Vol. 83, No. 9, September 2010
As a lawyer, you’re trained to solve problems. You take care of your clients and protect their finances, their assets, and their freedom. But what about you? What about your practice? Are you protecting yourself?
Scams are as old as time itself. When we hear about scams, typical targets are elderly people or individuals who may be vulnerable during a crisis. Recently, however, lawyers themselves have been targeted. There is plenty of fraud to make a person leery, including fraudulent financial arrangements, phony “clients,” and computer hackers.
I know what you’re saying. “I’d never fall for anything like that.” Maybe not, but it’s best to be aware of what’s out there. Some lawyers have fallen victim, jeopardizing their practices or at the very least, their trust accounts.
After earlier reports that law firms had been scammed out of millions of dollars by counterfeit-check schemes, often involving email clients, the FBI recently issued a warning that some lawyers (particularly in the Dallas, Texas area earlier this summer) are being targeted by several new versions of the ruse.
According to the American Bar Association, in one successful scheme, an individual claiming to be the president of a fictitious company in Denmark sent an email seeking a law firm’s help in collecting a debt allegedly owed by a Houston company. The client signed an engagement letter, agreed to a retainer amount, and provided false documentation of the claimed debt.
Thomas J. Watson, Marquette 2002, is senior vice president and director of communications at Wisconsin Lawyers Mutual Insurance Co., Madison. Contact him at com Tom.Watson wilmic wilmic Tom.Watson com.
The phony client’s purported secretary later sent an email saying the Houston company had agreed to pay nearly $500,000 to settle the case. A check soon arrived in the law firm’s mail, and the law firm deposited the money. After deducting the $20,000 fee, the firm wired the balance of the money, from the law firm’s own bank account, overseas to the phony client. By the time the law firm found out that the settlement check was a fraud, the wired money was gone.
Family Law Attorneys Targeted
In another version of that same kind of email scam, family law attorneys have been targeted. The FBI says a purported ex-wife working in Asia seeks a law firm’s help collecting a settlement from her “ex-husband,” a United States resident. The ex-husband has a counterfeit “certified” check delivered to the law firm. Once again, if the scheme is successful, the law firm wires the client the balance of the settlement payment, after deducting its fee, before discovering the check is a fake.
Meanwhile, other unsuspecting (perhaps naïve) lawyers have been defrauded into wiring their bank funds to anonymous con artists involving phony divorce settlements.
Lawyers Professional Indemnity Company, the malpractice insurance carrier that provides insurance coverage to lawyers in Ontario, Canada, warns that numerous lawyers reported being targeted by email senders who, assuming a false identity, say they need a lawyer to help them collect payments owed under a collaborative family law agreement. Typically the sender claims to be an ex-wife owed money by the ex-husband under the agreement.
When the lawyer takes the bait and agrees to represent the ex-wife, the ex-husband – actually the same scammer or scammers – sends the lawyer a “cashier’s check” for deposit into the law firm’s account, with instructions to wire the collected funds to the ex-wife’s account. By the time the lawyer discovers the cashier’s check was counterfeit, it’s too late – the unknown scammer is long gone with the wired funds from the law firm’s account.
Be Skeptical, Verify Information
Dan Pinnington, director of the Ontario company’s risk and practice management program, suggests taking the following preventive measures:
Don’t be fooled by …
- emails that are personally addressed to you;
- follow-ups to an initial email message;
- legitimate-looking referrals from another local attorney. Some lawyers routinely forward emails asking about family law matters to lawyers they know who practice in that area;
- legitimate-looking identification;
- innocent-looking subject line messages such as “collaborative family law agreement”;
- detailed background information; or
- phone calls that appear to be from local numbers. It is easy to fake a local area code and phone number with calling cards.
Why have some lawyers fallen victim to these scams? Sally Anderson, vice president – claims at Wisconsin Lawyers Mutual Insurance Co., says several policyholders she has spoken to were wrestling with whether they had a fraud or a real client. Anderson says if you get an inquiry you’re not sure about, and you don’t want to simply ignore it, there are several things to consider, in addition to Pinnington’s list of tips. “Why does the ‘client’ need to have the funds run through you? Isn’t there something more logical than an unknown attorney for getting the money to them if the deal is real? Is there any logical connection that would have brought the person to your firm? Why a wire transfer to them? Have you done any ‘work’ for the ‘client’? If not, and if you are just a clearinghouse, be extra wary.”
Be Wary of Email Solicitations
The following two recently received emails are examples of the types of solicitations making the rounds of attorneys. What do you think? Scam or legitimate request for legal services?
Email One – Over Delayed Payment?
The [company] has been manufacturing metal building products for over thirty years, since its inception in State of California, with a wide range of products and clientele base. We have an urgent case of over delayed payment in your county, of which we require an urgent legal service, your service.
Please avail to us your firm’s availability for new client intake at this time, so that I may furnish you in details, the matter at hand, with the relevant contract[s].
I wait your prompt response.
Email Two – Breach of Settlement Agreement?
I am seeking legal representation from your law firm regarding a breach of Settlement agreement with my former employer due to the injury I sustained while working for them. I need proper legal advice and assistance to know the best way to handle this issue. If this is your area of practice, please contact me to provide you with further Information.
Please reply to my email. [Note: Reply-to address is different from “sender’s” address.]
Anderson also says some emails come with the generic “Dear Attorney” salutation or a statement that you can’t reply to the email, providing a different contact email address. “If that’s the case, it may very well be trouble,” she says.
Beware of Hackers
The Florida Bar Association recently reported a case in which a solo practitioner in that state discovered someone hacked into her computer files, gained control of her passwords, and emptied $35,000 out of her trust account.
In all, the hackers made four wire transfers out of the trust account, although three of the four electronic transfers were pulled back by the bank. However, it was too late to intercept a $9,500 transfer to somewhere in Ukraine. The attorney quickly notified her clients, creditors, malpractice insurance carrier, and others, and she also had to take out bank loans to cover the thefts. But that wasn’t all. She had numerous checks returned while she scrambled to re-fund her accounts. She also had to open new accounts, order new bank cards, and stop automatic payments that were set to the old accounts.
Had the hackers hit in the morning instead of that afternoon, the attorney fears it may have bankrupted her practice. Earlier in the day, she had successfully wired out more than $400,000 from her trust account to pay off two mortgages for clients.
The attorney also hired computer consultants to help her determine what happened. The consultants told her the malware on her computer system most likely came in the form of a benign email and captured her passwords as she logged into her trust account, even though she had antivirus software.
What’s worse is that the bank insists it bears no responsibility for the theft. If the bank has security measures in place and authorization for the transfer comes from the customer’s computer, many legal experts believe the bank is not liable for the loss.
So why are lawyers being targeted by scammers, whether they’re sending fraudulent emails asking the lawyer to handle a divorce settlement or they’re hacking into computer systems? Anderson says one reason is that scammers often believe lawyers will respond to a request for help. “No one wants to leave a real person who needs help in the lurch, and these stories are getting better and more sophisticated.”
In addition, lawyers can be targets for scams because the perception is that they hold large sums of money for clients. The Florida lawyer has changed the way she handles her trust accounts. She told the Florida Bar Association her trust accounts will never be online again.
The moral of these stories, of course, is: be wary (and extremely skeptical) of clients who make contact only by email, especially if they reside in foreign countries. And be careful with your online banking system, particularly when it comes to your trust accounts.
There are numerous other types of scams out there that are not covered in this article. Clearly, lawyers have become popular targets. The American Bar Association says literally hundreds of law firms have reported email scams.
If you have not been targeted, consider yourself fortunate. If you are contacted in the future, contemplate the warning signs, remember the precautions you should take, and make sure you know who you’re dealing with. When in doubt, don’t reply. It seems like obvious advice, but somehow there are lawyers out there who have unfortunately fallen for these scams.