Trust Account Scams Continue

Since last Wednesday, three different firms from three different parts of the state have contacted me to report having been targeted by trust account scams.  I don’t have much to say that I’ve not already shared.  But I’m posting again, hopefully to plant a kernel of recognition that will pop if you’re ever targeted.

First, I’ll share my prior posts.  Then, I’ll share the scenarios lawyers reported to me over the past week. Finally, I’ll conclude by sharing a suggestion that I made to one of the lawyers who reported a scam to me.  It’s a suggestion that makes me feel paranoid.

My prior posts:

• Learn to Identify Trust Account Scams
• 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

The scenarios:

Scenario 1

Firm agreed to represent an out-of-state purchaser (“OOSP”).   OOSP sent Firm a check for the purchase price.  It was a significant amount.  Firm deposited the check into its pooled interest-bearing trust account (“IOLTA”).  By definition, Firm’s IOLTA contains funds that belong to other clients.

OOSP assured Firm that the purchase & sale agreement would soon follow.  All communication was by email

Last Wednesday, OOSP emailed Firm.  OOSP reported a “family emergency” that required cash to address.  OOSP asked Firm to wire $40,000 of the funds Firm was holding for the purchase.

Firm had still not received the purchase & sale agreement.  The check had only been deposited the day before.  OOSP refused to communicate with Firm in any manner other than email or to provide any detail beyond “family emergency.”

Yes, there’s a rule that requires a lawyer promptly to disburse from trust funds to which a client is entitled.  There’s also a rule that requires Firm to safeguard the funds Firm is holding for other clients.  Here, then, the circumstances strike me as such that Firm must wait for confirmation that the funds have been finally credited to the IOLTA.  It will not surprise me if Firm eventually learns that the check it received from OOSP was a fraudulent check and that there is no P&S agreement to buy a Vermont property.

Scenario 2

Today, a lawyer reported this.

For a while now, an out-of-state client (OOSC) has been emailing Lawyer asking Lawyer to represent OOSC on a contingent fee basis.  OOSC’s emails include several typographical errors.

Today, and without Lawyer even yet having agreed to represent OOSC, OOSC’s Adversary emailed Lawyer.   Adversary informed Lawyer that Adversary was ready to settle and wanted to send a check.  Adversary’s email included the same typographical errors as OOSC’s.

If you’ve not yet recognized the scam, here’s what likely would’ve happened had Lawyer not recognized it:

• Lawyer would’ve communicated Adversary’s settlement offer to OOSC;
• OOSC would’ve accepted;
• Lawyer would’ve received a check from Adversary and deposited it into Lawyer’s IOLTA;
• Lawyer would’ve sent OOSC a trust account check for OOSC’s share;
• Lawyer’s Bank would’ve notified Lawyer that Adversary’s check was fraudulent;
• By then, OOSC would’ve deposited the trust account check and funds belonging to other clients would be gone.

Scenario 3

This one, also reported today, might be the most concerning.

Firm represents Buyer in the purchase of property that is in Vermont.  Buyer is out-of-state but is known to Firm.  Firm has confirmed the transaction, worked with Seller’s attorney (an attorney the Firm knows well), and worked with a local realtor.  The plan was that Buyer would wire funds to Firm later this week.

Today, Buyer called Firm.  Buyer asked why Firm had sent an email with new wire instructions.  Firm replied that it had not.  Firm asked Buyer to forward the email.  Buyer did.

Before today, Buyer and the Firm lawyer handling the transaction had communicated by email.  Firm lawyer had used a firm account:  lawyer@firm.com   The email to Buyer that purported to include new wire instructions was from lawyer@gmail.com  Fortunately, Buyer’s antennae went up upon receiving a last-minute change in wiring instructions from an unfamiliar email address.

The concern here is that there’s been a breach.  There’s no bank involved.  But for a small down payment from Buyer, Seller is financing the sale. So, it appears that either the realtor, Firm, or Seller’s attorney has been breached.

Finally, I know this will sound paranoid, but I’m compelled to include it.  In this last scenario the lawyer who reported it told me that Buyer now intends to send a check.  That’s fine, but given that Buyer is out-of-state, it will likely result in the bank putting a hold on the check, which might impact the closing.  That’s for all involved to work out.  What’s for me to add is this:

The lawyer also told me that Firm informed Buyer that if wire instructions change, Firm will not notify Buyer by email, but will call.  Again, I know this will seem paranoid, but I suggested to the lawyer that Firm and Buyer arrange a code word that will be included if such a call is made.

Why?

It wasn’t too long ago that this happened.

Lawyer represented Buyer at a closing.  At the closing, Buyer’s Lawyer gave a trust account check to Seller.   On the way home from the closing, Buyer’s Lawyer received a phone call that his Caller ID showed as “Seller’s Attorney.”  Buyer’s Lawyer answered the call.

The caller said that she worked in Seller’s Attorney’s office, that their client couldn’t make it to the bank to cash the check, and that their client would prefer a wire.  The caller promised that they would rip up the check if Buyer’s Lawyer wired the funds.  Buyer’s Lawyer agreed.  The caller provided wire instructions.  Upon returning to the office, Buyer’s Lawyer wired the funds as instructed.

Days later, Buyer’s Lawyer noticed that the check had been cashed. Buyer’s Lawyer called Seller’s Attorney.  Seller’s Attorney said something like “we never called you to ask for a wire.”  Eventually, all involved realized that Buyer’s Lawyer had been scammed; a scam so sophisticated as to have included a phone call that, on Caller ID, appeared to have come from Seller’s Attorney.

That’s why I suggested the code word.