By Lauren Berg

Law360, Santa Ana, Calif. (October 19, 2020, 7:38 PM EDT ) The California federal judge overseeing Michael Avenatti's embezzlement case on Monday severed the trial in two, saying the wire fraud charges should be tried separately from the bank and tax fraud charges, and noted that the coronavirus will likely delay the December trial until early next year.

At a hearing in his Santa Ana courtroom, U.S. District Judge James V. Selna granted Avenatti's motion to sever the 10 counts of wire fraud alleging he siphoned five clients' settlement awards from the remaining 25 counts of bank and tax fraud related to his various business operations.

But the judge also granted federal prosecutor Brett A. Sagel's request to submit relevant evidence alleging bankruptcy misrepresentation, after he argued that some of that evidence is intertwined with the allegations of client embezzlement. Sagel alleged that Avenatti stole client money in an effort to "buy his way out" of the bankruptcy of his former firm Eagan Avenatti LLP.

Avenatti's attorney, Dean Steward, said it "doesn't make any sense" to introduce evidence related to the counts that won't be part of the first trial, saying it was simply the government's effort to "get evidence in the back door."

Judge Selna also noted that Orange County is still in the second tier of the state's COVID-19 reopening plan, meaning the rate of infection is steady but a little too high for the county to get to the next tier.

As of Monday, Orange County has seen just over 57,000 coronavirus cases, including 1,410 deaths, according to the county health department. Nearby Los Angeles County has seen 288,451 confirmed cases, according to the local health department, and 6,876 deaths.

Not being able to predict the future, the judge said the trial may have to be pushed back from the current Dec. 8 start date, possibly to late January, depending on how the situation evolves. 

Judge Selna said he will likely call a pool of 150 jurors and will seat 12 with four alternates, as a precaution during the pandemic. The trial is estimated to last about two weeks.

Steward told Law360 on Monday that he and his client are pleased that the court severed the counts.

"It will be far easier for the jury to fully understand the true facts without the prosecution's shotgun approach," Steward said. "We are planning a vigorous defense."

A representative for the government declined to comment.

Last week, the judge granted Avenatti's latest request to extend his temporary release from jail, after the attorney pointed out that coronavirus cases are still rising in the Golden State and that his health conditions put him at a higher risk for contracting the virus.

The government had argued that no more extensions should be made until Judge Selna rules on prosecutors' request to send Avenatti back to prison over "clear and convincing" evidence that he used a computer to draft court documents, in violation of his release conditions.

The government raised concerns in June that Avenatti was accessing the internet through a computer owned by his bail-release custodian and longtime friend Jay Manheimer. Judge Selna said the situation needed further investigation and extended his release to Sept. 21. He has yet to rule on that motion.

Avenatti slammed the bid to revoke his bond, saying the government was relying on "unreliable and inadmissible" data.

In the indictment against Avenatti announced in April 2019, prosecutors claim he defrauded five of his former clients by lying to them about the details of settlements in their favor while using the money for his own ends.

Prosecutors say Avenatti used millions of dollars in ill-gotten funds to pay bankruptcy creditors and other clients from whom he had taken money.

Meanwhile, Avenatti was stiffing the government on payroll taxes from his Tully's Coffee business to the tune of $3.2 million between 2015 and 2017, according to the indictment. He is also charged with failing to file personal tax returns between 2014 and 2017 and failing to file returns for his law firms Eagan Avenatti LLP and Avenatti & Associates between 2015 and 2017.

In February, Avenatti was found guilty of extorting Nike in a separate New York case. He faces another federal prosecution in New York over his alleged theft of hundreds of thousands of dollars owed to high-profile client Stormy Daniels from her book deal.

The government is represented by Julian L. Andre, Brett A. Sagel and Patrick R. Fitzgerald of the U.S. Attorney's Office for the Central District of California.

Avenatti is represented by H. Dean Steward.

The case is U.S. v. Michael Avenatti, case number 8:19-cr-00061, in the U.S. District Court for the Central District of California.

--Additional reporting by Craig Clough, Hailey Konnath, Pete Brush, Reenat Sinay, Dave Simpson, Stewart Bishop and Andrew Strickler. Editing by Bruce Goldman.

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