Fraudsters and Scammers Are Still Targeting Lawyers – Including You (Part I)


fraudA high-profile prosecution of check scammers that targeted law firms, and extensive efforts by bar associations, legal malpractice insurers, etc., to educate lawyers about those scams have reduced the threat, but the AvoidAClaim blog reported receiving over 200 emails last month from lawyers who were the target of scammers.

Here’s how these scams work:

First, a scammer approaches the target law firm with a new matter; the Oregon State Bar Professional Liability Fund (OSBPLF) describes the most popular:

Business loan scam: The “client” is set­ting up a business and buying equipment or in­ventory. The “client” seeks representation to help with borrowing money. Example
Debt collection scam: The “client” is seeking representation to collect a debt. Example
Collaborative family law agreement scam: The “client” is seeking representation to collect spousal support or a lump-sum alimony settlement. Example

According to the OSBPLF “the fraud can take many forms, but essen­tially it consists of some variation of the following scenario”:
-Client hires lawyer, either by phone or e-mail.
-Client sends lawyer a check – a standard check, a cashier’s check, a certified check, or a money order – for purposes of the legal representation (i.e., payment of a loan to a third party, payment for a real estate deal, payment for the purchase of a business, etc.). Alternatively, lawyer re­ceives payment from a third party for the legal mat­ter in the form of a check, i.e., for payment owed to the client for a debt.
-The lawyer deposits the check into his or her trust account. Shortly thereafter, client requests that law­yer wire the funds to a particular bank account, minus the lawyer’s fee.
-Lawyer assumes everything is fine – after all, the check sent by the client was a cashier’s check, a certified check, or a money order – and follows client’s instruction to wire the funds into the specified bank account, less the legal fee. After the funds have been wired, “the bank discovers that the check the lawyer deposited…is fraudulent, and recalls the funds released to lawyer’s trust account.”

In other words, the bank will hold the lawyer responsible for depositing a fraudulent instrument, and will charge it back against his/her account. This will either cause the lawyer’s trust account to be overdrawn, or will cause a shortfall of funds owed to an­other of his or her clients, an ethical rules violation, which the lawyer must correct by replacing the funds. Meanwhile, the “client” is thousands of miles away and tens of thousands of dollars richer.

Note that the bank may not discover the fraud for days, weeks, or even months: “Check forg­ers know how to delay confirmation that the check is not legitimate. For example, check forgers may change the nine-digit MICR (magnetic ink character recognition) lines at the bottom of the check. The check may say the name of one particular bank, but the code on the check is drawn from a different institution. This causes the check to be misrouted, which causes delays in processing the check. There is no banking regulation deadline as to how long a bank may wait to “charge back” your account and recall funds previously deposited.

Some lawyers who’ve been defrauded by this scam thought they were being careful by calling their bank and confirming that the deposited funds were available, before they wired funds from their account. However, the OSBPLF warns “there is a difference between the time when banks make the funds available and the time when final pay­ment by the issuing bank has been honored and collected (i.e., “cleared”). A cashier’s check for less than $5,000 will be available in one banking day. For checks over $5,000, the bank will notify the customer when the funds will be available; generally, this is 7 to 11 business days. Some banks make the funds available sooner and give the customer “provisional credit.” As a result, in some situations an attorney may be allowed to draw upon these funds very quickly – yet it may turn out that the money hasn’t actually been collected from the issuing bank.”

Further, “cashier’s checks present a special opportunity for scam­mers because they are widely perceived to be as good as cash, and, in fact, legitimate cashier’s checks are guaranteed by the issuing bank. However, cashier’s checks are still checks, and banks can still recall the funds from a “cleared” check if subsequent processing finds it to be fraudulent. Many scams exploit the misconceptions surrounding cashier’s checks.”

Next post: how you can avoid being the next victim.


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