Learn to identify trust account scams

(Updated on January 23)

The annual Vermont Bar Association YLD Thaw Bowl was last Friday.  Here’s a question that I used:

During a segment of a CLE, I shared my thoughts on two things:

1. last-minute changes to wire instructions; and,
2. a prospective out-of-state client who claims to be owed a debt by a Vermonter, and who only communicates with you by e-mail

What general topic was I discussing during that segment of the CLE?

It struck me that many were unfamiliar with the answer:  trust account scams.

A lawyer has a duty to safeguard client property & funds.  To me, the duty includes employing reasonable safeguards against trust account scams.  Is falling for a scam an ethics violation? Not necessarily, but it might be.

I’ll share two scenarios.

Scenario 1

Imagine this: you have a personal checking account at a local bank.  The bank notifies you that your money is gone.  You are shocked.  You learn that someone contacted the bank and directed the funds in your account to be wired to a different account.  Your initial reaction might be “and you didn’t check with me to confirm!?!?”

That’s the “last-minute changes to wiring instructions” scenario.  Now, flip the scenario: the missing money is a client’s that you were holding.

Here are my posts on the topic:

• Change in wire instructions? CAUTION
• The latest scam
• Scams continue: beware ANY change in wire instructions
• Protect client funds, and your law license, by learning to identify trust account scams

Granted, the scammers are sophisticated.  Often, the change in wiring instructions will appear to have come from the client or opposing counsel.

I can’t stress enough that you can’t be too safe.  The 30 seconds you take to call to confirm might be well worth it. When you do, initiate the call to a number that you already have on file.  Don’t call a new number that appears in the change to the wiring instructions.  Don’t make the change based on a call to you.

Or, consider moving to client portals.  To learn more about them, please read Nicole Black’s post at MyCase.

If you think I’m being too cautious, please read this.  It’s a post in the ABA Journal about an associate who was scammed into authorizing a $2.5 million disbursement from trust by a last-minute change to wiring instructions.  A court order in the ensuing insurance claim is here.

And it’s not just me who is urging caution.  Andy Mikell is State Manger & Title Counsel for Vermont Attorneys Title Corporation.  I sent him the story of the $2.5 million scam.  Here’s part of his response:

• “An even newer approach involves the bad guys intercepting communications and then sending FAKE payoff letters to the Closing Attorney so that when seller’s mortgage is paid from the closing, the payoff money goes immediately to the wrong place.  Poof!

  So, in addition to telling folks to ‘trust no email’, I’m instructing our members to essentially “trust no payoff letter” either. It’s nasty out there but the scheme you forwarded should be preventable. Also, yes, we are telling folks to pay serious attention to their PLI policies. More offices are getting social engineering policies which are designed to insure against the wire scam.”

Andy also sent this article, one that goes into more detail on fraudulent mortgage payoff letters.

Scenario 2

The second scenario involves a scam that has been around even longer.  There are many twists, but a few core ingredients:

• a prospective client contacts you electronically;
• the prospective client claims to be owed money by someone who is in Vermont;
• the prospective client wants to hire you to collect the debt;
• the prospective client never meets with you or contacts you by telephone.

It’s happened numerous times in Vermont.  Usually the prospective client claims to have sold a product to a Vermonter. I’m also familiar with a version in which the prospective client claimed to be a Vermont Guard member who had been deployed out of the country, and whose ex-spouse had failed to pay the appropriate share of the proceeds of the sale of the marital home following a divorce.  The prospective client asked the lawyer to enforce the terms of the divorce order.

No matter the variation, the scammers are good.  They’ll send you what appear to be legit court orders, contracts & bills of sale.  They will have created fake websites, both for themselves and the debtors.  So, when you do some cursory research, it will look as if the debtor actually exists and is located in Vermont.  Not only that, when you contact the debtor, someone will respond and acknowledge the debt.

Here’s where the rubber meets the road.

Shortly after making contact with the debtor, FedEx or UPS will deliver a check to your office.  You will deposit the check into trust, then wire the “client’s” share.  Weeks, if not months later, your bank will inform you that the check from the debtor was a fraudulent check.  Quite likely, money that belonged to other clients – who are real – will no longer in your trust account.

Magically, the long outstanding debt resolved as soon as you got involved.  If it sounds too good to be true, it probably is.

As I argued in this post, it strikes me that this scam is so well-known that falling for it violates the duty to take reasonable safeguards to protect client funds.

Taking the time to learn to identify trust account scams is worth it.