Avenatti, the lawyer for porn actress Stormy Daniels, agreed to have a receiver appointed to take possession of the bank accounts, case files and other assets of his former firm, the Los Angeles Times reported Thursday.
The deal came after Avenatti's former law partner Jason Frank made the request Tuesday to block the firm Eagan Avenatti from draining its assets.
Frank, who has been seeking to collect on a $10 million judgment against the firm, alleged that Avenatti moved money around when the firm was under federal bankruptcy protection to hide millions from its creditors.
"This includes brazen acts of bankruptcy fraud," Scott H. Sims, Frank's lawyer, wrote in court papers.
Avenatti is best known for representing Daniels in her lawsuit against President Donald Trump over an alleged affair that he denies.
Avenatti has denied any wrongdoing in the bankruptcy and said there was no fraud.
"Every dollar has been properly accounted for and reported as required and as previously set forth in numerous accountings," Avenatti said. "This is much to-do about nothing."
Frank on Wednesday agreed to withdraw court papers alleging bankruptcy fraud and Avenatti and his firm accepted the receivership.
In court filings, Frank had alleged that Avenatti opened six bank accounts during the bankruptcy proceedings that were not included in required monthly reports on the firm's income and spending.
After a settlement involving ticket holders who sued the NFL, a lawyer told Avenatti in an email that he would transfer $1.4 million to the firm and Avenatti sent back wiring instructions splitting the money between an account that was known to the bankruptcy trustee and an account that was not disclosed, according to the court papers.
Avenatti said he and the firm were entitled to reimbursement for more than $1 million in out-of-pocket expenses related to the case.
The dispute between Avenatti and Frank is scheduled to be discussed in federal court in Santa Ana on Thursday as the former firm is scheduled for a judgment debtor exam.
Avenatti now works under a firm named Avenatti & Associates.
Information from: Los Angeles Times, http://www.latimes.com/