Scammed! Sophisticated Check Fraud Schemes Target Lawyers
By Todd C. Scott
A surge in sophisticated email scams directed at attorneys at large and small firms is being reported by lawyers from around the US. Minnesota Lawyers Mutual Insurance Company has also seen an increase in check fraud activity aimed at lawyers and law firms.
The scams typically involve a foreign corporation contacting an attorney by way of email for the purposes of collecting a debt owed by an American corporation. Before the attorney has a chance to contemplate the collection offer, a cashier’s check arrives by mail at the attorney’s office from the American corporation representing repayment for the debt. The attorney is asked by the client to keep an amount for legal fees, but to repay the difference with a wire transfer to a foreign bank. Although the correspondence and the cashier’s check look authentic, the check is a counterfeit and the attorney can usually never recover the transferred funds.
The scam has a few variations—including a request to seek collection on an unpaid property settlement from and ex-spouse pursuant to a divorce decree—but in all cases, the attorney is being used to run funds through their client escrow account. For the scheme to be successful, the scammer is relying on the attorney to transfer the funds owed to the foreign client before verifying that the deposited funds have been collected by the bank and have become available to cover the transferred amount.
Although the scam seems relatively simple, the damage caused to attorneys falling prey to the scheme from all over North America has been staggering:
Honolulu , Hawaii —Two law firms lost more than $500,000 to an email scheme where the firms were sent counterfeit cashier checks as payment for a retainer agreement. When the unsuspecting firms notified the client that they have overpaid the retainer amount, the client requested the firm send a cash wire transfer refund, to which the firm obliged.
Nashville , TN —A targeted firm lost more than $400,000 after it received a referral from someone posing as an out-of-state attorney to collect a debt from a local corporation owed to a foreign company. Soon after the firm accepted the work, a demand letter was sent and the firm received a cashier’s check from the client representing payment received for the debt. After depositing the money into its client trust account and waiting for the check to clear, the firm wired the collected funds to the client less its fees and costs. It was only after the funds were transferred that the firm was notified that the cashier’s check was a forgery.
Atlanta , GA —Attorney Gregory Bartko is a defendant in a federal suit by Wachovia Bank, which is seeking nearly $200,000 in reimbursement of funds wired on Bartko’s instructions to a Korean Bank on behalf of a company that hired Bartko via the Internet. Attorney Bartko states he is the victim of an Internet fraud scam and that his firm escrow account was overdrawn by $190,000 because the check the firm received from the foreign client was counterfeit.
Houston , TX —Attorney Richard Howell, Jr., recently has taken out a home equity loan in the amount of $182,500 to repay his firm for money lost in an email scam involving what Howell thought would be a potentially lucrative matter from a Japanese client. After agreeing to collect a foreign debt from a US company, and receiving a counterfeit check in the amount of $367,000, Howell transferred $182,500 to the foreign client. Howell is now pursuing legal action against Citibank for incorrectly stating that the counterfeit check was legitimate and money from the check was paid to Howell’s escrow account.
Long Beach , CA—Workers at City National Bank in Los Angeles stayed up late to help an attorney who had wired $193,000 from his trust account to a bank in Hong Kong after receiving a counterfeit cashier’s check the attorney thought was good. The California bank employees were able to notify the Hong Kong bank soon after the foreign bank opened the next day to prevent the funds from being deposited in the scammer’s bank account.
FBI Warning and the Telling Signs
For every attorney falling victim to counterfeit check fraud, there are many more that encounter the solicitations and have declined collection offers, or have determined the true nature of the activity after receiving notice from the bank holding their escrow account that the deposited check is a forgery.
In March, the Omaha field Office of the Federal Bureau of Investigation (FBI) warned 10,000 Nebraska and Iowa lawyers of a scam targeting attorneys, according to Robert Georgi, a supervisory special agent in the FBI’s Omaha office. Soon after the alert was issued, Georgi reports his office was getting 10 calls an hour about the scam, including one call from a Nebraska attorney who was waiting for the cashier’s check to clear before he sent his client the “overpayment.”
Of the lawyers encountering the fraudulent activity, many report that the solicitations are not of the variety that are often easily spotted such as the “Nigerian Advance Fee Scheme” where the request to participate in a money-making venture is usually never personally addressed to the recipient, and uses the same confidence-building language, which is often riddled with misspellings.
Instead, the solicitations are personally addressed to the lawyer, and the initial email usually includes detailed information about the foreign corporation requesting legal services, the American corporation owing the debt, details about the nature of the debt including the debt amount and past attempt to collect on the debt, as well as web links and telephone numbers to persons that can verify the debt. Attorneys attempting to verify the debt have had mixed results, reporting in some cases that an email or call to the “representative” of the debtor corporation has produced a quick verification response—also part of the scam.
The scheme aimed at attorneys also relies on the attorney’s sense of urgency by requesting the quick processing of the funds and addressing the large-scale collection matter as if it were a routine transaction for the target of the scam. The fact that the debt repayment comes in the form of a cashier’s check gives the attorney a false sense of security that the funds are legitimate since they are not written on an account from the debtor corporation that is presumed to be struggling financially. However, it is the opportunity to earn a large fee with relatively little effort that ultimately causes the victim of the scam to let their guard down and process the wire transfer once they believe the debt funds have been properly deposited.
As a reminder, counterfeit checks are not often recognized at the point where they are accepted for deposit into the depositor’s bank account. Additionally, confirming with the bank that the funds are “available” is not necessarily confirmation that the check has cleared and the funds have been collected from the check writer’s account.
One final twist to the scheme is that the request by the foreign client for quick processing more often occurs around bank holidays—taking advantage of the fact that bank processing time is greatly postponed over a lengthy three-day weekend. Extending the time for processing a bank transaction adds to the amount of time the bank needs to identify the counterfeit check, and ultimately works to the scammer’s advantage when collecting the firm’s funds.
Don’t Get Burned: Tips for Avoiding Scams
The most important advice involving the transfer of escrowed funds is to always wait for bank verification that the deposited funds have been collected from the check issuer’s account. A bank representative accepting the funds for deposit or indicating orally that the funds are available is not assurance that the funds have cleared. The lawyers who waited for verification that the funds have been collected from the issuer’s account—despite the client’s fervent requests for quick escrow processing—saved themselves from becoming the victims of large-scale fraud.
Here are a few other tips for avoiding fraud:
- If the request for assistance is outside your area of expertise, do not take on the work. Debt collection is fraught with malpractice hazards that can tie up any attorney that is not familiar with the Fair Debt Collections Practices Act 15 U.S.C. § 1692. Such a request may be tempting especially if it involves relatively little work, but it may be aimed at you for that very reason.
- Verify the client is a legitimate organization seeking legal services. If you cannot meet personally with a representative of the client corporation, consider asking the client for references including names of other attorneys doing work for the foreign corporation.
- Verify the debtor is a legitimate organization. A call to the comptroller of the debtor company can verify whether the debt was owed and that the cashier’s check was legitimately issued as repayment. Do not rely on contact information provided to you from the foreign client for contacting key employees that can verify the debt.
- Obtain a retainer payment for your anticipated legal services. A check to your firm from the foreign client is not necessarily proof that their activity is not fraudulent, but most scammers won’t bother responding to your request.
- Trust your gut instincts. If the proposal sounds too good to be true, it probably is. Some scammers have visited the lawyer personally, presenting to the attorney false identification documents in order to gain the lawyer’s confidence that the legal services being requested are for a legitimate purpose. Your gut instincts are often the best test for determining whether your attorney client relationship will eventually have a successful outcome.
Todd C. Scott is VP of Member Services of Minnesota Lawyers Mutual Insurance Company. For nearly three decades MLM has been providing risk management advice for lawyers seeking information on preventing legal malpractice. RU@RISK? To learn more about lawyer scams and other trends in legal malpractice check out our blawg: www.attorneysatrisk.com.
© Copyright 2010, American Bar Association.