May 27, 2020 Financial Planning

Attorneys: The Professional Skeptics Get Burned by Email Scams

By Donna J. Jackson

Attorneys are created in law school to be skeptics. Then how do thousands of lawyers get scammed? I receive thousands of emails each week. There are always emails from "potential clients" who want to hire my firm to provide legal services. Just this week, I received an email to hire me to prepare taxes with attachments to the email that the sender wants me to open. I received another email from a financial planner in Europe whose client died and left inheritance to someone with my same name. They look legit on the surface with a name of a company, address and phone number. However, attorney beware. These are all based on three common scams on lawyers: The "Fake Client Check" scam, "Ransom" scam, and "Impersonating a Known Client" scam.

Fake Client Check Scam

The "Fake Client Check" Scam involves a person wanting to hire an attorney for some type of legal services. The most common email received is from a potential client wanting the attorney to draft a purchase agreement on a drilling rig valued at $1,800,000. They are looking for an attorney to act as escrow agent to deposit the sales proceeds into the attorney's trust account. The attorney will get paid out of the escrow account and then have the attorney wire the remaining proceeds to the client. The attorney receives a counterfeit cashier's check or some other payment. The attorney sends the proceeds to the "client" from the trust account. After the attorney's trust account is debited for the proceeds to the "client", the bank gives the attorney notice that the original check from the "client" was returned for insufficient funds.

Attorneys rely on the bank notifying their office when the check first clears. However, the first notification from the bank is provisional. When the check bounces, the "client" scammer is nowhere to be found. In one case, a bank sued the attorney who was victimized by a scammer. The attorney relied on the bank employee stating that the check cleared before the attorney wired the funds. In Greenberg, Trager & Herbert, LLP v. HSBC Bank USA, 17 N.Y.3rd 565 (2011), the Court of Appeals held that a bank client cannot rely on a bank's representation that a check has cleared.

Attorneys could face potential disciplinary liability for these check scams. An attorney's IOLTA account may contain other client's funds which the bank may use to "cover" provisional funds lost. Banks may also be required to report an attorney who has an overdrawn IOLTA account to the state bar. The state bar will probably investigate and audit the IOLTA account. In 2015, New York City Bar Association issued a formal ethics opinion that "because internet-based trust account scams may harm other firm clients, a lawyer who received a request for representation via the Internet has a duty to conduct a reasonable investigation to ascertain whether the person is a legitimate prospective client before accepting the representation. A lawyer who discovers he has been defrauded in a manner that results in harm to other clients of the law firm, such as the loss of client funds to an escrow account scam, must promptly notify the harmed clients." Formal Opinion 2015-3 Lawyers Who Fall Victim to Internet Scams.

It is recommended that the attorney implement a mandatory three to four week waiting period on any checks deposited and be certain that the funds have been fully collected in the account before paying anything from those funds. In some cases, some foreign institutions take up to 20 days to verify collections of the funds. The Federal Reserve and the Courts advise attorneys that it is important to "know your customer."

Ransom Scams

The "ransom" scam affects attorneys and other companies with computers .The purpose of this scam is to infect the attorney's computer with a virus blocking the attorney's ability to open the computer and retrieve information. The scammer holds the computer hostage until the ransom is paid. The attorney receives an email with some type of attachment. When the attachment is opened, the malware downloads the virus to the computer. Attorneys are advised to keep their anti-virus software up to date and use caution when opening attachments or links in emails. Never open any attachment unless you personally know the sender.

Impersonating a Known Client Scam

This scam starts with the scammer hacking into the attorney's email account. The scammer is looking for information regarding clients' names, nature of the business between the client and attorney. The scammer then emails the attorney to ask to wire money to the funds to the client from the trust account pretending to be the "client." The scam works because the attorney already has a relationship with the client. Attorneys can face liability with this scam, because they wired clients' funds without authorization. Attorneys need to keep their software updated to prevent hacking and encrypt the information. Never wire money to a client unless the client approves the wire with verification other than email or faxes. It would be better to mail a check than wire funds.

Conclusion

Attorneys need to be diligent about maintaining their internet security with updated software. If a client has been a victim of an internet scam, they can report it to Federal Bureau of Investigation (FBI) Internet Fraud Complaint Center at www. Ic3.gov; Federal Trade Commission at www.ftc.gov; U.S. Postal Inspector Services; or other governmental agency handling internet fraud. Also, the attorney needs to contact the local bar association.

Author

Donna J. Jackson is a nationally recognized attorney, authority, speaker and educator in estate planning. Ms. Jackson is a CPA and holds a Master’s Degree (LL.M.) in Elder Law. Ms. Jackson has over 30 years of legal experience. She limits her practice to elder law, probate and estate planning.