Attorneys Beware, Trust Account Scams are Increasing!
Despite mounting publicity over these scams, it seems every month a lawyer gets caught up in a trust fund scam. After having represented a now disbarred attorney who was inadvertently embroiled in one of these frauds, I can tell you, it doesn’t take much to get yourself into trouble.
How do these scams work?
The scam starts with emails or phone calls from “clients” wanting your assistance in handling a family law contempt case or perhaps a real estate transaction. However, these scammers get more imaginative as time passes, so don’t assume all of them are of this genre. All of the communications for these types of scams are normally conducted through e-mail. Eventually, if you take them on, they will have one reason or another for not wanting to pay a retainer and will agree to pay more per hour or a larger percentage for that arrangement. In almost all of these cases, the target eventually gives up and offers to settle against your client. You will eventually receive what appears to be a legitimate cashier’s check made out from a legitimate bank. This check will have all of the markings of a real financial document, including holograms and watermarks. It will even sometimes be made out with legitimate bank account numbers
How does the scam occur thereafter?
Just because your bank tells you that the check has cleared 4 or 5 days after you deposit does not mean that the check is actually good. The federal banking system has rules and regulations that allow a bank up to 30 days or longer to contest the legitimacy of a check presented on an account. Your bank will tell you that the check has been processed and the money is now in your trust account. The issuing bank may even process the check and transfer money from that bank to your bank. All of this is electronic as nobody processes paper checks anymore. However, eventually the bank or the account holder notices that there has been a check presented that is improper. When the realization is made that the check is fraudulent, the funds transferred from the defrauded bank to your bank are pulled back electronically. Your bank will then pull whatever money is in your trust account out in order to reverse the deposit. What happens if you have other clients’ money in the account? Too bad, it will be up to you to make good on the bad check if you have already issued payment to your client. It’s your responsibility to replenish the funds in your trust account. Well, what if you say you don’t have enough money to replenish the hundreds of thousands of dollars stolen? That is not an excuse, and the Florida bar will institute disbarment proceedings if you can’t replace the money. Think this can’t happen? It has, and it happens frequently.
Several years ago I got tired of receiving these emails and started replying with gobbledygook responses or outrageous expectations of fees that I wanted in order to be involved. You wouldn’t believe some of the responses I got. Within the course of several weeks, I received five cashier’s checks in excess of $100,000 each that had been Federal Expressed to me with instructions on what to do with the funds. I contacted the local Secret Service, and turned the documents and fraudulent checks over to them. In talking with one of the agents, they said that there is very little that they can do when fraudulent checks are sent out like this. They usually find out that the person who mailed out the check was actually duped themselves into one of these “work at home” scams and that all they were doing was passing on paperwork sent to them by another source. Prosecutions are very rare as the person who passed on the paperwork usually knows nothing about what was going on.
What can be done to protect yourself?
- Be highly suspicious of anyone contacting you by email from an address that is not verifiable and that does not contain a phone number within the US.
- Never do business with someone totally through the Internet.
- Never do business without getting a retainer separate and apart from whatever money you might be receiving from the contempt target or purchaser of the property. You should always insist on funds being electronically transferred from one bank to the other, which would make it extremely difficult for the scam to occur.
- Never distribute funds electronically to an out of country account. That is another telltale sign. Once the funds leave the jurisdiction of the Federal Reserve, there is even less that can be done to track these funds. Always insist that any disbursements from your trust account be done via a paper check. That will give you additional time to cancel the check if you find out later that the entire transaction was a scam.
- Make sure that the client understands that there will be a month-long freeze on the funds before you can distribute them, unless you get confirmation from the bank itself that the funds are actually good and that the check was legitimate.
- Make sure you get documented confirmation, not just a phone call and a verbal confirmation. Some of the more sophisticated scams actually have false 800 numbers on the check or on the paperwork. Do a Google search for the bank’s official website and look up the number on that site.
- Strange clients or unfamiliar funds showing up in the mail should never be trusted. If you don’t have an ongoing relationship with a client, don’t take the word of your bank that funds have been cleared. If you have a question about a check, call the issuing bank. This scam has happened so many times that all banks now have procedures for responding to fraud inquiries by attorneys and others that are frequent targets of this scam.
Remember, if you become a victim of one of these thefts, you are responsible for replacing the funds. Otherwise, you can lose your license to practice law and can actually be sued personally by your clients over their missing trust funds. I have spoken to several bankruptcy attorneys, and they have suggested that such judgments would not be dischargeable, although I don’t know that for certain.