American Scandal

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Every scandal begins with a lie. But the truth will come out. And then comes the fallout and the outrage.

Scandals have shaped America since its founding. From business and politics to sports and society, we look on aghast as corruption, deceit and ambition bring down heroes and celebrities, politicians and moguls. And when the dust finally settles, we’re left to wonder: how did this happen? Where did they trip up, and who is to blame? From the creators of American History Tellers, Business Wars and Tides of History comes American Scandal, where we take you deep into the heart of America’s dark side to look at what drives someone to break the rules and what happens when they’re caught. Hosted by Lindsay Graham.

Michael Avenatti's Rise and Fall | 8

Michael Avenatti's Rise and Fall | 8

Tue, 16 Apr 2019 07:05

Stormy Daniels, secret hush money payments, and the lawyer at the center of it all: Michael Avenatti. In 2018, we saw an American scandal unfold right before our eyes -- live on television.

On this special episode, Los Angeles Times political reporter Michael Finnegan joins to discuss the rise and fall of Avenatti and what his story reveals about the way our society consumes scandal.

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From Wondery, I'm Lindsey Graham and this is American Scandal. On this show, we look at the darker side of business, politics, sports and society to better understand the forces behind corruption and deceit in our country. What exactly drives someone to break the rules and what happens when they get caught? Scandals have shaped America since its founding and were confronted with new ones every day. So from time to time, we want to take a break from our deep dives into the scandals of the past to explore today's biggest outrages. That's what we're doing today. We've got a special interview with a reporter who's been following one of the most controversial figures of 2018 and 2019. My client took this polygraph test in May of 2011, May 19, 2011. She was asked specific questions. She passed with flying colors as the polygraph report that we produced shows. Michael Avonotti is a lawyer, turned celebrity who represented Stephanie Clifford or Stormy Daniels in her legal dispute with President Trump and Michael Cohen in 2018. Daniels, an adult film star, alleged Trump and his team paid her $130,000 in hush money to keep silent about an affair she said she had with Trump back in 2006. She hired Avonotti to get out of her non disclosure agreement, one that she says was invalid because Trump never signed it. Where is this guy? Why won't he come and say, no, why won't he come and obviously, wait a minute, let me finish. I'll I want to get to that question. You can be invited numerous. No, no, no, no, he won't come on the show. He's dodging the question. He is not dodging the question. Yes, I'm on your, where is there a guy? Avonotti took his case to the court of public opinion and became a fixture on cable television news throughout 2018. He railed against President Trump, Michael Cohen and their lawyers and became something of a folk hero to many who oppose the president. I believe that our party, the Democratic Party, must be a party that fights fire with fire. Avonotti even announced plans to run for president in 2020 as a Democrat. But just as his star was rising, reports about his past started to come out. Bankruptcies, tax evasion, fraud, and a new charge attempting to extort Nike. Just last week, Avonotti was indicted on 36 counts by a federal grand jury in California. A host of tax offenses concealment of funds and embezzlement of client money. His is a remarkable saga of a man who has chased scandal with his entire career but now finds himself at the center of his own. We speak today with Michael Finnegan, a political reporter for the LA Times. He's been covering Avonotti for the past year and a half. He joined me from the LA Times studios. Here's our conversation. 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Sure, Stormy Daniels was not somebody that Michael Avonati knew he was a plaintiffs lawyer in Newport Beach. He'd done a couple high profile cases, but was not well known at all. And when she went public with a lawsuit to get out of her non disclosure agreement with President Trump over an alleged affair that they had back in 2006, Michael Avonati kind of burst onto the public scene as a constant presence on cable television talking about the case. He was sort of thrust out of nowhere into the biggest scandal in the country. And he had kind of a natural way with the media was kind of a strong presence for cable, especially with the kind of conflict that they like. He's a very pugnacious person. And what most people didn't know at that time was that Michael Avonati was a character with all kinds of problems in his past that were catching up to him in a very big way. And of course a year later would result in his arrest. Can you recap for us the specifics of the Stormy Daniels suit? Well, Stormy Daniels sued the president to get a non disclosure agreement nullified. She had accepted a $130,000 payment just before the 2016 presidential election in return for keeping quiet about her alleged affair with the president. And the president's lawyers were threatening privately to go after her for millions of dollars in penalties for violating the agreement by talking about her past with with president Trump publicly. She had started to hint in television appearances about it. She was doing a tour of strip clubs around the country called the Make America Hornie again tour. So that was a huge story. Of course, when it broke and Michael Avonati became kind of thrust himself right into the middle of it. He ultimately of course lost that lawsuit. And as the scandal unfolded filed a second lawsuit on behalf of Stormy Daniels alleging that the president had defamed her at one point and lost that one too and wound up that that resulted in a in a court order that Stormy Daniels pay the president's legal fees nearly 300,000 dollars, which ironically is almost well more than double. What the original hush money payment that she received was so it hasn't turned out well for either Avonati or Stormy Daniels. You mentioned that Avonati did not know Daniels in the other way around. How did he come to represent her? That's a secret. People do not know Avonati and Stormy Daniels have not said publicly how they met. So we do not know. Avonati has a lot of other secrets too. And as you mentioned there catching up with him. Let's go back a little further before 2018. What sort of lawyer was Avonati before he became a figure in the public's awareness? Avonati was a plaintiff's lawyer. It's kind of this boom and bust business where you work on contingency. You take on a lot of risk by suing a big corporation for wrongdoing in hopes of getting a huge verdict or settlement payment. And occasionally he did, which is why he was able to live very, very well for a period. And that was the essence of his business before this happened. And was he successful as a plaintiff's lawyer? He was a successful plaintiff's lawyer. But to me the fascinating thing about Avonati is that when all of a sudden he's a very high profile attorney in this Stormy Daniels case, he knows that he has a past of financial troubles and legal disputes that could put him in very, very serious jeopardy. And ultimately did. And the big question is why somebody who knows that they have all this trouble that could come to light would take such a high profile and a big scandal like this. And he's talking about his troubles then in specific because he did win some very big cases. So I mean millions tens of millions of dollars. How did he find himself now so low that he's accused of tax evasion and embezzlement? Well, part of it started in about 2009, 2010 when he was not paying his personal income taxes. And that ultimately came to light years later when the IRS put a personal lean on him for almost a million dollars. And what we now know according to the IRS is that since 2010 he has filed no personal income tax returns at all, even though he has deposited according to the IRS about $18 million into his bank accounts. And he also had a private company that he owned. It's called Avonadean Associates. And he did a lot of his business through that company. And since 2000, I guess it's from 2011 to 2017 that company deposited about $38 million into its bank accounts according to the IRS, but also filed no tax returns. So those were those were the big issues. And then his other big tax problems were at a company, a coffee company that he bought up in Washington state back in 2013 for $9 million. And it operated the Tully's chain of coffee stores in the Northwest. And in that case, he was withholding payroll taxes from employee paychecks, but spending the money instead of sending it to the government according to the IRS. And that's a very serious matter. And back around 2015, 2016, the IRS started looking at that and investigating what was going on. And it became a very big problem. And even after the Stormy Daniels story broke some reporters asked him about it. And he blamed the payroll companies. But the IRS now in these criminal charges that have been brought against Avonadean says that it was exactly the opposite. He stopped using the payroll companies to process the paychecks and then started keeping all of the money that was supposed to be going to the government. And the IRS also says he was doing the same thing at his law firm, Egan Avonadean. Now he hasn't been charged yet with a tax crime per se. But the legal papers that the IRS and the US attorney's office in Southern California have filed make it clear that he's under investigation for tax evasion and bankruptcy fraud and a whole bunch of other crimes. Well, this string of almost comic criminality and mismanagement seems to really cut against his public persona as a full throated crusader for justice. How do you reconcile these two aspects of him? Well, it's hard to reconcile these two aspects of him. He certainly grew up in a family with a modest income. He put himself through law school at night at George Washington University and really kind of worked his way into a successful law practice. But the litigation that has surrounded him over the last decade or so has made clear that at least his add the way his adversaries see it, he cheats other lawyers and even now the government is charging at least one of his own clients as a matter of course. So it is hard to reconcile the two sort of versions of Avonadean that you see. Tax evasion is not his only crisis at the moment. He is also apparently alleged to have tried to extort Nike. That's correct. That case, you could argue that this is what lawyers aggressive lawyers do in high stakes business negotiations, but the government argues that it's full scale extortion the language that he used in dealing with with Nike was was extremely aggressive and warned them that he was going to harm their reputation so badly that it will cost them billions of dollars. And things like that. And in the government's view, that's that's extortion. Well, let's go into the particulars of that case. What what what did he have on Nike and and how did it how does it differ from an arrangement that like for instance, President Trump arranged with Stormy Daniels? Well, he told Nike that he had a client who had evidence that Nike had been making improper payments to high school athletes and their families and was going to have a press conference to expose that unless they paid the client a million and change and hired him and fell a lawyer Mark Garagos of California. And paid them upwards of of 20 million dollars to do an investigation of of this kind of thing inside Nike and and he warned the lawyers for Nike that that he could damage the company tremendously if he went public and told them that he would he would walk away if they would pay the money. Ready to hold some asphalt join me Formula One Champion Will Arnett and comedian Mika Hakenen on our new radio program The Baston Loose F1 Post Show on AMP live every Sunday after the Grand Prix. 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The new season of this is actually happening is available ad free only with one Dree Plus and if this new season isn't enough you can listen to more than 120 exclusive episodes available only to one Dree Plus subscribers join one Dree Plus on Apple podcasts or on the one Dree app. So what does Avenatti say about these tax and extortion charges? Well, he's he's denies any wrongdoing and he also has been attacking Nike for alleged wrongdoing. He's been notably quiet about the allegations in the California prosecution. He's charged in California with bank fraud and wire fraud. In one case, he's alleged to have submitted a phony income tax returns to a bank in Mississippi in order to get more than $4 million in business loans. These were years when he wasn't actually filing income tax returns according to the IRS, but submitted these phony returns in order to get the money. And then in the wire fraud case, he's alleged to have embezzled $1.6 billion from a client. And in that case, he had the money from a settlement wire to a bank account that he controlled, but the money was supposed to belong to the client and he is alleged to have never pulled the client that the money had arrived and then spent it all. I'm trying to understand what might have compelled him to raise his profile. I almost understand it. I mean, he has a history of big risk employment, you know, well, big risk opportunities. He lives on the edge, this gray area of legality anyways, take some gambles all the way and seize Stormy Daniel as a big opportunity to raise his profile and then of course perhaps earn more and get bigger cases. But all the while, he knows that he's on a knife's edge that this baggage, even if he's innocent of all of his accused of, it's still very suspicious. And then he contemplates running for president himself in 2020. It was quite extraordinary and people who knew him, especially those who had fought him in court over the years, were astonished that he would get anywhere near a campaign for president of the United States, you know, setting aside whether he was qualified or not. People who were familiar with his litigation history and his court room history and his sort of scorched earth disputes with fellow lawyers and things like that were absolutely astonished that he was holding himself out there as a potential candidate for president. But you know, in some corners of the Democratic Party, there was an appetite for a sort of Trump like fighter to take on the president in the president's own style, you know, and sort of, you know, pugnaciousness and nastiness that it comes very naturally to Michael Avanatti. And so there was a little, there was a short period there where he was dead serious about pursuing a candidacy for president. He was in Iowa, New Hampshire, and going all over the country. He was a star speaker at party fundraisers and when he was arrested on suspected domestic violence, that pretty much ended not entirely, but it definitely slowed down his television appearances. Now, those, you know, prosecutors opted not to pursue that case. And he has continued though to appear on television once in a while, but much less than before, you know, he's sort of gravitated to some high profile cases like the sexual abuse cases against our Kelly and immigration cases involving families, immigrant families at the border. And of course, the case of a woman who made accusations against the Supreme Court Justice, Kavanaugh during his confirmation hearings. I can guess the answer to this, but I want your opinion. When someone runs for office, it's hopefully to improve the country, but often to improve themselves. What was Avanatti trying to do there? No, I don't know the answer to that. I don't know. I don't know what he was thinking, knowing especially about his tax history. I don't know what would have led him to sort of run with this idea that he might succeed in politics. But for whatever reason, he ran with it. Let's talk about your coverage of Avanatti. When did you first take him on as a subject? Well, when the Stormy Daniels lawsuits began in March 2018, I started covering those. And I very quickly started hearing from adversaries of Avanatti over the years who thought that he was an interesting story. And I started to look at it and we decided, nah, he's not high enough profile. It's not important enough. His background, he's just a lawyer for Stormy Daniels and she's the figure who's important in the scandal. But after just a few weeks, it became clear. No, no, no, no, he is an important figure who is worth looking at. And so the tax leans and the legal conflicts over his coffee company were part of the sort of early story of who is this guy and what's his background. And then it just started to get more interesting because he had had some really nasty disputes with law partners. In 2007, he opened a law firm in Newport Beach called Egan, O'Malley, and Avanatti. And they won some big high profile cases. One was against SCI, the big cemetery company and the money really started rolling in. And when it started rolling in, he and one of the partners, John O'Malley, got into a nasty fight. But O'Malley wound up winning $2.7 million saying that Avanatti had kind of kicked him out of the firm improperly. But then in 2015, there was another law partner by the name of Jason Frank, who left the firm with a couple other lawyers. And made allegations that Avanatti had cheated him out of $10 or $15 million in pay that he was entitled to. And Frank turned out to be an unbelievably dogged person in chasing down that money. And he wound up after the law firm went into bankruptcy for a year, he wound up getting a $10 million judgment against the firm. And then he wound up getting a $5 million personal judgment against Avanatti. And this story of how Avanatti was sort of sinking and deeper and deeper financial troubles just became more and more interesting. Of course, Avanatti is probably aware of your coverage of him. You know, he is a, he's not a shy person at all. He's he's often described as an in your face kind of person. And he's that way with reporters too. He is very savvy about the media and the needs of television programs or newspapers, whatever it might be. And he works the system very effectively. And he knows what a scoop is and offers scoops to reporters. And he when he doesn't like a story or a line of questioning can be extremely aggressive in pushing back. So on a few occasions, Avanatti has confronted me personally and publicly in courtroom hallways, for instance. And attacked the, you know, you're a disgrace to your profession, that kind of thing. And so that's never fun as a reporter. But you know, you have an obligation to sort of listen to what he has to say and to the extent that he's raising legitimate concerns about accuracy or fairness of those kinds of things that should be addressed. That's what you do. And that's what that's what we've done. But it's it's it's not fun to have someone, you know, berate you in in public. And that's something that it's not unique to me either. You know, seeing him call other people and not necessarily even journalists that disgrace to their professions too. So it's just his style can be a little difficult to deal with. And you're into true crime. The generation why podcast is essential listening. We started this podcast over 10 years ago to dissect some of the craziest and most notable murders crimes and conspiracy theories together. And we'd love for you to join us. Generation Y is one of the longest running true crime podcasts out there and we are still at it unraveling a new case every week. We break down infamous cases like the evil genius bank robbery and lesser known cases like the case of Kimberly Rico. Did she actually kill her husband after they took part in a murder mystery game? We cover every angle breaking down theories, diving deep into forensic evidence and interviewing those close to the case. And with over 450 episodes, there's a little something for every true crime listener. Follow the generation why podcast on Amazon music or every listen to podcasts or you can listen ad free by joining Wondry Plus in the Wondry app. Well, he's certainly on brand. His aggressiveness is perhaps the one thing that we all know about him. And it's the thing that he hangs his hat on as well. He has claimed that the story Daniel story would have been a two day story where it not for him that he himself was the one who brought the scandal to light and carried it forward in the media. What do you think he thinks his role is? Is he a lawyer or is he a publicist? Well, you have to remember that the stormy Daniels case did kind of create and his high profile role in that case did create a space for him to get high profile clients and get a hearing in situations like like the Nike situation. They'll take the meeting, you know, and so has this, you know, scandal provided him a potential boost to his legal career, you know, in one sense, yes. And he, you know, I, he deserves some credit for what he said early on in this scandal about what the president and Michael Cohen were up. With the hush money payment to his clients, stormy Daniels, I mean, yes, he lost the lawsuit, but in the schema things when he was out there saying that Michael Cohen was going to be indicted and the president knew about all of this. You have to keep in mind that that months later that all proved to be true. The, you know, Michael Cohen pleaded guilty to two felonies will one felony directly related to the hush money payment to stormy Daniels and federal prosecutors in New York did conclude and say publicly that the president directed that illegal hush money payments. So when he first sort of came out of the gate, saying all of this seemingly outlandish things he was saying, well, a substantial portion of it was true. So the feds were already invested getting Michael Cohen before he came on the scene and, and they uncovered plenty of evidence, you know, through search warrants and whatnot that that had nothing to do with Michael Avonotti that led them down the path to this prosecution, but, but it wouldn't be fair to say he doesn't deserve any credit for what wound up happening. Now you've got a background reporting on corruption and scandal you spent years at the New York Daily News before moving to the LA times I'm wondering when we when we think about scandal when we tell stories of scandal. We often seek a moral to the story just naked outrage isn't satisfying to anyone we want to understand what happened and that there might be come up is there a moral to this story to Avonotti story. I don't know if there's a moral or not, but I do think that there's a nagging question which is why did he thrust himself into the public light so aggressively when he had, according to the government, committed some crimes himself that he was risking bringing to light, you know, I mean. A lot of private person often who has been, you know, less than stellar in paying their taxes can often work it out with the IRS privately and that's just not known, but in a case like this. You know, you're all but tempting the prosecutors to come after you because you're going to get a lot of public attention if they prosecute you and you're going to be a kind of vehicle for deterrence for other people who might be tempted to break the law. So I, and I, you know what, and I can't tell you why he did that other than he was really tempted with the opportunity to become a top tier celebrity lawyer who would make the millions of millions of dollars that he needed to sustain a lifestyle that by all appearances. He didn't actually have the means to sustain. I mean, among other things that have become public, you know, he, during these years when he was according to the IRS skipping out on millions of dollars of taxes and not bothering to file tax returns and whatnot. You know, he, he, he bought a private jet, you know, albeit one that, you know, you have to refuel to get all the way across the country, but it was still a private jet, you know, and he spent money on, you know, a Ferrari and a Porsche, I mean, six figures at Porsche dealers and, you know, the ocean front house was $7 million bucks. And I mean, he's just, you know, tens of thousands of dollars on watches. He, he had a seriously lavish lifestyle to, to uphold and, and by all appearances, he couldn't his business, you know, had gone bankrupt and he hadn't been paying his taxes. And you could see where this, this celebrity, you know, the possibility of, of being a big celebrity, lawyer, would would have been tempting, you know, maybe he could afford it after all, but, you know, only he could, could tell us, I don't know. The interesting thing about writing about someone like Avonati is, is the, is the nuance. I think that it can be tempting sometimes for, for reporters to, to see, especially when you're in a rush, sort of a one dimensional, this a bad guy or just a good guy kind of thing. And to me, the nuance of all the different things that were going on with him, that's much more interesting. Somebody who is a complicated mix of different things, you know, I mean, he, on the one hand in some of these cases, like people whose families, you know, loved ones were, their remains weren't handled properly by the owners of, of, of a cemetery, you know, he's out there fighting for them. But on the other hand, he's got all kinds of financial shenanigans that would appear that, that, that don't look too good going on and it's kind of capturing the, the motives and the, sort of complexities of it. I find that a lot more interesting than just nail someone kind of thing. I don't, I don't, I don't particularly like that kind of coverage. Michael, thank you so much for taking the time and talking to us today on American scandal. Well, thank you. That was my conversation with L.A. Times political reporter Michael Finnegan. You can read more of his reporting on Michael Avonati in the L.A. Times or find him on Twitter at Finnegan L.A.T. From Wondry, this is episode eight of eight of the Harry Christian murders for American scandal. On the next series, we investigate the underbelly of the music industry. What makes a song a hit and how much of that success is due to bribery and corruption, whereas the record industry calls it, pay ol la. American scandal is hosted, edited and executive produced by me Lindsey Graham for airship. This episode was produced by Katie Long. Executive producers are Stephanie Jenz, Marsha Louis and her nonlop has for Wondry.