More attorneys are falling prey to various ruses that take advantage of the desire for revenue, as well as a lack of knowledge of banking terms. There are numerous variations on the basic scheme, which usually proceeds in the following manner.
An attorney receives an email from a potential client (hereinafter, "‘client’") that the attorney has never heard of or known. The "client", usually living in a foreign country, requests the attorney’s help in collecting either a judgment or a settlement. The "client" usually attaches to the email a copy of the foreign judgment or settlement agreement. If the attorney responds to the email, the "client" sends out a second email with purported good news— the other party has agreed to pay a significant portion of the judgment or settlement and is sending a check via overnight delivery to the attorney’s office. Within a day or two, the check, sometimes written for hundreds of thousands of dollars, arrives at the attorney’s office, just as the "client" said it would.
Often, the "client" will urge the attorney to process the check immediately because the funds are needed for some specified emergency. The email instructs the attorney to deduct legal fees and costs from the check and to send the remaining funds to the "client." The "client" may suggest or agree that the attorney keep thousands of dollars as payment, even though the matter was resolved quickly with no direct involvement by the attorney. The check appears to be legitimate with all the appropriate insignia, but is drawn on a bank in another state or foreign country with which the lawyer may not be familiar.
The attorney then deposits the check into a client trust account, withdrawing his or her portion for attorney’s fees and expenses. When the attorney’s bank processes the check and does not raise any concerns over it, the attorney concludes that the story and the check are legitimate, and writes a six-figure check to the "client" drawn from the attorney’s client trust account, which, of course, contains the funds of the attorney’s other clients as well.
Other variations on this scheme are perpetrated as well.
The fact that the attorney’s bank has verified that funds are "available" from the "client’s" check fails to sufficiently demonstrate that the transaction was credible. Days later, when the bank informs the attorney that the "client’s" check is bogus, the attorney then realizes the "client" is actually a charlatan who has just stolen hundreds of thousands of dollars. To make matters worse, the funds were removed from a client trust account, so other clients’ funds have been pilfered. The attorney may face disciplinary action for the misuse or misappropriation of client funds. Moreover, if the attorney is unable to disburse these other clients’ funds when they are due to be released, various claims may be filed against the firm by the clients.
Look for the red flags
An unsolicited email from someone that the attorney does not know should place the attorney on heightened alert for a scam. If the email contains generic, rather than specific information, such as addressing the attorney as "Dear Counselor" instead of by the attorney’s name, or uses phrases such as "in your jurisdiction" instead of the city or state where the attorney practices law, it may be a blast email being sent to hundreds of other attorneys.
Endeavor to meet potential clients in person
Meeting a potential client in person not only helps foster a constructive attorney-client relationship but may also assist in protecting against frauds. An in-person meeting allows an attorney to evaluate body language, eye contact, and other non-verbal clues about demeanor. An attorney can usually get a better sense of how truthful and articulate a potential client is through face-to-face consultation.
Know what key banking terms mean
Federal regulations require that banks make funds available for a bank customer’s use within a few days of their deposit by a bank check, even if the bank handling the check has not completed the check clearing process.1 While these regulations help consumers obtain funds more quickly, the risk persists because the check may still be deemed to be counterfeit. If a deposited check is later deemed to be counterfeit, the bank customer, and not the bank, is responsible for the amount of the check at issue.
Wait for the check to clear
A frequent part of the scam involves pressuring the attorney to release the funds as soon as possible in order for the "client" to handle some emergency situation that requires the funds. A lawyer should not release funds from a deposited check or other negotiable instrument unless and until their own bank has verified that it received the funds from the issuing bank. This constitutes the "clearing" process. It can take an average of two weeks from the time a domestic check is deposited for it to clear, and up to a month for a foreign check to clear. An indication by the bank that the funds are available for use is not an acceptable alternative.
Email and telephone communications are useful and efficient means of communicating with potential and actual clients. However, they also can serve as a means for scam artists to operate efficiently while simultaneously concealing their identity. Remember that the old adage still applies— if something seems too good to be true, it probably is.
1. 12 CFR Part 229, Subpart B, Availability of Funds and Collection of Checks subject to change without notice.
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