|Oregon State Bar Bulletin MAY 2010|
How to Avoid Becoming the Next Victim
By Helen Hierschbiel
In today’s economy, the promise of lucrative, easy work is a powerful and enticing hook that can cause some lawyers to abandon their usual cautious skepticism and be drawn into what turns out to be nothing more than a con. Lawyers beware. Your clients are not the only ones who may be targeted by con artists.
E-mail scams that target lawyers have been the topic of at least two OSB Bulletin articles in the last couple of years.1 So why are we writing about this topic again? First, the techniques being used to deprive lawyers of their hard-earned money have mutated and are in some cases becoming more difficult to identify. Second, the bar’s ethics hotline receives regular calls from lawyers who are unfamiliar with the scams. The nature of the scams typically involves depositing funds into a lawyer’s trust account, and a reminder of lawyer trust account obligations is always a good idea. Further, lawyers are often uncertain of whether they can report the scams to law enforcement without violating their obligation to maintain client confidentiality. Lawyers should know that they can — and should.
The first scams we heard about went something like this: The lawyer receives an e-mail from a representative of a distant company looking for help collecting a debt owed by a customer located here in Oregon. The lawyer confirms that both companies exist and sends a retainer agreement, which the client signs and promptly returns. Then, either with or without the issuance of a demand letter, a cashier’s check for some six-figure amount shows up in the lawyer’s mailbox. The check is usually drawn on a large, well-known bank and looks like the real thing. So, the lawyer deposits the check into the trust account and, as directed, wires the funds, minus the lawyer’s fee, to the client.
Problems arise, however, when lawyers do not wait until the check has fully cleared. Wanting to accommodate their long-standing good customers, banks may tell lawyers that the check has cleared. However, if this assurance comes within a day or two of deposit, it usually means only that the funds are available for use. It does not necessarily mean the check has completed the clearing process such that the lawyer’s trust account now has “collected funds.” Clearing the bank on which the check is drawn can take several additional business days and sometimes a couple of weeks depending on the nature of the check. Because fake checks may be printed under a name that does not match the nine-digit identification number for the bank, processing can be further delayed. Meanwhile, clients become impatient. Lawyers who succumb to their clients’ pleas for a quick transfer of money, however, become the scammers’ next victims.
A more recent twist on the above scenario is when the request for representation comes from someone posing as an out-of-state lawyer who represents a foreign corporation.2 Some scames have even reclaimed law firms’ defunct websites or created websites using existing lawyers’ names. By assuming the identity of lawyers’ out-of-state colleagues, scam artists hope to boost their credibility with their targeted victims.3
The fake check scam has also found its way into other areas of practice. Lawyers who practice family law and real estate law have more recently been the recipients of e-mail requests for representation that turn out to be fakes. For example, some e-mails request help in collecting a judgment from a “collaborative law agreement” for a divorce. The creditor spouse typically has relocated to or is visiting another country and is trying to collect a six-figure judgment from her debtor ex-husband in “your jurisdiction.” A lawyer in Washington recently fell victim to such a scam.4
The Oregon State Bar is aware of only one Oregon lawyer who lost money to one of these schemes. Members of some other state bars have not been so lucky. According to a July 2009 California Bar Journal article, California lawyers have lost from $75,000 to $2 million. A Texas lawyer was scammed out of $182,500, and has sued the bank alleging that it negligently misrepresented to him that the check had cleared.5 A lawyer in Georgia was sued by a bank for reimbursement of nearly $200,000 that the lawyer wired from a fraudulent check deposit to the scammer’s bank account in Korea.6 The victims are not always naïve newer lawyers, but often well-respected, experienced lawyers.
Avoiding the Traps
The first thing lawyers can do to avoid becoming a victim is be aware that scammers are targeting lawyers. Be particularly cautious when receiving unsolicited, unexplained e-mails from foreign countries. Remember that the scam artists are likely to use the names of actual companies, attorneys and banks. Thus, lawyers should independently verify the names and contact information provided to them and be wary of individuals who are reluctant to provide contact information other than an e-mail address or phone number. Lawyers might also check out websites that track Internet scams, such as http://www.scamwarners.com and http://lawyerscam.blogspot.com.
Second, upon receipt of a check, consider whether it might be counterfeit. The Internet Crime Complaint Center recommends that lawyers inspect the check carefully to ensure:
The amount of the check matches in figures and words;
The account number is not shiny in appearance;
The drawer’s signature is not traced; Additions, deletions or other alterations have not been made to the check.
In addition, obtain the bank’s telephone number from an independent reliable source and contact the financial institution on which the check was drawn to ensure legitimacy.
Finally, lawyers should not disburse deposited funds until the bank on which the check is drawn clears the check. Financial institutions and lawyers are supposed to notify disciplinary counsel’s office of all trust account overdrafts. See RPC 1.15-2(i) and (l). The overdrafts are then subject to investigation. While we are not aware of any lawyers having been disciplined as a result of falling prey to one of these fake check e-mail scams, failure to properly safeguard client funds may implicate the rules of professional conduct. See RPC 1.15-1. If lawyers carefully follow both the letter and spirit of the trust account rules, they are less likely to become victims of the scams. One of the easiest things lawyers can do in this regard is to implement protocols for waiting a period of time before disbursing funds from trust accounts. See Stevens, “Waiting for ‘Go Dough,’” OSB Bulletin (June 2006). Understanding how exactly checks are processed and money is moved through financial institutions also goes a long way to avoiding fraud. See http://www.occ.treas.gov/ftp/bulletin/2007-2.html.
What to Do
Lawyers who have identified an e-mail or check as part of a scam often ask whether they may report the matter to law enforcement. The concern is that lawyers may owe a duty of confidentiality to these purported “clients.” However, the duty imposed by RPC 1.6 and ORS 9.460(3) applies only to actual or prospective clients. If the person contacting the lawyer has no real intention of creating a lawyer-client relationship, but is only interested in victimizing the lawyer, then the person is not an actual client and the duty of confidentiality does not apply. In the absence of such a duty, there would seem to be no reason why lawyers who are the targets of these scams could not cooperate with law enforcement authorities in sharing whatever information they have about the perpetrator of the fraudulent scheme. Before doing so, however, lawyers should take care to ensure that they are, in fact, dealing with a scam.
Lawyers may report fake check scams and internet fraud to:
Federal Trade Commission http://www.ftc.gove
Internet Crime Complaint Center http://www.ic3.gov
National Fraud Information Center http://www.fraud.org
1 DuBoff and King, Legal Practice Tips: “Lawyers Beware,” OSB Bulletin (November 2008); Stevens, “Trust Account Lessons: Cautionary Notes,” OSB Bulletin (July 2008).
2 Curtis, “E-mail Scams Continue to Successfully Target Lawyers,” California Bar Journal (July 2009).
3 Scam artists have been known to assume attorney names to perpetrate fraud on non-lawyers as well. See, e.g. Blankenship, “Swindlers Pretending to be Lawyers Are Back,” The Florida Bar News (March 15, 2009). There is little that the bar can do in these cases of identity theft. While it is a good idea for lawyers to let the bar know that they have been the victim of identity theft, only law enforcement agencies can effectively pursue and punish the perpetrators.
4 Blankenship, “Swindlers Hit Lawyers With Sophisticated Schemes,” Florida Bar News (Dec. 15, 2009)
5 Jeffreys, “Lawyers Warned to Be Wary of Client E-Mail Scams,” http://www.law.com (Jan. 26, 2009).
6 Nolan, “E-Mail Scam Targets Lawyers, Hooks Victims,” Connecticut Law Tribune (Nov. 3, 2008).
ABOUT THE AUTHOR
Helen Hierschbiel is deputy general counsel for the Oregon State Bar. She can be reached at (503) 620-0222, or toll-free in Oregon at (800) 452-8260, ext. 361, or by e-mail at firstname.lastname@example.org
© 2010 Helen Hierschbiel