A former client of Stormy Daniels' lawyer Michael Avenatti has accused him of operating his firm like a 'Ponzi scheme'.

Gregory Barela alleged that Avenatti pocketed his money after helping him win a settlement, but later tried to lend him back his own money and charge 10 per cent interest.

Avenatti is attorney to adult film actor Stormy Daniels, who is suing President Donald Trump and his former 'fixer' lawyer Michael Cohen to try and nullify a $130,000 'hush payment' made before the 2016 election.

A former client of Stormy Daniels' lawyer Michael Avenatti has accused him of operating his firm like a ‘Ponzi Scheme’

A lawyer for Barela told The Daily Beast that Avenatti was operating his law firm 'in a Ponzi scheme like manner'.

The claim, seen by the website alleges that he was 'taking settlement proceeds received for clients to pay off debts, pay the other individual Defendants' salaries and bonuses, and fund his lavish lifestyle, while telling clients that the settlement proceeds had not been received or would be received at a later date.'

Avenatti has strongly disputed the allegations, calling them 'completely fabricated, bogus and fraudulent.'

He also maintains that Barela received 100 per cent of what he was entitled to, and added that he has 'no idea' where the allegations had come from.

Stormy Daniels and attorney Michael Avenatti, who has denied that he pocketed a client's cash and then tried to loan it back to him with interest

But the statement of claims reportedly shows that Avenatti and an unnamed third party secured a confidential settlement for Barela - after which, in January of last year - the third party began paying money into a trust account.

The money was meant for Barela, but managed by Avenatti, who was meant to hand over the funds.

According to the claim however, Avenatti instead claimed the money had not been provided by the third party.

When Barela's situation grew more desperate, he reportedly told Avenatti that he needed the money to cover other expenses. At this point, Avenatti is alleged to have offered to give him a loan.

Barela then hired new counsel, who contacted the third party to trace the missing funds. The third party maintained that it had begun making payments in January 2018 which were intended to reach Barela.

The Daily Beast has published the claim against Avenatti, who also represents Stormy Daniels - an adult film actor who claims to have had an affair with President Trump.

Avenatti represents adult entertainer Stormy Daniels who is suing the President over a non-disclosure agreement about an affair she says they had in 2006

Daniels - real name Stephanie Clifford - sued Trump and ex-lawyer and convicted felon Michael Cohen in March 2018, seeking to annul a non-disclosure agreement over the alleged affair with Trump.

Daniels argues that the agreement is invalid because Trump didn't sign it.

On Tuesday, Trump's attorney Chris Harder, and Cohen's attorney Brent Blakely argued that because they have said they will give Daniels what she has asked for by tearing up the NDA, the case should be dismissed.

Federal Judge Judge S James Ortero didn't rule on the request, but said to Daniels' Avenatti that 'It seems you've achieved ... what you sought to achieve'.

However Avenatti argued that was not good enough and said he needed a signed agreement saying Trump wouldn't sue Daniels, as well as attorney's costs from both Trump and Cohen.

Cohen will testify before Congress next month about his time working for Trump, and Avenatti has already announced that he and Daniels will attend.

'I am pleased to announce that @StormyDaniels and I will attend the congressional hearing when Cohen testifies.

'Which is only appropriate seeing as it would have never happened but for @StormyDaniels,' Avenatti tweeted.