client 1 from 12 discovering that defendant AVENATTI had embezzled Client 1's portion 13 of the $4,000,000 settlement payment from the County of Los Angeles, 14 on or about April 7, 2016, defendant AVENATTI used GBUS funds, which 15 had been transferred from GBUS Account 2240 to EA Account 2851, to 16 make an approximately $1,900 payment to Client 1. d. 17 In order to lull Client 2 and prevent Client 2 from 18 ' discovering that defendant AVENATTI had embezzled Client 2's portion 19 of the initial $2,750,000 settlement payment from Individual 1, 20 defendant AVENATTI caused GBUS funds to be used to make payments to 21 Client 2, including the following: i. 22 On or about April 14, 2017, defendant AVENATTI 23 used GBUS funds, which had 'been transferred from GBUS Account 2240 to 24 A&A Account 0661, to make an approximately $16,000 payment to Client 25 2. 26 ii. On or about May 15, 2017, defendant AVENATTI used 27 GBUS funds, which had been transferred from GBUS Account 2240 to A&A 28 Account 0661, to make an approximately $16,000 payment to Client 2. .'►~! Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 25 of 61 Page ID #:279 Federal Pavroll Taxes 1 2 At all relevant times: 13. a. 3 Title 26 of the United States Code imposed four types (1) income tax; 4 of tax with respect to wages paid to employees: 5 (2) Social Security tax; (3) Medicare tax; and (4) federal 6 unemployment tax (collectively, "payroll taxes"). 7 8 b. Federal income tax was imposed upon employees based upon the amount of wages they received. c. 9 Social Security tax and Medicare tax were imposed by 10 the Federal Insurance Contributions Act (collectively referred to as 11 "FICA taxes"). FICA taxes were imposed separately on employees and 12 i on employers. d. 13 Federal unemployment tax was imposed under the Federal 14 Unemployment Tax Act (~~FUTA"). 15 employers. FUTA taxes were imposed solely on 16 GBUS's Obligation to Collect, Truthfully Account For, and 17 Pav Over to the IRS Federal Payroll Taxes 18 19 14. At all relevant times: a. GBUS was required to withhold employee income taxes 20 and FICA taxes from the wages paid to its employees, and to pay over 21 the withheld amounts to the IRS. 22 The employee income taxes and FICA '. taxes that GBUS was required to withhold and pay over to the IRS were 23 commonly referred to as "trust fund taxes" because of the provision 24 in the Internal Revenue Code requiring that such taxes "shall be held 25 to be a special fund in trust for the United States." 26 b. GBUS was required to make deposits of payroll taxes, 27 including trust fund taxes, to the IRS on a periodic basis. 28 addition, GBUS was required to file, following the end of each 25 In Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 26 of 61 Page ID #:280 1 ~~calendar quarter, an Employer's Quarterly Federal Tax Return (Form 2 ~~941), setting forth for the quarter the total amount of wages and 3 other compensation subject to withholding paid by GBUS, the total 4 amount of income tax withheld, the amount of Social Security and 5 Medicare taxes (i.e., FICA taxes) due, and the total federal tax 6 ~~ deposits. 7 c. Defendant AVENATTI was a ~~responsible person" for 8 GBUS, that is, defendant AVENATTI had the corporate responsibility to 9 collect, truthfully account for, and pay over to the IRS GBUS's 10 payroll taxes. 11 15. Beginning in or about June 2013 and continuing until at 12 least in or about October 2017, GBUS withheld tax payments from its 13 employees' paychecks, including federal income taxes and FICA taxes. 14 16. Beginning in or about September 2015 and continuing until 15 at least in or about October 2017, GBUS failed to pay over to the IRS 16 payroll taxes due and owing, including federal income taxes and FICA 17 taxes GBUS withheld from its employees' paychecks. 18 in or around September 2015 and in or around October 2017, GBUS 19 failed to pay over to the IRS at least approximately $3,207,144 in 20 federal payroll taxes, including at least approximately $2,390,048 in 21 trust fund taxes that GBUS withheld from its employees' paychecks. 22 17. In total, between Beginning in or about January 2016 and continuing until at 23 least in or about October 2017, GBUS failed to timely file its 24 quarterly employment tax returns (Forms 941) with the IRS for the 25 fourth quarter of 2015 through the third quarter of 2017, inclusive. 26 B. 27 28 FAILURE TO ACCOUNT FOR AND PAY OVER PAYROLL TAXES 18. Beginning in or about October 2015 and continuing until at least on or about October 31, 2017, in Orange County, within the 26 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 27 of 61 Page ID #:281 1 Central District of California, and elsewhere, defendant AVENATTI, a 2 responsible person of GBUS, willfully failed and willfully caused 3 GBUS to fail to pay over to the United States, namely, the IRS, all 4 of the federal income taxes and FICA taxes (i.e., trust fund taxes) 5 that GBUS withheld from GBUS employees' total taxable wages, which 6 were due and owing to the United States by the dates set forth below 7 and in the amounts set forth below, for each of the following 8 calendar year quarters: 9 QUARTER AND YEAR QUARTERLY DUE DATE APPROXIMATE TRUST FUND TABS DUE AND OWING ELEVEN Fourth Quarter of 2015 1/31/2016 $292,724 TWELVE First Quarter of 2016 4/30/2016 $382,100 THIRTEEN Second Quarter of 2016 7/31/2016 $297,791 FOURTEEN Third Quarter of 2016 10/31/2016 $333,969 FIFTEEN Fourth Quarter of 2016 1/31/2017 $277,681 SIXTEEN First Quarter of 2017 4/30/2017 $309,702 Second Quarter of 2017 7/31/2017 $345,094 Third Quarter of 2017 10/31/2017 $150,989 COUNT 10 11 12 13 14 15 16 17 18 19 20 21 22 SEVENTEEN EIGHTEEN 23 24 25 26 27 28 27 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 28 of 61 Page ID #:282 1 COUNT NINETEEN 2 [26 U.S.C. ~ 7212(a)] 3 4 A. INTRODUCTORY ALLEGATIONS 19. The Grand Jury re-alleges and incorporates by reference 5 paragraphs 1 through 7 and 10 through 17 of this Indictment as though 6 fully set forth herein. 7 20. In or about September 2016, the IRS initiated a collection 8 action relating to GBUS's failure to file its quarterly employment 9 tax returns (Forms 941) and pay over to the IRS payroll taxes that 10 were due and owing, including federal income taxes and FICA taxes 11 that GBUS had withheld (collectively, "trust fund taxes") from GBUS 12 employees' paychecks. 13 21. On or about October 7, 2016, an IRS Revenue Officer (~~IRS 14 RO-1") spoke with defendant MICHAEL JOHN AVENATTI (~~AVENATTI") and 15 other GBUS employees regarding the IRS's collection action and 16 advised them that since approximately September 2015 GBUS had not 17 18 I~, paid over to the IRS any federal payroll taxes. 22. On or about June 26, 2017, IRS RO-1 filed a notice of 19 federal tax lien against GBUS in King County in the State of. 20 Washington. 21 approximately $4,998,227 in unpaid federal payroll taxes. 22 the federal tax lien notice was also mailed to GBUS. 23 23. The federal tax lien indicated that GBUS owed the IRS A copy of Between in or about August 2017 and in or about January 24 2018, IRS RO-1 issued levy notices to a number of financial 25 institutions and companies associated with GBUS. The levy notices 26 ~ indicated that GBUS owed the IRS as much as approximately $5,210,769. 27 Each levy notice required the recipient of the levy notice to turn over to the United States Treasury GBUS's property and rights to 28 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 29 of 61 Page ID #:283 1 property, such as money, credits, and bank deposits, that the 2 recipient of the levy had or was already obligated to pay to GBUS. 3 Banks, savings and loans, and credit unions were obligated to hold 4 any funds subject to the levy notices for 21 days before sending 5 payment to the United States Treasury. 6 issued by IRS RO-1 were mailed to GBUS. 7 24. Copies of the levy notices Beginning as early as in or about August 2017, defendant 8 AVENATTI knew that the IRS had issued levies to certain financial 9 institutions at which GBUS maintained bank accounts. 10 I B. THE ATTEMPT TO OBSTRUCT AND IMPEDE THE ADMINISTRATION OF THE 11 INTERNAL REVENUE LAWS 12 25. Beginning on or about October 7, 2016, and continuing until 13 at least in or around September 2018, in Orange and Los Angeles 14 Counties, within the Central District of California, and elsewhere, 15 defendant AVENATTI corruptly obstructed and impeded, and corruptly 16 endeavored to obstruct and impede, the due administration of the 17 internal revenue laws of the United States. 18 26. The attempt to obstruct and impede the due administration 19 of the internal revenue laws of the United States operated, in 20 substance, in the following manner: 21 a. On or about October 7, 2016, defendant AVENATTI made 22 false statements to IRS RO-1 in connection with the IRS's collection 23 action, including that: 24 involved in GBUS's finances; and (ii) defendant AVENATTI was unaware 25 that since approximately September 2015 GBUS had failed to pay over (i) defendant AVENATTI was not personally ~ ~ to the IRS any federal payroll taxes. 27 In truth and in fact, as defendant AVENATTI then well knew, (i) defendant AVENATTI was personally involved in GBUS's finances in that he had authority to ~%7 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 30 of 61 Page ID #:284 1 approve payments on behalf of GBUS and had control over GBUS's bank 2 accounts; and (ii) defendant AVENATTI was aware that since 3 approximately September 2015 GBUS had failed to pay over to the IRS 4 any federal payroll taxes because, among other reasons, on or about 5 November 5, 2015, GBUS's controller had sent defendant AVENATTI an 6 email explaining to defendant AVENATTI the "implications" of GBUS not 7 paying to the IRS its payroll taxes in a timely manner, and, between 8 in or about September 2015 and in or about October 2016, defendant 9 AVENATTI had refused to authorize GBUS to pay over to the IRS the 10 federal payroll taxes that GBUS had withheld from its employees' 11 paychecks. 12 b. In order to further obstruct and impede the IRS's 13 collection action and the IRS's efforts to collect the payroll taxes 14 that GBUS owed to the IRS, defendant AVENATTI directed GBUS employees 15 to stop depositing cash receipts from the Tully's stores into GBUS 16 ~ KeyBank Account 6193, which defendant AVENATTI knew was already 17 subject to IRS levy notices, and instructed GBUS employees to instead 18 deposit all cash receipts from Tully's stores into a little-used Bank 19 of America account for a separate entity defendant AVENATTI 20 controlled, GB Auto. 21 the following: i. 22 Defendant AVENATTI did so by, among other acts, In or about September 2017, defendant AVENATTI 23 directed and instructed a GBUS employee ("GBUS Employee 1") to tell 24 the Tully's stores that the stores could no longer make cash deposits 25 into GBUS KeyBank Account 6193 and should hold all of the stores' 26 cash deposits. 27 28 ii. On or about September 7, 2017, defendant AVENATTI sent GBUS Employee 1 a text message containing the bank 30 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 31 of 61 Page ID #:285 1 account information for the GB Auto account at Bank of America (the 2 "GB Auto Account"), in order to cause the cash deposits from the 3 Tully's stores to be made into the GB Auto Account. iii. On or about September 18, 2017, after receiving a 4 5 text message from GBUS Employee 1 asking if the Tully's stores were 6 able to deposit at KeyBank yet, defendant AVENATTI responded via text 7 message "Not yet but hopefully in next two days. 8 deposits tmrw and deposit pls?" iv. 9 Can you collect On or about September 28, 2017, defendant 10 AVENATTI sent a text message to GBUS Employee 1 and another GBUS 11 employee ("GBUS Employee 2"), asking, "When are we depositing again?" 12 and, later that same day, another text message, stating, "It is 13 important that these deposits be made regularly. v. 14 15 Thanks." Between on or about September 7, 2017, and in or !, about December 2017, GBUS Employee 1, acting at defendant AVENATTI's 16 direction, made approximately 27 cash deposits totaling approximately 17 $859,784 into the GB Auto Account. 18 cash deposits, GBUS Employee 1 sent defendant AVENATTI a text message 19 attaching a photograph of the deposit slip. 20 c. After approximately 24 of the In order to further obstruct and impede the IRS's 21 collection action and the IRS's efforts to collect the payroll taxes 22 that GBUS owed to the IRS, defendant AVENATTI caused GBUS's credit 23 card processing company, TSYS Merchant Solutions ("TSYS"), to change 24 the company name, Employer Identification Number ("EIN"), and bank 25 account information associated with GBUS's merchant credit card 26 processing accounts (~~merchant accounts"), which defendant AVENATTI 27 knew were already subject to IRS levy notices. 28 did so by, among other acts, the following: 31 Defendant AVENATTI Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 32 of 61 Page ID #:286 i. 1 On or about September 28, 2017, defendant 2 AVENATTI received an email from GBUS Employee 2, which stated, among 3 other things, ~~9.25.17 tsys - $22,135.19 IRS levy." ii. 4 On or about September 29, 2017, defendant 5 AVENATTI received an email from GBUS Employee 2 titled ~~Levies," 6 which stated that "IRS took as [sic] additional $23,763.02 from tsys 7 yesterday." iii. On or about September 29, 2017, defendant 8 9 AVENATTI directed a TSYS representative (~~TSYS Rep. 1") to change the 10 company name associated with the merchant accounts from "Global 11 Baristas US LLC" to "Global Baristas, LLC" and to change the EIN from 12 I GBUS's EIN to GB LLC's EIN. iv. 13 On or about October 2, 2017, defendant AVENATTI 14 sent TSYS Rep. 1 an email regarding changes to the merchant accounts 15 and said "we need this done ASAP." v. 16 On or about October 3, 2017, defendant AVENATTI 17 entered into a new Merchant Transaction Processing Agreement with 18 TSYS on behalf of GB LLC. vi. 19 On or about October 3, 2017, defendant AVENATTI 20 and EA Employee 1 opened a new bank account, GB LLC Account 3730, for 21 GB LLC at CB&T in Orange County, California. 22 Employee 1 emailed TSYS Rep. 1 the bank account and routing number 23 for GB CB&T Account 3730, which was to be the new bank account into 24 which the proceeds of the credit card transactions were to be Later that day, EA LLP 25 I~ deposited. 26 27 d. In order to further obstruct and impede the IRS's collection action and the IRS's efforts to collect the payroll taxes that GBUS owed to the IRS, in or about December 2017, after TSYS 32 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 33 of 61 Page ID #:287 1 closed GBUS and GB LLC's merchant accounts, defendant AVENATTI caused 2 GBUS to open new merchant accounts with Chase for the Tully's stores 3 under the name GB LLC and directed Chase to deposit all credit card 4 receipts in to GB LLC Account 3730. e. 5 In order to further obstruct and impede the IRS's 6 efforts to collect the payroll taxes that GBUS owed to the IRS, 7 defendant AVENATTI changed the name of the contracting party on 8 various contracts with The Boeing Company (`Boeing"), which had 9 agreed to allow GBUS to operate Tully's stores at Boeing facilities 10 in Washington. 11 following: 12 Defendant AVENATTI did so by, among other acts, the i. In or about November 2016, approximately one 13 month after defendant AVENATTI learned of the IRS's collection 14 action, defendant AVENATTI caused the contracting party's name on a 15 contract with Boeing to be changed from "Global Baristas US LLC" to 16 ~~GB Hospitality LLC," even though, as defendant AVENATTI then well 17 knew, GBUS operated the Tully's stores at the Boeing facilities and 18 "GB Hospitality LLC" had never been registered with any government 19 agency and had never operated. 20 ii. In or about September 2017 and in or about 21 October 2017, after IRS RO-1 had issued levy notices to Boeing and 22 numerous financial institutions at which GBUS maintained accounts, 23 defendant AVENATTI, having agreed on behalf of GBUS to sell Boeing 24 two Tully's coffee kiosks and - other Tully's equipment in exchange for 25 a payment from Boeing of approximately $155,010 and forgiveness of 26 ' certain debts, directed a Boeing attorney to change the seller's name 27 from "GB Hospitality, LLC" to "Global Baristas, LLC" on the two bills 28 of sales relating to the transaction. 33 Defendant AVENATTI further Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 34 of 61 Page ID #:288 1 instructed Boeing to transfer the approximately $155,010 payment to 2 EA Trust Account 8671, rather than to GBUS's bank account. 3 AVENATTI then transferred the approximately $155,010 payment from EA 4 Trust Account 8671 to A&A Account 0661, from which defendant AVENATTI 5 used a substantial portion of the proceeds of the sale for defendant 6 AVENATTI's personal purposes, including to: (1) transfer 7 approximately $15,000 to a personal bank account; (2) pay 8 approximately $13,073 for rent at defendant AVENATTI's residential Defendant apartment in Los Angeles, California; and (3) pay approximately 10 11 $8,459 that defendant AVENATTI owed to Neiman Marcus. f. After learning of the IRS's collection action, 12 defendant AVENATTI used GBUS funds that should and could have been 13 used to pay over to the IRS federal incomes taxes and FICA taxes that 14 had been withheld from GBUS employees' paychecks for his own personal 15 benefit and the benefit of other entities defendant AVENATTI 16 controlled, including, but not limited to, the following: 17 i. Between in or about October 2016 and in or about 18 December 2017, defendant AVENATTI caused a net of approximately $1.6 19 million to be transferred from GBUS's and GB LLC's bank accounts to 20 bank accounts associated with defendant AVENATTI's other companies, 21 namely, A&A and EA LLP. 22 23 ii. In order to lull Client 1 and prevent Client 1 I~ from discovering that defendant AVENATTI had embezzled Client 1's 24 portion of the $4,000,000 settlement payment from the County of Los 25 Angeles, defendant AVENATTI used GBUS funds, including credit card 26 receipts from Tully's stores that Chase deposited into GB LLC Account 27 3730, to make the following additional payments to Client l: 28 34 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 35 of 61 Page ID #:289 1 (I) On or about January 19, 2018, defendant 2 AVENATTI used GBUS funds, which had been transferred from GB LLC 3 Account 3730 and/or KeyBank Account 6193 to EA Trust Account 3714, to 4 make an approximately $1,900 payment to Client 1. 5 (II) On or about February 15, 2018, defendant 6 AVENATTI used GBUS funds, which had been transferred from GB LLC 7 Account 3730 and/or GBUS KeyBank Account 6193 to EA Trust Account 8 4613, to make an approximately $1,900 payment to Client 1. 9 iii. In order to lull Client 2 and prevent Client 2 10 from discovering that defendant AVENATTI had embezzled Client 2's 11 portion of the initial $2,750,000 settlement payment from Individual 12 1, defendant AVENATTI used GBUS funds, including credit card receipts 13 from Tully's stores that Chase deposited into GB LLC Account 3730, to 14 make the following additional payments to Client 2: 15 (I) On or about January 16, 2018, defendant 16 AVENATTI used GBUS funds, which had been transferred from GB LLC 17 Account 3730 and/or GBUS KeyBank Account 6193 to EA Trust Account 18 19 1 3714, to make an approximately $16,000 payment to Client 2. (II) On or about February 20, 2018, defendant 20 AVENATTI used GBUS funds, which had been transferred from GB LLC 21 Account 3730 and/or GBUS KeyBank Account 6193 to EA Trust Account 22 4613, to make an approximately $16,000 payment to Client 2. 23 24 25 26 27 28 35 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 36 of 61 Page ID #:290 1 COUNTS TWENTY THROUGH TWENTY-THREE 2 [26 U.S.C. ~ 7203] 3 A. INTRODUCTORY ALLEGATIONS 27. 4 The Grand Jury re-alleges and incorporates by reference 5 paragraphs 1 through 7, 10 through 17, 20 through 24, and 26 of this 6 Indictment as though fully set forth herein. 28. 7 On or about October 15, 2010, defendant MICHAEL JOHN 8 AVENATTI (~~AVENATTI") filed his U.S. Individual Income Tax Return 9 (Form 1040) for the 2009 calendar year, which claimed defendant 10 AVENATTI had total income of $1,939,942 and that defendant AVENATTI 11 owed the IRS approximately $569,630 in taxes for the 2009 calendar 12 year. 13 for the 2009 calendar year until November 2015, when he sold his 14 residence in Laguna Beach, California, upon which there was an IRS 15 tax lien. Defendant AVENATTI, however, did not pay the remaining tax due 29. 16 On or about October 11, 2011, defendant AVENATTI filed his 17 U.S. Individual Income Tax Return (Form 1040) for the 2010 calendar 18 year, which claimed defendant AVENATTI had total income of $1,154,800 19 and that defendant AVENATTI owed the IRS approximately $281,786 in 20 taxes for the 2010 calendar year. 21 not pay the remaining taxes due to the IRS for the 2010 calendar year 22 until November 2015, when he sold his residence in Laguna Beach, 23 California, upon which there was an IRS tax lien. 30. 24 Defendant AVENATTI, however, did The 2010 Form 1040 was the last U.S. Individual Income Tax 25 Return defendant AVENATTI filed with the IRS. 26 B. 27 28 THE WILLFUL FAILURES TO FILE TAX RETURNS 31. During the calendar years set forth below, defendant AVENATTI, who resided in Orange and Los Angeles Counties, within the 36 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 37 of 61 Page ID #:291 1 Central District of California, had and received gross income in 2 excess of the amounts (~~threshold gross income amounts") set forth 3 below. 4 required by law, following the close of each of the calendar years 5 set forth below and on or before the dates set forth below ("due 6 dates"), to make an income tax return to the IRS Center, at Fresno, 7 California, to a person assigned to receive returns at the local 8 office of the IRS in the Central District of California, or to By reason of such gross income, defendant AVENATTI was 9 l another IRS officer permitted by the Commissioner of the Internal 10 ( Revenue, stating specifically the items of his gross income and any Well knowing and 11 deductions and credits to which he was entitled. 12 believing all of the foregoing, defendant AVENATTI willfully failed, 13 on or about the due dates set forth below, in the Central District of 14 California and elsewhere, to make an income tax return. 15 CALENDAR YEAR THRESHHOLD GROSS INCOME AMOUNT DUE DATE TWENTY 2014 $20,300 October 15, 2015, pursuant to a request for an automatic extension of time filed on defendant AVENATTI's behalf TWENTYONE 2015 $20,600 October 17, 2016, pursuant to a request for an automatic extension of time filed on defendant AVENATTI's behalf TWENTYTWO 2016 $20,700 April 15, 2017 TWENTYTHREE 2017 $20,800 April 16, 2018 COUNT 16 17 ~S~ 19 20 21 22 23 24 25 26 27 28 37 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 38 of 61 Page ID #:292 1 COUNTS TWENTY-FOUR THROUGH TWENTY-SIX 2 [26 U.S.C. ~ 7203] 3 A. INTRODUCTORY ALLEGATIONS 32. 4 The Grand Jury re-alleges and incorporates by reference 5 paragraphs 1 through 7, 10 through 17, 20 through 24, 26, and 28 6 through 30 of this Indictment as though fully set forth herein. 7 33. On or about March 17, 2014, EA LLP filed its 2011 U.S. 8 Return of Partnership Income federal tax return (Form 1065), and 9 defendant MICHAEL JOHN AVENATTI (~~AVENATTI") signed the return on or 10 about March 12, 2014, as the general partner or member manager. 11 return listed A&A as the designated Tax Matters Partner (~~TMP") 12 before the IRS, and defendant AVENATTI as the TMP representative. 34. 13 The On or about October 8, 2014, EA LLP filed its 2012 U.S. 14 Return of Partnership Income federal tax return (Form 1065), and 15 defendant AVENATTI signed the return on or about October 1, 2014, as 16 the general partner or member manager. 17 designated TMP before the IRS. 35. 18 19 20 21 The return listed A&A as the The 2012 Form 1065 for EA LLP was the last U.S. Return of Partnership Income for EA LLP filed with the IRS. I B. THE WILLFUL FAILURES TO FILE TAX RETURNS 36. During the calendar years set forth below, defendant 22 AVENATTI conducted a business as a partnership under the name of EA 23 LLP, with its principal place of business in Orange County, within 24 the Central District of California. 25 required by law, following the close of each of the calendar years 26 set forth below and on or before the dates set forth below ("due Defendant AVENATTI therefore was ~ I dates"), to make, for and on behalf of the partnership, a partnership return of income to the IRS Center, at Ogden, Utah, to a person 38 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 39 of 61 Page ID #:293 1 assigned to receive returns at the local office of the IRS in the 2 Central District of California, or to another IRS officer permitted 3 b y the Commissioner of the Internal Revenue, stating specifically the 4 items of the partnership's gross income and the deductions and 5 credits allowed by law. 6 foregoing, defendant AVENATTI willfully failed, on or about the due 7 dates set forth below, in the Central District of California and 8 elsewhere, to make a partnership return. 9 Well knowing and believing all of the CALENDAR YEAR DUE DATE TWENTYFOUR 2015 September 15, 2016., pursuant to a request for an automatic extension of time filed on EA LLP's behalf. TWENTYFIVE 2016 September 15, 2017, pursuant to a request for an automatic extension of time filed on EA LLP's behalf. TWENTYSIX 2017 March 15, 2018. COUNT 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 ~ :~ 39 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 40 of 61 Page ID #:294 1 COUNTS TWENTY-SEVEN THROUGH TWENTY-NINE 2 [26 U.S.C. § 7203] 3 A. 37. 4 5 INTRODUCTORY ALLEGATIONS The Grand Jury re-alleges and incorporates by reference paragraphs 1 through 7, 10 through 17, 20 through 24, 26, 28 through 6 ~ 30, and 33 through 35 of this Indictment as though fully set forth 7 T herein. 38. 8 9 On or about September 15, 2010, defendant MICHAEL JOHN AVENATTI (~~AVENATTI") filed a 2009 U.S. Income Tax Return for an S 10 Corporation (Form 11205) for A&A, which claimed A&A had total income 11 of $3,391,224 and ordinary business income of $1,578,558 for the 2009 12 calendar year. 13 of A&A. 39. 14 The return listed defendant AVENATTI as the President On or about September 30, 2011, defendant AVENATTI filed a 15 2010 U.S. Income Tax Return for an S Corporation (Form 11205) for 16 A&A, which claimed A&A had total income of $1,421,028 and ordinary 17 business income of $821,634 for the 2010 calendar year. 18 listed defendant AVENATTI as the President of A&A. 40. 19 The return The 2010 Form 11205 for A&A was the last U.S. Income Tax 20 Return for an S Corporation (Form 11205) that defendant AVENATTI 21 filed for A&A with the IRS. 22 B. 23 THE WILLFUL FAILURE TO FILE TAX RETURN 41. During the calendar years set forth below, defendant 24 AVENATTI was the President and CEO of A&A, with its principal place 25 of business in Orange County, within the Central District of 26 California. 27 following the close of each of the calendar years set forth below and 28 on or before the dates set forth below ("due dates"), to make an Defendant AVENATTI therefore was required by law, ~~ Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 41 of 61 Page ID #:295 1 income tax return, for and on behalf of the corporation, to the IRS 2 Center, at Ogden, Utah, to a person assigned to receive returns at 3 the local office of the IRS in the Central District of California, or 4 to another IRS officer permitted by the Commissioner of the Internal 5 Revenue, stating specifically the items of the corporation's gross 6 income and the deductions and credits allowed by law. 7 and believing all of the foregoing, defendant AVENATTI willfully 8 failed, on or about the due dates set forth below, in the Central 9 District of California and elsewhere, to make an income tax return at 10 11 Well knowing the time required by law. CALENDAR YEAR DUE DATE TWENTYSEVEN 2015 September 15, 2016, pursuant to a request for an automatic extension of time filed on A&A's behalf. TWENTYEIGHT 2016 September 15, 2017, pursuant to a request for an automatic extension of time filed on A&A's behalf. TWENTYNINE 2017 March 15, 2018. COUNT 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 ~:~ 41 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 42 of 61 Page ID #:296 1 COUNTS THIRTY AND THIRTY-ONE 2 [18 U.S.C. ~~ 1344(1), 2(b)] 3 A. 4 INTRODUCTORY ALLEGATIONS 42. The Grand Jury re-alleges and incorporates by reference 5 paragraphs 1, 10, 28 through 30, 33 through 35, and 38 through 40 of 6 this Indictment as though fu11y set forth herein. 7 43. Between in or about January 2014 and in or about April 8 2016, defendant MICHAEL JOHN AVENATTI (~~AVENATTI") operated and 9 controlled GB LLC and EA LLP from EA LLP's offices in Newport Beach, 10 California. 44. 11 At all times relevant to this Indictment, The Peoples Bank 12 was a financial institution located in Biloxi, Mississippi, the 13 accounts and deposits of which were insured by the Federal Deposit 14 Insurance Corporation. 15 B. 16 THE SCHEME TO DEFRAUD 45. Beginning in or about January 2014, and continuing through 17 in or about April 2016, in Orange County, within the Central District 18 of California, and elsewhere, defendant AVENATTI, together with 19 others known and unknown to the Grand Jury, knowingly and with intent 20 to defraud, executed and attempted to execute a scheme to defraud The 21 Peoples Bank as to material matters. 22 23 24 46. The fraudulent scheme operated, in substance, in the following manner: a. Between in or about January 2014 and in or about 25 December 2014, defendant AVENATTI sought and obtained the following 26 three loans from The Peoples Bank on behalf of the following 27 companies that defendant AVENATTI controlled: 28 42 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 43 of 61 Page ID #:297 i. 1 In or about January 2014, defendant AVENATTI 2 sought and obtained a $850,000 loan to GB LLC (the "January 2014 GB 3 LLC Loan"); ii. 4 In or about March 2014, defendant AVENATTI sought 5 and obtained a $2,750,000 loan to EA LLP (the ~~March 2014 EA LLP 6 Loan"), from which defendant AVENATTI used approximately $884,166 to 7 pay off the January 2014 GB LLC Loan; and iii. In or about December 2014, defendant AVENATTI 8 9 10 11 sought and obtained a $500,000 loan to EA LLP (the ~~December 2014 EA LLP Loan"). b. In order to obtain the March 2014 EA LLP Loan and the 12 December 2014 EA LLP Loan from The Peoples Bank, defendant AVENATTI 13 omitted and concealed material facts, and provided The Peoples Bank 14 with materially false financial information, including, but not 15 limited to, false and fraudulent individual and partnership tax 16 returns, and false and fraudulent balance sheets and financial 17 statements, as described below. 18 c. In support of the application for the March 2014 EA IL•~ LLP Loan, defendant AVENATTI submitted to The Peoples Bank a 2011 f~.Z11 U.S. Individual Income Tax Return (Form 1040) (the `Peoples Bank 2011 21 Form 1040") stating that defendant AVENATTI had an adjusted gross 22 income for the 2011 calendar year of approximately $4,562,881, and 23 had a tax due and owing to the IRS for the 2011 calendar year of 24 a pproximately $1,506,707. 25 AVENATTI then well knew, defendant AVENATTI had not filed the Peoples 26 Bank 2011 Form 1040 with the IRS, had not filed any 2011 U.S. 27 Individual Income Tax Return with the IRS, and had not paid to the In truth and in fact, as defendant 28 43 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 44 of 61 Page ID #:298 1 IRS the $1,506,707 defendant AVENATTI purportedly owed for the 2011 2 calendar year. d. 3 In support of the application for the March 2014 EA 4 LLP Loan, on or about March 11, 2014, defendant AVENATTI submitted to 5 The Peoples Bank a personal financial statement as of March 11, 2014, 6 in which defendant AVENATTI failed to disclose to The Peoples Bank 7 that defendant AVENATTI still owed the IRS approximately $850,438 in 8 unpaid personal income taxes, plus interest and penalties, for the 9 2009 and 2010 calendar years. e. 10 11 In support of the application for the March 2014 EA LLP Loan, on or about March 11, 2014, defendant AVENATTI submitted to 12 ~ The Peoples Bank a Balance Sheet for January 2014 through March 10, 13 ' 2014 for EA LLP, which stated, among other things, that EA LLP had 14 approximately $508,299 in its operating account, EA Account 8461, as 15 of March 10, 2014. 16 well knew, the balance in EA Account 8461 as of March 10, 2014, was 17 a pproximately $43,013. 18 f. In truth and in fact, as defendant AVENATTI then In support of the application for the March 2014 EA 19 LLP Loan, on or about March 13, 2014, defendant AVENATTI submitted to 20 The Peoples Bank a 2012 U.S. Partnership Return (Form 1065) for EA 21 LLP (the ~~Peoples Bank 2012 Form 1065"), which stated that in the 22 2012 calendar year EA LLP had total income of approximately 23 $11,426,021, and ordinary business income of approximately 24 $5,819,458. 25 knew, the Peoples Bank 2012 Form 1065, had not been filed with the 26 IRS. 27 different 2012 U.S. Partnership Return (Form 1065) to be filed with In truth and in fact, as defendant AVENATTI then well Rather, in or about October 2014, defendant AVENATTI caused a 28 r ~i Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 45 of 61 Page ID #:299 1 the IRS (the ~~IRS 2012 Form 1065"), which differed materially from 2 the Peoples Bank 2012 EA 1065 in the following ways: i. 3 The Peoples Bank 2012 Form 1065 stated that in 4 '~, the 2012 calendar year EA LLP had total income of approximately 5 $11,426,021, whereas the IRS 2012 Form 1065 stated that in the 2012 6 calendar year EA LLP had gross receipts and total income of 7 approximately $6,212,605. ii. 8 9 The Peoples Bank 2012 Form 1065 stated that in the 2012 calendar year EA LLP had ordinary business income of 10 approximately $5,819,458, whereas the IRS 2012 Form 1065 stated that 11 EA LLP had an ordinary business loss of approximately $2,128,849. g. 12 In reliance on the false and fraudulent information 13 defendant AVENATTI submitted to The Peoples Bank in support of the 14 March 2014 EA LLP Loan, on or about March 14, 2014, The Peoples Bank 15 approved the March 2014 EA LLP Loan and transferred approximately 16 $1,824,584 to EA Account 8461. h. 17 In support of the application for the December 2014 EA 18 ~ LLP Loan, on or about November 16, 2014, defendant AVENATTI submitted 19 to The Peoples Bank a Balance Sheet for January 2014 through 20 September 2014 for EA LLP, which stated, among other things, that EA 21 ! LLP had approximately $712,729 in EA Account 8461 as of September 30, In truth and in fact, as defendant AVENATTI then well knew, 22 2014. 23 the balance in EA Account 8461 as of September 30, 2014, was 24 approximately $27,710. 25 i. In support of the application for the December 2014 EA 26 LLP Loan, on or about November 22, 2014, defendant AVENATTI submitted 27 to The Peoples Bank a personal financial statement as of November 1, 28 2014, in which defendant AVENATTI failed to disclose to The Peoples 45 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 46 of 61 Page ID #:300 1 Bank that defendant AVENATTI still owed the IRS approximately 2 $850,438 in unpaid personal income taxes, plus interest and 3 penalties, for the 2009 and 2010 calendar years. j. 4 In support of the application for the December 2014 EA 5 LLP Loan, on or about December 1, 2014, defendant AVENATTI submitted 6 to The Peoples Bank a 2012 U.S. Individual Income Tax Return (Form 7 1040) (the "Peoples Bank 2012 Form 1040"), stating that defendant 8 AVENATTI had total income for the 2012 calendar year of approximately 9 $5,423,099, and had paid to the IRS $1,600,000 in estimated tax In truth and in fact, as defendant AVENATTI then well 10 payments. 11 knew, defendant AVENATTI had not filed the Peoples Bank 2012 Form 12 1040 with the IRS, had not filed any 2012 U.S. Individual Income Tax 13 Return with the IRS, and had not made any payments to the IRS towards 14 his 2012 individual tax liability. 15 k. In support of the application for the December 2014 EA 16 LLP Loan, on or about December 1, 2014, defendant AVENATTI submitted 17 to The Peoples Bank a 2013 U.S. Individual Income Tax Return (Form 18 1040) (the "Peoples Bank 2013 Form 1040"), stating that defendant 19 AVENATTI had total income for the 2013 calendar year of approximately 20 $4,082,803, and had paid to the IRS approximately $1,250,000 in 21 estimated tax payments and approximately $103,511 in withholdings. 22 In truth and in fact, as defendant AVENATTI then well knew, defendant 23 AVENATTI had not filed the Peoples Bank 2013 Form 1040 with the IRS, 24 had not filed any 2013 U.S. Individual Income Tax Return with the 25 IRS, had not made any estimated tax payments to the IRS towards his 26 2013 individual tax liability, and did not have any tax withholdings 27 during the 2013 calendar year. 28 ~. Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 47 of 61 Page ID #:301 1. 1 In order to obtain the December 2014 EA LLP Loan, on 2 or about December 12, 2014, defendant AVENATTI, on behalf of EA LLP, 3 signed a commercial pledge agreement whereby EA LLP agreed to 4 "Assignment of the First $500,000 Plus Interest of Settlement 5 Proceeds in the Meridian related cases, said attorney's fees to be 6 $10.8 million plus out of pocket costs for class counsel [EA LLP]." 7 On or about March 31, 2015, after EA LLP received a $3,034,514 wire 8 transfer from the trustee of the Meridian settlement, defendant 9 AVENATTI concealed and did not disclose, and caused EA LLP to conceal 10 and not disclose, the receipt of the funds to The Peoples Bank, and 11 did not distribute and caused EA LLP not to distribute the first 12 $500,000 to The Peoples Bank as defendant AVENATTI on behalf of EA 13 LLP had agreed to do. m. 14 In reliance on the false and fraudulent information 15 defendant AVENATTI submitted to The Peoples Bank in support of the 16 March 2014 EA LLP Loan and the December 2014 EA LLP Loan, on or about 17 December 12, 2014, The Peoples Bank approved the December 2014 EA LLP 18 Loan and transferred approximately $494,500 to EA Account 8461. 19 C. 20 EXECUTIONS OF THE SCHEME TO DEFRAUD 47. On or about the dates set forth below, in Orange County, 21 within the Central District of California, and elsewhere, defendant 22 AVENATTI, together with others known and unknown to the Grand Jury, 23 executed the fraudulent scheme by committing and willfully causing 24 others to commit the following acts: 25 COUNT DATE ACT 26 THIRTY 3/14/2014 Receipt of March 2014 EA LLP Loan proceeds in the amount of approximately $1,824,584. 27 28 47 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 48 of 61 Page ID #:302 1 COUNT DATE ACT 2 THIRTYONE 12/12/2014 Receipt of December 2014 EA LLP Loan proceeds in the amount of approximately $494,500. 3 4 5 6 7 8 L 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 ~ I ~ ;, Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 49 of 61 Page ID #:303 1 COUNT THIRTY-TWO 2 [18 U.S.C. ~~ 1028A(a) (1), 2(b)] 3 48. The Grand Jury re-alleges and incorporates by reference 4 paragraphs 1, 10, 28 through 30, 33 through 35, 38 through 40, and 43 5 through 46 of this Indictment as though fully set forth herein. 6 49. On or about December 1, 2014, in Orange County, within the 7 Central District of California, and elsewhere, defendant MICHAEL JOHN 8 AVENATTI (~~AVENATTI") knowingly transferred, possessed, and used, and 9 willfully caused to be transferred, possessed, and used, without 10 lawful authority, a means of identification that defendant AVENATTI 11 knew belonged to another person, namely, the name and preparer tax 12 identification number (~~PTIN") of M.H., during and in relation to the 13 offense of Bank Fraud, a felony violation of Title 18, United States 14 15 ( Code, Section 1344(1), as charged in Count Thirty-One of this Indictment. 16 17 18 19 20 21 22 23 24 25 26 27 28 .• Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 50 of 61 Page ID #:304 1 COUNT THIRTY-THREE 2 [18 U.S.C. ~~ 152(3), 2(b)] 3 4 A. INTRODUCTORY ALLEGATIONS 50. The Grand Jury re-alleges and incorporates by reference 5 paragraphs 1 through 7 of this Indictment as though fully set forth 6 herein. 7 51. In or about February 2016, J.F., a former partner at EA 8 LLP, filed an arbitration claim against EA LLP and defendant MICHAEL 9 JOHN AVENATTI (~~AVENATTI") In or about February 2017, the 10 arbitration panel ordered the depositions of defendant AVENATTI and 11 EA Employee 1 to take place on March 3, 2017. 12 52. On or about March 1, 2017, a creditor of EA LLP, filed an 13 involuntary Chapter 11 bankruptcy petition against EA LLP in the 14 Middle District of Florida. 15 petition created an automatic stay under Section 362 of Title 11 of 16 the arbitration between J.F. and EA LLP and defendant AVENATTI. 17 53. By law, the filing of the bankruptcy On or about March 8, 2017, in response to an emergency 18 motion filed by J.F. for relief from the automatic stay, the 19 Bankruptcy Court in the Middle District of Florida ordered that 20 , unless EA LLP consented to the bankruptcy by March 10, 2017, the 21 Court would grant relief from the automatic stay and thereby allow 22 the arbitration to proceed. 23 54. On or about March 10, 2017, EA LLP consented to an order 24 for relief under Chapter 11 of Title 11 and, as a result, EA LLP 25 became a debtor in possession in bankruptcy. 26 55. On or about April 11, 2017, defendant AVENATTI certified 27 and declared under penalty of perjury as the managing partner of EA 28 LLP that the United States Trustee Financial Requirements Checklist, 50 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 51 of 61 Page ID #:305 1 Certifications, and any Attachments Thereto, were true and correct to 2 the best of his knowledge and belief. 3 of EA LLP further certified that he had "read and underst ood] the 4 United States Trustee Chapter 11 `Operating Guidelines and Reporting 5 Requirements for Debtors in Possession and Trustees"' and "agree[d] 6 to perform in accordance with said guidelines and requirements." 7 Specifically, defendant AVENATTI certified as the managing partner of 8 EA LLP that he understood, among other things, that EA LLP was 9 required to: (a) close all pre-petition bank accounts controlled by Defendant AVENATTI on behalf 10 the debtor, EA LLP; (b) immediately open new debtor-in-possession 11 ("DIP") operating, payroll, and tax accounts; and (c) deposit all 12 business revenues into the DIP operating account. 13 56. On or about April 20, 2017, the EA LLP Chapter 11 14 bankruptcy was transferred from the Middle District of Florida to the 15 Central District of California as In re: Eagan Avenatti LLP, bearing 16 case number 8:17-bk-11961-CB. 17 debtor in possession, and all property and assets in which the debtor 18 had any ownership or interest at the time of the filing of the 19 bankruptcy petition as well as any interest in property that the 20 debtor acquired after the commencement of the bankruptcy case was the In the bankruptcy case, EA LLP was the 21 "bankruptcy estate," and was under the management and control of the 22 debtor in possession. 23 57. On or about May 12, 2017, the Office of the United States 24 Trustee in the Central District of California provided defendant 25 AVENATTI the Guidelines and Requirements for Chapter 11 Debtors in 26 Possession (the ~~Guidelines and Requirements"), which required EA LLP 27 I to close all existing bank accounts and open new DIP general, 28 51 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 52 of 61 Page ID #:306 1 payroll, and tax bank accounts, and to file a declaration regarding 2 EA LLP's compliance with the Guidelines and Requirements. 3 58. On or about May 30, 2017, defendant AVENATTI signed under 4 penalty of perjury as the managing partner of EA LLP a "Declaration 5 of Debtor Regarding Compliance with the United States Trustee 6 Guidelines and Requirements for Chapter 11 Debtors in Possession," 7 which included the following information: a. 8 9 10 Defendant AVENATTI, on behalf of EA LLP, confirmed that EA LLP had closed all pre-petition bank accounts, and provided the account information for EA LLP's three new DIP bank accounts. b. 11 Defendant AVENATTI, on behalf of EA LLP, provided the 12 United States Trustee with evidence that EA LLP had closed EA LLP's 13 prior general account and opened three new DIP bank accounts. c. 14 In response to the requirement that EA LLP list the 15 last two years for which EA LLP filed federal and state tax returns, 16 defendant AVENATTI, on behalf of EA LLP, stated that neither "[t]he 17 Debtor nor its accountant has copies of its 2014 and 2015 federal or 18 state income tax returns. The Debtor will seek to obtain copies of 19 . them from the IRS and the State of California." 20 59. Pursuant to the Guidelines and Requirements, EA LLP had 21 additional and ongoing requirements during the course of the 22 bankruptcy, including the following: 23 a. Before any insiders, including the owners, partners, ! ~ officers, directors, and shareholders of EA LLP and relatives of ~ 'f insiders, could receive compensation from the bankruptcy estate, EA 26 LLP was required to provide notice to the creditors and the United 27 States Trustee. 28 until 15 days after service of the notice and (i) no objection had No such compensation could be paid to any insiders 52 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 53 of 61 Page ID #:307 1 been received by the Bankruptcy Court; or (ii) if an objection had 2 been received, the Bankruptcy Court had resolved the objection. b. 3 EA LLP was required to file Monthly Operating Reports 4 ("MOR") to include, among other things, ~~information regarding bank 5 accounts over which the debtor ha[d] possession, custody, control, 6 access or signatory authority, even if the account [was] not in the 7 debtor's name and whether or not the account contained] only post- 8 petition income." 9 financial information in the MOR." 10 60. EA LLP was "required to report all of [its] From on or about May 25, 2017, through on or about February 11 15, 2018, defendant AVENATTI signed under penalty of perjury and 12 filed MORs for EA LLP for eleven months, namely, March 2017 through 13 January 2018, inclusive, which included the following information: 14 a. The first page of each MOR stated that ~~All receipts 15 must be deposited into the general account," and required EA LLP to 16 itemize: (i) the beginning balance of the general account for the 17 month at issue; (ii) all receipts EA LLP obtained during the month; 18 (iii) all of the disbursements EA LLP made during the month, 19 including transfers to other DIP accounts; and (iv) the ending 20 balance of the general account for the month at issue. 21 b. Each MOR required EA LLP to include all receipts and 22 expenditures during the monthly reporting period, as well as the 23 cumulative post-petition amounts. 24 AVENATTI signed under penalty of perjury on behalf of EA LLP, 25 defendant AVENATTI claimed zero payroll was made to insiders. 26 Immediately above the penalty of perjury declaration, each MOR sought 27 answers to several questions, including whether EA LLP provided 28 compensation or remuneration to any officers, directors, principals, On all eleven MORs that defendant 53 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 54 of 61 Page ID #:308 1 or other insiders without appropriate authorization during the 2 reporting period. 3 under penalty of perjury on behalf of EA LLP, defendant AVENATTI 4 answered ~~no" to the question whether any compensation or On all eleven MORs that defendant AVENATTI signed 5 '~ remuneration was made to any officers, directors, principals, or 6 b other insiders. 7 I B. FALSE DECLARATION 8 61. 9 On or about June 19, 2017, in Orange County, within the Central District of California, defendant AVENATTI knowingly and 10 fraudulently made and willfully caused to be made a materially false 11 declaration and statement under penalty of perjury within the meaning 12 of Title 28, United States Code, Section 1746, in and in relation to 13 ~ a case under Title 11 of the United States Code, namely, In re: Eagan 14 Avenatti LLP, No. 8:17-bk-11961-CB in United States Bankruptcy Court 15 for the Central District of California, by submitting and declaring 16 ' under penalty of perjury to be true and complete the Monthly 17 Operating Report for EA LLP for the period May 1, 2017, through 18 May 30, 2017 (the "May 2017 MOR"), in which defendant AVENATTI, as 19 the Managing Partner for EA LLP, falsely stated that EA LLP's 20 "Receipts During Current Period; Accounts Receivable - Post Filing" 21 were $409,953.70, whereas, in truth and in fact, as defendant 22 AVENATTI then well knew, EA LLP's receipts during the May 2017 MOR 23 period, accounts receivable - post filing were greater than 24 $409,953.70. 25 26 27 28 54 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 55 of 61 Page ID #:309 1 COUNT THIRTY-FOUR 2 [18 U.S.C. ~ 152(3), 2(b)] 3 62. The Grand Jury re-alleges and incorporates by reference 4 paragraphs 1 through 7 and 51 through 60 of this Indictment as though 5 fully set forth herein. 6 63. On or about October 16, 2017, in Orange County, within the 7 Central District of California, defendant MICHAEL JOHN AVENATTI 8 ("AVENATTI") knowingly and fraudulently made and willfully caused to 9 be made a materially false declaration and statement under penalty of 10 perjury within the meaning of Title 28, United States Code, Section 11 1746, in and in relation to a case under Title 11 of the United 12 States Code, namely, In re: Eagan Avenatti LLP, No. 8:17-bk-11961-CB 13 in United States Bankruptcy Court for the Central District of 14 California, by submitting and declaring under penalty of perjury to 15 be true and complete the Monthly Operating Report for EA LLP for the 16 period September 1, 2017, through September 30, 2017 ("September 2017 17 MOR"), in which defendant AVENATTI, as the Managing Partner for EA 18 LLP, falsely stated that EA LLP's ~~Receipts During Current Period; 19 Accounts Receivable - Post Filing" were $829,635.28, whereas, in 20 truth and in fact, as defendant AVENATTI then well knew, EA LLP's 21 receipts during the September 2017 MOR period, accounts receivable - 22 post filing were greater than $829,635.28. 23 24 25 26 27 28 55 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 56 of 61 Page ID #:310 1 COUNT THIRTY-FIVE 2 [18 U.S.C. ~ 152(3), 2(b)] 3 64. The Grand Jury re-alleges and incorporates by reference 4 paragraphs 1 through 7 and 51 through 60 of this Indictment as though 5 fully set forth herein. 6 65. On or about February 15, 2018, in Orange County, within the 7 Central District of California, defendant MICHAEL JOHN AVENATTI 8 ("AVENATTI") knowingly and fraudulently made and willfully caused to 9 be made a materially false declaration and statement under penalty of 10 perjury within the meaning of Title 28, United States Code, Section 11 1746, in and in relation to a case under Title 11 of the United 12 States Code, namely, In re: Eagan Avenatti LLP, No. 8:17-bk-11961-CB 13 in United States Bankruptcy Court for the Central District of 14 California, by submitting and declaring under penalty of perjury to 15 be true and complete the Monthly Operating Report for EA LLP for the 16 period January 1, 2018, through January 31, 2018 (`January 2018 17 MOR"), in which defendant AVENATTI, as the Managing Partner for EA 18 LLP, falsely stated that EA LLP's "Receipts During Current Period; 19 Accounts Receivable - Post Filing" were $232,221.11, whereas, in 20 truth and in fact, as defendant AVENATTI then well knew, EA LLP's 21 receipts during the January 2018 MOR period, accounts receivable - 22 post filing were greater than $232,221.11. 23 24 25 26 27 r: 56 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 57 of 61 Page ID #:311 1 COUNT THIRTY-SIX 2 [18 U.S.C. ~ 152(2)] 3 66. The Grand Jury re-alleges and incorporates by reference 4 paragraphs 1 through 7 and 51 through 60 of this Indictment as though 5 fully set forth herein. 6 67. On or about June 12, 2017, in Orange County, within the 7 Central District of California, defendant MICHAEL JOHN AVENATTI 8 ("AVENATTI") knowingly and fraudulently made a false oath as to a 9 material matter in and in relation to a case under Title 11 of the 10 United States Code, namely, In re: Eagan Avenatti LLP, No. 8:17-bk- 11 11961-CB in United States Bankruptcy Court for the Central District 12 of California, in that defendant AVENATTI testified under oath at the 13 Section 341(a) debtor's examination and stated "no" when asked 14 whether the debtor, EA LLP, received any counsel fees from the Super 15 Bowl NFL litigation. 16 well knew at the time he made the false oath, defendant AVENATTI and 17 EA LLP had received fees from the Super Bowl NFL litigation, namely, 18 two wire transfers totaling approximately $1,361,000, including 19 attorneys' fees, on or about May 17, 2017. In truth and in fact, as defendant AVENATTI 20 21 ~ ~ ~~ 24 25 26 27 28 57 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 58 of 61 Page ID #:312 FORFEITURE ALLEGATION ONE 1 [18 U.S.C. ~ 981(a)(1)(C) and 28 U.S.C. ~ 2461(c)] ~1 3 Pursuant to Rule 32.2 of the Federal Rules of Criminal 68. 4 Procedure, notice is hereby given that the United States of America 5 will seek forfeiture as part of any sentence, pursuant to Title 18, 6 United States Code, Section 981(a)(1)(C) and Title 28, United States 7 Code, Section 2461(c), in the event of the defendant's conviction of 8 the offenses set forth in any of Counts One through Ten, Thirty, 9 Thirty-One, or Thirty-Three through Thirty-Six of this Indictment. 10 11 Defendant shall forfeit to the United States of America the 69. following: a. 12 all right, title, and interest in any and all 13 property, real or personal, constituting or derived from any proceeds 14 obtained, directly or indirectly, as a result of the offense, or 15 property traceable to such proceeds; and b. 16 To the extent such property is not available for 17 forfeiture, a sum of money equal to the total value of the property 18 described in subparagraph (a). 19 70. Pursuant to Title 21, United States Code, Section 853(p), 20 as incorporated by Title 28, United States Code, Section 2461(c), the 21 defendant shall forfeit substitute property, up to the value of the 22 property described in the preceding paragraph if, as the result of 23 any act or omission of the defendant, the property described in the 24 preceding paragraph or any portion thereof (a) cannot be located upon 25 the exercise of due diligence; (b) has been transferred, sold to, or 26 deposited with a third party; (c) has been placed beyond the 27 jurisdiction of the court; (d) has been substantially diminished in 28 _: Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 59 of 61 Page ID #:313 1 value; or (e) has been commingled with other property that cannot be 2 divided without difficulty. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 59 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 60 of 61 Page ID #:314 1 FORFEITURE ALLEGATION TWO 2 [18 U.S.C. ~~ 982 and 1028, and 28 U.S.C. ~2461(c)] 3 71. Pursuant to Rule 32.2 of the Federal Rules of Criminal 4 Procedure, notice is hereby given that the United States of America 5 will seek forfeiture as part of any sentence, pursuant to Title 18, 6 United States Code, Sections 982 and 1028, and Title 28, United 7 States Code, Section 2461(c), in the event of defendant's conviction of the offense set forth in Count Thirty-Two of this Indictment. s 10 72. Defendant, if so convicted, shall forfeit to the United States of America the following: a. 11 All right, title and interest in any and all property, 12 real or personal, constituting or derived from any proceeds obtained, 13 directly or indirectly, as a result of the offense, and any property 14 traceable thereto; b. 15 Any personal property used or intended to be used to 16 ~ commit the offense; and c. 17 To the extent such property is not available for 18 forfeiture, a sum of money equal to the total value of the property 19 described in subparagraphs (a) and (b). 20 73. Pursuant to Title 21, United States Code, Section 853(p), 21 as incorporated by Title 18, United States Code, Sections 982(b) and 22 1028(g), the defendant, if so convicted, shall forfeit substitute 23 property, up to the total value of the property described in the 24 preceding paragraph if, as the result of any act or omission of the 25 defendant, the property described in the preceding paragraph, or any 26 portion thereof: (a) cannot be located upon the exercise of due 27 diligence; (b) has been transferred, sold to or deposited with a 28 third party; (c) has been placed beyond the jurisdiction of the 60 Case 8:19-cr-00061-JVS Document 16 Filed 04/10/19 Page 61 of 61 Page ID #:315 1 court; (d) has been substantially diminished in value; or (e) has 2 been commingled with other property that cannot be divided without 3 difficulty. 4 A TRUE BILL 5 6 Foreperson 7 8 NICOLA T. HANNA United States Attorney 9 10 11 12 13 14 15 16 17 18 LAWRENCE S. MIDDLETON Assistant United States Attorney Chief, Criminal Division RANEE A. KATZENSTEIN Assistant United States Attorney Chief, Major Frauds Section JULIAN L. ANDRE Assistant United States Attorney Major Frauds Section BRETT A. SAGEL Assistant United States Attorney Santa Ana Branch Office 19 20 21 22 23 24 25 26 27 28 61 EXHIBIT 8 CM/ECF - California Cental District Page r, L 1 of 3 . - ._ I4\.;fJ-i.'..l.l UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA (Southern Division - Santa Ana) CRIMINAL DOCKET FOR CASE #: 8:19-mj-00241-DUTY-1 Case title: USA v. Avenatti Date Filed: 03/22/2019 Date Terminated: 04/10/2019 Assigned to: Duty Magistrate Judge Defendant [1! Michael Avenatti J. TERMINA TED: 04/1 0/2019 represented by John Lewis Littrell Katzman PLC 903 Callc Amanecer Suite 350 San Clemente, CA 92673 Bienert Miller and 949-369-3700 Fax: 949-3 69-3701 Email: jlittrell@bmkattomeys.com LEAD A TTORNEY A TTORNEY T0 BE NOTICED Designation: Retained Steven Jay Katzman Bienert Miller and Katzman PLC 903 Calle Amanecer Suite 350 San Clemente, CA 92673 949-369-3700 Fax: 949-369-3701 Email: skatzman@bmkattorneys.com LEAD A TTORNEY ATTORNEY T0 BE NOTICED Designation: Retained Pending Counts Disposition None Highest Offense Level (Opening! None Terminated Counts Disposition None Highest Offense Level (Terminated) None https://ecf.cacd.uscourts.gov/cgi-bin/DktRpt.pl?5 14299975933454-L_1_0—1 4/29/20 1 9 CM/ECF - California Central Distn'ct Page 2 of 3 Complaints Disposition Defendant in violation of I8:1343,1344(l) Plaintiff USA represented by Brett A Sage] AUSA Santa - Office of US Attorney Ana Branch Office 411 West Fourth Sheet Suite 8000 Santa Ana, CA 92701 714-338-3598 Fax: 7 14-338-3 708 Email: brett.sagel@usdoj.gov LEAD A ITORNEY ATTORNEY TO BE NOTICED Designation: Assistant Julian Lucien AUSA US Attorney Andre Office of US Attorney Major Frauds Section 312 North Spring Street, 11th Floor Los Angeles, CA 90012 - 213-894-6683 Fax: 213-894-6269 Email: julian.l.andre@usdoj.gov LEAD A TTORNEY ATTORNEY T0 BE NOTICED Designation: Assistant Date Filed 03/22/2019 # _1_ Docket Text COMPLAINT filed as to Michael J. Avenatti Approved by Magistrate Judge Douglas F. McCormick as to Michael 03/22/2019 3 é J. Avenatti (1). (mhe) (Entered: 03/25/2019) ORDER FINDING RE PROBABLE CAUSE by Magistrate Judge Douglas F. McCormick as to 03/22/201 9 US Attorney Defendant Michael J. Avenatti, (mhe) (Entered: 03/25/2019) NOTICE OF REQUEST FOR DETENTION filed by Plaintiff USA as to Defendant Michael J. Avenatti (mhe) (Entered: 03/25/2019) A 03/22/201 9 § SEALED EX PARTE APPLICATION to Michael 03/22/2019 g Z Case as g to Michael J. granting é EX PARTE APPLICATION Avenatti (1) (mhe) (Entered: 03/25/2019) Avenatti. (mhe) (Entered: 03/26/20 1 9) SEALED ORDER by Magistrate Judge Douglas F. APPLICATION to Unseal 03/27/2019 J. SEALED EX PARTE APPLICATION to Unseal Case Filed by Plaintiff USA as to Defendant Michael 03/24/2019 Seal Case Filed by Plaintiff USA as to Defendant Avenatti. (mhe) (Entered: 03/25/20 1 9) ORDER by Magistrate Judge Douglas F. McCormick: to Seal 03/24/2019 J. Case as to Michael J. McCormick: granting Z EX PARTE Avenatti (1) (mhe) (Entered: 03/26/2019) 2 Imps://ecf.cacd.uscouns.gov/cgi-bin/DktRptpHS14299975933454-L_1_o-1 4/29/2019 CM/ECF - California Central District Page 3 of 3 NOTICE filed by Plaintiff USA as to Defendant Michael J. Avenatti 0F EXECUTION OF ARREST WARRANTAND UNSEALING 0F DOCUMENTS (Sagel, Brett) (Entered: 03/27/20 1 9) MINUTES OF INITIAL APPEARANCE ON LOCAL COMPLAINT held before Magistrate 04/01/2019 Judge John D. Early as to Defendant Michael the charges. Defendant states true Katzman for Michael J. name J. Avenatti. Defendant arraigned and advised of as charged. Attorney: John Avenatti, Retained, present. Lewis Coun orders bail Steven Jay Michael J. Littrell, set as: Avenatti (1) previously set in the Southern District of New York, see attached for terms and conditions. Post-Inclictment Arraignment set for 4/29/2019 10:00 before Magistrate Judge John D. Early. Court Smart: CS 4/1/1 9. (mhe) (Entered: 04/03/2019) AM 04/01/2019 ,_. H NOTICE DIRECTING DEFENDANT TO APPEAR for Arraignment on Indictment/Infonnation. Defendant Michael am before the Duty 04/01/2019 IS J. Avenatti directed to appear on 4/29/1 9 at 10:00 Magistrate Judge. (mhe) (Entered: 04/03/2019) WAIVER of Preliminary Examination 0r Hearing by Defendant Michael J. Avenatti (mhe) (Entered: 04/03/2019) 04/03/20 1 9 ICE Rule 5(c)(3) Documents Received as 04/04/20 1 9 IE Out of District Bond received from Southern to Michael J. Avenatti (mhe) (Entered: 04/03/2019) District ofNew York. (mhe) (Entered: 04/05/2019) 04/08/20 1 9 ARREST WARRANT RETURNED Executed on 4/1/19 as to Defendant Michael J. Avenatti. (mhe) (Entered: 04/0 9/20 1 9) 04/1 0/20 1 9 TERMINATED merged defendant case for Defendant Michael J. Avenatti. Merged into CR case number: 8:19CR61. A11 future filings should be made in case 8:19CR61. Please be advised that no further filings may be made under case number 8:19-mj-24I. Any such filings made after the entry of this Notice may not be reviewed or considered by the Court. (mhe) (Entered: 04/1 1/20 1 9) PACER Service Center Transaction Receipt 1 04/29/2019 11:27:45 PACER Logim chription: . I StateBaIIOS.2703964.0 Docket Report Client 19-0-10483 Code: Avenatti Search Criteria.' 8: 1 9-mj-0024 1- DUTY End date: 4/29/2019 Bmable Pages: 2 Cost: 0.20 https://ecf.cacd.uscourts.gov/cgi-bin/DktRptpHS14299975933454-L_1_o-1 4/29/2019 EXHIBIT 9 Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 1 of 18 ORlGlNAL \. id UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ---------------- X ID I x 1LLDMAY222019 ‘ UNITED STATES OF AMERICA INDICTMENT _ V. ~ 19 Cr. MICHAEL AVENATTI, Defendant. ________________ X OVERVIEW 1. The charges in this Indictment arise from a scheme in which MICHAEL AVENATTI, the defendant, abused the trust of, defrauded, and stole from a client (“Victim~l”) by diverting money owed to Victim—l to AVENATTI’S control and use. As described more fully below, after assisting Victimwl in securing a book contract, AVENATTI stole a significant portion of Victim-l’s advance on that contract. He did so by, among other things, sending a fraudulent and unauthorized letter purporting to contain Victim—l’s signature to Victim—l’s literary agent, which instructed the agent to send payments not to Victim-l but to a bank account controlled by AVENATTI. 2. After receiving the money into that account, MICHAEL AVENATTI, the defendant, used it for his own purposes, including, among other things, to pay employees of his law firm and a coffee business he owned, to make payments to individuals Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 2 of 18 with whom AVENATTI had personal relationships, to make a luxury car payment, and to pay for hotels, airfare, meals, car services, and dry cleaning. When Victim~l inquired about the status of Victim—l’s advance fees, AVENATTI repeatedly lied to Victim—l, including by stating that he was working on getting the fees from Victim-l’s publisher, when, in truth and in fact, AVENATTI had already received-the fees and spent them on his own personal and professional expenses. In total, AVENATTI stole approximately $300,000 from Victim-l, and has not repaid Victim~ 1 half of that money. RELEVANT INDIVIDUALS AND ENTITIES 3. At all relevant times, MICHAEL AVENATTI, the defendant, was an attorfiey licensed to practice in the state of California. 4. Victim-l is an individual who retained MICHAEL AVENATTI, the defendant, to provide legal services in or about February 2018. That representation continued until in or about February 2019. 5. “Agent—l” is a literary agent, based in Manhattan, New York, who was retained by Victim—l in or about April 2018 to represent Victim—l with respect to Victim-l’s efforts to write and publish a book. 6. “Publisher-l” is a publisher, based in Manhattan, New York, which, in or about April 2018, entered into a contract 2 Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 3 of 18 with Victim—l and Agent—l for the publication (the “Contract”) of a book by Victim~l. THE BOOK PAYMENT EMBEZZLEMENT SCHEME Victim—l’s Book Deal 7. As noted above, Victim—l entered into the Contract with Publisher-l and Agent—l in or about April 2018. Pursuant to the terms of the Contract, Victim—l would receive an $800,000 advance, to be paid by Publisher-l in four installments as follows: a. Publisher—l would pay Victim—l $250,000 upon the signing of the Contract (the “First Payment”). b. Publisher—l would pay Victim—l $175,000 upon Victim—l’s delivery and Publisher—l’s acceptance of the final manuscript of Victim—l’s book (the “Second Payment”). c. Publisher-l would pay Victim~l $175,000 upon the publication of Victim—l’s book and in no event more than six months after delivery and acceptance of the final manuscript, provided certain publicity requirements were met (the “Third Payment”). d. Publisher-l would pay Victim—l $200,000 six months after publication of Victim—l’s book or completion of certain publicity requirements and in no event more than twelve months after delivery and acceptance of the final manuscript, Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 4 of 18 provided certain publicity requirements were met (the “Fourth Payment”). 8. Pursuant to Victim—l’s agreement with Agent—l, each payment described above would be sent by Publisher—l to Agent—l, who would then pass the payment on to Victim—l after withholding Agept—l’s fee. 9. MICHAEL AVENATTI, the defendant, assisted Victim—l in negotiations regarding the Contract. Although AVENATTI’S retainer agreement with Victim-l provided that he COUld-receive a fee for such assistance, AVENATTI subsequently told Victimrl, in substance and in part, that.he would not accept payment or remuneration from Victim—l for any work relating to Victim—l’s book. 10. As described further below, MICHAEL AVENATTI, the defendant, engaged in a scheme to defraud Victim-l by which he obtained control over and embezzled the Second and Third Payments. The First Payment ll. At or around the same time Victimml signed the Contract, Publisher—l sent the initial payment of approximately $250,000 to Agent—l, who sent by wire to a bankvaccount designated by Victim—l (“Account-l”) a payment of approximately $212,500, representing the $250,000 payment less Agent—l’s fee. Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 5 of 18 The Second Payment 12. On or about July l9, 2018, Victim-l opened a new bank account (“Account-Z”) for the purposé of, among other things, receiving the remaining payments under the Contract. Around this time, Victim—l told MICHAEL AVENATTI, the defendant, that victim~l did not want any further payments under the Contract to be sent to Account-l, and that a new account, i.e., Account-Z, was being opened to receive such payments. Victim—l did not instruct or authorize AVENATTI to receive any payments under the Contract on Victim-l’s behalf. 13. On or about July 29, 2018, by electronic message, Victim—l asked MICHAEL AVENATTI, the defendant, in substance, whether he knew when Victim—l would receive the Second Payment. AVENATTI responded that Victim—l would receive payment “in the next two weeks,” because the Second Payment “comes on acceptance [of the manuscript], which should be shortly.” Victim—l had at that time already submitted Victim—l’s manuscript to Publisher—l. 14. On or about July 31, 2018, without Victim~1’s knowledge or authorization, MICHAEL AVENATTI, the defendant, told Agent—l, in substance and in part, to send the Second Payment to an account entitled “Avenatti & Associates — Attorney Client Trust ([Victim—1])” (the “Avenatti Client Account”), an Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 6 of 18 account that AVENATTI controlled and of which Victim—l was not aware. 15. On or about August 1, after Agent-l 2018, responded to MICHAEL AVENATTI, the defendant, that Agent—l could not redirect payment to a new account without authorization from Victim-l, AVENATTI sent Agent—l by email, which traveled interstate, a letter that purported to be from Victim—l and appeared to contain Victim—l’s signature, instructing Agent—l to send all advance payments to the Avenatti Client Account (the “False Wire Instructions”). Victim—l neither authorized nor signed the False Wire Instructions and, in fact, was not even aware of the existence of the False Wire Instructions. 16. Between on or about August l and August 3, 2018, pursuant to the False Wire Instructions, Agent—l transferred by wire approximately $148,750, i.e., the Second Payment’s amount less Agent—l’s fee, to the Avenatti Client Account. 17. MICHAEL AVENATTI, the defendant, did not tell Victim-l that he had received the Second Payment on Victim—l’s behalf. Instead, immediately after receiving the first portion of the Second Payment into the Avenatti Client Account? AVENATTI began transferring money from the Avenatti Client Account to other bank accounts that he controlled for his own personal and business use. The funds were used, among other ways, for the following purposes: Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 7 of 18 a. To fund approximately $57,000 of payroll associated with the law firm Eagan Avenatti LLP (through which AVENATTI also practiced law); b. To pay in excess of $20,000 for insurance, airfare, hotels, car services, restaurants and meal delivery, and online retailers; c. 2”) To provide $1,900 to an individual (“Client— whom AVENATTI had represented in a lawsuit against the County of Los Afigeles, California; and > d. To fund, in the approximate amount of $12,800, payroll Checks for a coffee business controlled by AVENATTI . 18. By on or about August 20, 2018, only approximately $625 of Victim—l’s Second Payment remained in the Avenatti Client Account. 19. In late August 2018, Victim—l told MICHAEL AVENATTI, the defendant, in substance and in part, that Victim—l had'not received the Second Payment and asked for AVENATTI’S assistance in helping to obtain the payment, which Victim—l believed was late. AVENATTI did not inform Victim—l that he had already received the Second Payment, which had been sent by Agent-l into the Avenatti Client Account, or that he had spent the funds for his own purposes. Instead, AVENATTI misleadingly Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 8 of 18 and fraudulently told Victim-l, in substance and in part, that he would help obtain the payment for Victim—l from Publisher—l. 20. On or about September 4, 2018, Victim—l sent by electronic message to MICHAEL AVENATTI, the defendant, information for Account—Z. In that message, Victim-l stated that the information for Account—Z was “My new account info for publisher,” which Victim—l believed still had not made the Second Payment. 21. On or about September 5, 2018, MICHAEL AVENATTI, the defendant, received a payment of approximately $250,000 into another account that he controlled designated as the “Michael Avenatti Esq Trust Account,” which previously had a near—zero balance. That same day, AVENATTI made a payment from that account to Account—Z in the amount of approximately $148,750, so that Victim—l would not be aware that AVENATTI had converted and used the proceeds from the Second Payment for his own personal and business purposes. The Third Payment 22. On or about September l3, 2018, without Victim- 1’s knowledge or'authorization, MICHAEL AVENATTI, the defendant, spoke with Agent—l and suggested that Publisher—l should make the Third Payment early, even though the Third Payment was not due until publication of Victimdl’s book. Agent-l relayed the request to Publisher-l, which agreed to make an early payment, 8 Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 9 of 18 and sent the Third Payment to Agent-l, who, 0n or about September 17, 2018, sent by wire, pursuant to the False Wire Instructions, $148,750, i.e., the Third Payment less Agent—l's fee, to the Avenatti Client Account. 23. On or about September l7, 2018, after receiving the $148,750 of the Third Payment into the Avenatti Client Account, MICHAEL AVENATTI, the defendant, began moving the $148,750 out of the Avenatti Client Account into other accounts that he controlled for his own personal and business use. The funds were used, among other ways, a. for the following purposes: To pay approximately $11,000 to individuals with whom AVENATTI had relationships; b. To make approximately $3,900 for c. a a monthly lease payment of Ferrari automobile; To pay more than $15,000 in expenses including but not limited to airfare, dry cleaning, hotels, restaurants and meals, and car services; d. To provide another $1,900 to Client—Z; e. To make approximately $56,000 in payroll payments for Eagan Avenatti LLP; and f. To fund approximately $12,000 in payments to an insurance company to cover premiums for AVENATTI’S law firm. 24. As noted above, the Third Payment was owed to Victim—l at or around the time of the publication of Victim—l’s 9 Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 10 of 18 book, which occurred on or about October October l, 2018, Victim—l, 2, 2018. On or about unaware that MICHAEL AVENATTI, the defendant, had requested and obtained the Third Payment early, asked AVENATTI, by electronic message, whether, under the Contract, Victim—l would be paid the following day, to which AVENATTI responded, “Xes.” The following day, on or about October 2, 2018, Victim~l stated to AVENATTI by>electronic message, “publisher owes me a payment today.” AVENATTI did not tell Victim—l that he had already received the payment into the Avenatti Client Account more than two weeks earlier, but instead misleadingly and fraudulently stated, “On it. We need to make sure we have the publicity requirement met.” 25. Later in or about October 2018 and in the months between in or about October 2018 and in or about February 2019, Victim—l, by phone and by electronic message, repeatedly asked MICHAEL AVENATTI, the defendant, for assistance in obtaining the Third Payment. At no time did AVENATTI state or indicate that he had received the Third Payment, but instead fraudulently stated, in substance and in part and on multiple occasions, that Publisher—l was withholding payment. For example, the following exchanges occurred by electronic message: a. On or about October 29, 2018, Victim—l asked AVENATTI, “did you ask publisher about my payment?” and noted, 10 Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 11 of 18 “Tomorrow it will be one week late.” AVENATTI responded, “Yes, They are on it.” b. On or about November 27, 2018, Victim—l asked AVENATTI, “What about the publisher?” AVENATTI did not state that he had previously received the Third Payment, but instead responded, falsely, in substance and in part, that Publisher—l needed a list ofi publicity undertaken by Victim—l before Publisher—l would make the Third Payment. AVENATTI also falsely stated, in substance, that Publisher-l was resisting making the Third Payment due to poor sales of Victim—l’s book. c. On or about November 30, 2018, Victim—l, in reference to the Third Payment, stated to AVENATTI, “let’s not forget the publisher.” AVENATTI did not state that he had previously received the Third Payment, but instead responded, in part, “I haven’t.” d. On or about December 5, 2018, Victim—l asked AVENATTI, “When is the publisher going to cough up my money?” AVENATTI did not state that he had previously received the Third Payment, but instead responded, “As for publisher — working them and threatening litigation. They need to pay you the money as you did your part and then some.” e. On or about December 27, 2018, Victim—l stated to AVENATTI, in part, “I’m sending publisher a certified letter demanding payment and firing [Agent—l]. Then 11 I may post Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 12 of 18 it online for fun." AVENATTI did not state that he had previously received the Third Payment, but instead spoke to Victim—l by phone and told Victim—l, in substance and in part, that Victim-l should not send a letter and should not fire Agent-l because Victim-l may need Agent—l’s help in a lawsuit against Publisher-l to recover the Third Payment. 26. In or around December 2018, Victim—l’s manager, on Victim—l’s behalf, stating, sent an email to Publisher—l and Agent¥1 in substance and in part, that Victim—l had not received the Third Payment. Agent—l then spoke to MICHAEL AVENATTI, the defendant, who told Agent~l, in substance and in part, that he (AVENATTI) was dealing with Victim—l directly on this issue and Agent—l and Publisher—l (both of whom believed that Victim~l had received the Third Payment and was seeking early payment of the Fourth Payment) should not respond. Agent~ l, at AVENATTI’S request, then relayed AVENATTI’S message to Publisher—l. Victim-l received no response from Agent—l or Publisher—l until in or'about late February 2019, as described below. 27. During in or about January 2019 and February 2019, Victim—l continued t0 ask MICHAEL AVENATTI, the defendant, by phone and by electronic message, about the status of the Third Payment, and AVENATTI responded, in substance and in part, that Publisher-l was resisting making the payment due l2 Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 13 of 18 to purportedly poor sales, but that he (AVENATTI) was working to resolve the conflict. In or about late February 2019, Victim—l made 28. contact with a representative of Publisher—l, who told Victim—l, in substance and in part, that Publisher—l had previously made the Third Payment to Agent—l. Victim~l subsequently received from Agent—l documentation indicating that Agent—l had sent by wire Victim-l's share of the Third Payment (i.e., $148,750) to the Avenatti Client Account on or about September l7, 2018. Victim-l also received from Agent-l the False Wire Instructions. 29. Prior to receiving the False Wire Instructions from Agent—l in or about February 2019, Victim—l had never seen or signed the False Wire Instructions, despite the fact that the False Wire Instructions bore Victim—l’s purported signature. Further, Victim—l had never authorized the drafting or transmittal of the False Wire Instructions, had never authorized MICHAEL AVENATTI, the defendant, to receive or use any of the payments under the Contract, and was not aware of the Avenatti Client Account. Rather, the False Wire Instructions (including the use of Vicfiim—l’s signature) were fraudulently created by AVENATTI in order to carry out his scheme to steal funds rightfully owed to his client. 13 Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 14 of 18 30. Victim—l has not received any share of the Third Payment.1 COUNT ONE (Wire Fraud) The Grand Jury charges: 31. The allegations contained in paragraphs 1 through 30 above are hereby repeated, realleged, and incorporated by reference as if fully set forth herein. 32. From at least in or about July 2018, up to and including in or about 2019, in the Southern District of New York and elsewhere, MICHAEL AVENATTI, the defendant, willfully and knowingly, having devised and intending to devise a scheme and artifice to defraud, and for obtaining money and property by means of false and fraudulent pretenses, representations, and promises, did transmit and cause to be transmitted by means of wire and radio communication in interstate and foreign commerce, writings, signs, signals, pictures, and sounds for the purpose of executing such scheme and artifice, to wit, AVENATTI devised a scheme to obtain payments owing to Victim-l under Victim—l’s book contract by falsely representing to Agent—l, in interstate communications and otherwise, that Victimwl had given authority 2019, prior to its due date under the Contract, Publisher-l sent the Fourth Payment to Agent—l, who, consistent with Victim—l’s instructions, sent by wire the Fourth Payment less Agent—l's fee directly to Account—Z. ‘On or about February 14, 14 Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 15 of 18 for payments to be sent by wire to an account controlled by AVENATTI, by converting those payments to his own use, and by falsely representing to Victim—l, in interstate communications and otherwise, that the payments had not been made. (Title 18, United States Code, Sections 1343 and 2.) COUNT TWO (Aggravated Identity Theft) IThe 33. Grand Jury further charges: The allegations contained in paragraphs 30 above are hereby repeated, l through realleged, and incorporated by reference aS'if fully set forth herein. 34. From at least in or about August 2018, up to and including at least in or about February 2019, in the Southern District of New York and elsewhere, MICHAEL AVENATTI, the defendant, knowingly did transfer, possess, and use, without lawful authority, a means of identification of another person, during and in relation to a felony violatibn enumerated in Title 18, United States Code, Section 1028A(c), t0 wit, AVENATTI, without lawful authority, used Victim-l’s name and signature on the False Wire Instructions during and in relation to the offense charged in Count One of this Indictment. (Title 18, United States Code, Sections 1028A(a)(1) and (b), and 2.) 15 Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 16 of 18 FORFEITURE ALLEGATION 35. As the result of committing the offense charged in Count One of this Indictment, MICHAEL AVENATTI, the defendant, shall forfeit to the United States, pursuant to Title 18, United States, Code, Section 981(a)(1)(C), and Title 28, United States Code, Section 2461(c), any and all property, real and personal, that constitutes or is derived from proceeds traceable to the commission of said offefise, including but not limited to a sum of money in United States currency representing the amount of proceeds traceable to the commission of said offense. Substitute Asset Provision 36. If any of the above—described forfeitable property, as a result of any act or omission of the defendant: a. cannot be located upon the exercise of due b. has been transferred or sold to, or diligence; deposited with, a third person; c. has been placed beyond the jurisdiction of d. has been substantially diminished in value; e. has been commingled with other property that the Court; or cannot be subdivided without difficulty; l6 Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 17 of 18 it is the intent of the United States, pursuant to Title 21, United States Code, Section 853(p), and Title 28, United States Code, Section 2461(c), to seek forfeiture of any other property of said defendant up to the value of the above forfeitable property. (Title 18, United States Code, Sections 981; Title 21, United States Code, Section 853(p); Title 28, United States Code, Section 2461.) GEOFF Y United St FOREPERSON l7 . 53¢ BERMAN es Attorney Case 1:19-cr-00374-DAB Document 1 Filed 05/22/19 Page 18 of 18 Form No. USA—33s—274 (Ed. 9—25—58) UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK UNITED STATES OF AMERICA .—v__ MICHAEL AVENAITI, Defendant. INDICTMENT 19 Cr. (18 U.S.C. §§ 1028A, 1343, and 2.) GEOFFREY S. BERMAN United States Attorney. Foreperson k4awrfifigzaé?a DECLARATION OF SERVICE by us. FIRSTCLASS MAIL / U.s. CERTIFIED MAIL/ OVERNIGHT DELIVERY / FACSIMILE—ELECTRONIC TRANSMISSION OCTC Case CASE NUMBER(s): l, California. the undersigned, am over the age of eighteen 845 South Figueroa Street. Los Angeles. on the date shown below, - l caused to (18) years and not a party to the within action. whose business address and place of No. 19-TE-1 671 5 employment is the State Bar of California 90017-2515. declare that: be served a true copy of the within document described as follows: APPLICATION FOR INVOLUNTARY INACTIVE ENROLLMENT; MEMORANDUM OF POINTS AND AUTHORITIES; DECLARATION OF GREGORY BARELA; DECLARATION OF STEVEN E. BLEDSOE; DECLARATION OF DAVID J. SHEIKH; DECLARATION OF JOY NUNLEY D By - U.S. First-Class Mail: g 1013(a)) of Los Ange es. lam Delivery: (CCP §§ readiiy familiar with the State (CCP §§ 1013 and U.S. Certified Mail: By accordamlae with the practice of the State Bar of California ior collection and processing of mail, By Overnight - (CCP §§ 1013 and in I deposited or placed for collection and mailing practice for collection and processing of correspondence for overnight delivery l By Electronic Service: (CCP§ unsuccess D X by the United Parcel Service ('UPS'). listed herein bebw. No error was caused the documents lo be sent to the person(s) at the electronic any electronic message or other indication that the transmission was of the panjes to accept service by electronic transmission, did not receive, within a reasonable time after the transmission. I ul. (torusnrst-classmm (romom-mmm Article NoA: D I the City and County 1010.6) Based on a court order or an agreement addresses:isted herein below. in 1013(c) and 101 3(d)) Barof Califomia's By Fax Transmission: (CCP §§ 1013(e) and 101 3(0) Based on agreement of the parties to accept service by fax transmission, faxed the documents to the persons at the fax numbers reported by the fax machine thatl used. The original record of the fax transmission is retained on file and available upon request. EDD 1013(a)) in in a sealed envelope placed for collection and maiIing a sealed envelope placed for collection 1) 9414-7266-9904-2111-0280-60 2) 9414-7266-99044111-0280-77 no, owmigmnanmy) in PANSKY MARKLE, Attorneys to: (see below) Fax Number Business-Residential Address Anne Pansky at Law (see below) to: an envelope. or package designated by UPS, addressed Person Served (see below) to: mail, return receipt requested, Los Angeles, addressed Tracking No.: l) Ellen Los Angeles, addressed and mailing as cenified at together with a copy of this declaration, at 1010 Sycamore Ave., Unit 308 South Pasadena, CA 91030-6139 (via USPS Certified Mail Anicle N0. 9414- 7266-9904-21 1 1-0280-60) Electronic Address 10000 Santa Monica Blvd. 2) Los Angeles, Michael John Avenatti (via CA 90067 USPS Certified Mail AnicleNo. 941 4- 7266-9904-21 I 1-0280- 77) I am readily familiarwith the State Bar of Calflomia‘s pracfice for collection and processin of correspondence for mailing with the United States Postal Service. and overnight delivery by the United Parcel Service ('UPS'). In the ordinary course of the State Bar of alifomia‘s practice, correspondence coilected and processed by the Slate Bar of dCalifomia would be deposited with the United States Postal Service that same day. and for overnight delivery, deposited with delivery fees paid or provided for, with UPS that same ay. am aware that on motion of the party sewed, service date of deposit for mailing contained in the affidavit. I after I California, is presumed invalid if postal cancellation date or postage meter date W?WM declare under penalty of perjury. under the laws of the State of California. that the foregoing on the dale shown below. on the envelope or package is true and correct. Executed ‘ DATED: June 3, 2019 SIGNED: Kfith‘l Pala‘Eio’s Declarant State Bar of California DECLARATION OF SERVICE v V at is more than one day Los Angeles.