A Lawyer’s Professional Responsibility to Identify Common Trust Account Scams

Judging from the feedback, not many people enjoy my posts and seminars on trust accounting.  It’s not uncommon for someone to express that the experience leaves them worried for their license, or to remark that I “tried to scare the crap out of” the audience.

Honestly, that’s not my goal.  Indeed, the first in my series of trust accounting videos is Don’t Fear, Simplify. Similarly, I kicked off 2018 by asking lawyers not to overcomplicate trust accounting.

I stand by the message in each.

So, it’s with my own trepidation that I share today’s.  Alas, to protect client funds, and lawyer licenses, I’m sharing it anyway.

Scams are at the top of the list of things that make lawyers fear trust accounting.  That said, I’ve often heard “But Mike, we can’t stop scams.  Falling for one is a problem, but it’s not unethical.”

I’m not so certain.

In 2017, almost FIVE YEARS AGO, I posted Trust Account Scams – they won’t be an excuse for long.  Referring to CLEs I was scheduled to present, I wrote:

• “At the seminars, I will be very clear: in my opinion, we’re not far from the day when ‘but I was scammed!’ will not excuse a violation of the rules.  It might mitigate the ultimate sanction, but it will not excuse the failure to safeguard client funds.

Then, I outlined several of the more common scams that target lawyers and their trust accounts.

My opinion hasn’t changed.  And, last year, the North Carolina State Bar joined me when it issued 2021 Formal Ethics Opinion 2.

The NC opinion addresses a common trust account scam:

• Lawyer is contacted by client who is owed a debt.
• Client reports that debtor will not pay.
• Lawyer agrees to represent Client.
• Debtor (suddenly) can’t send a check to Lawyer fast enough.
• Client instructs Lawyer to deposit the check, keep Lawyer’s fee, and wire the balance.
• Lawyer follows Client’s instructions.
• Later, it becomes apparent that Debtor’s check was fraudulent.
• Often, Lawyer has now wired to Client funds that belong to other clients.

I’ve warned about this scam for years.  It usually involves an out-of-state client who (a) is owed money by a person or business located in Vermont; and (b) only communicates with the Vermont lawyer by e-mail. After surveying the wealth of material warning lawyers of this common scam, the NC Bar concluded:

• “Lawyer’s mistaken reliance on the counterfeit check is unexcused. Given the breadth of notice provided to the legal profession on this common scam, Lawyer should have realized that the circumstances surrounding this purported representation required additional investigation. For at least ten years, lawyers have been warned about being targets of scams such as the one at issue in this inquiry.”

The opinion goes on:

• “Lawyer should have been alerted to the suspicious nature of this transaction based upon the circumstances in this scenario, including the unsolicited request for the representation; the willingness of the purported defendant to quickly resolve the dispute without much effort from Lawyer; the cashier’s check drawn on an out-of-country bank; and the cashier check being dated prior to Lawyer’s conversation with the purported defendant. Although one of these circumstances standing alone may not give cause for suspicion, the totality of the circumstances should have alerted Lawyer to the suspicious nature of the representation and the transaction.”

Finally:

• “Lawyer’s failure to recognize the scam given the vast notice and information directed to lawyers on the topic demonstrated his lack of competency in violation of Rule 1.1.”

In sum, the North Carolina opinion concludes that a lawyer has a professional responsibility to be aware of common trust account scams.

I urge lawyers to familiarize themselves with the most basic & common scams.  To do so, I suggest starting with the NC opinion and my posts Learn to Identify Trust Account Scams and Protect Client Funds, and your law license, by Learning to Identify Trust Account Scams.

As always, let’s be careful out there.

Related Videos & Posts

• The Professional Responsibility Program’s Guide to Managing Trust Accounts

Videos

•  Don’t Fear, Simplify.  (25 minutes)
• Basic Requirements(41 minutes)
• Contingent Fees, Referral Fees & Fee Sharing(22 minutes)
• Flat Fees, Misappropriation & Trust Account Scams(35 minutes)
• Collecting & Disbursing Funds(33 minutes)

Blog Posts

•  Lawyers aren’t Kramer: when it comes to trust accounting, there are no excuses
• Back to (trust account) school
• Safeguarding Client Funds: Tech Competence & Mobile Payment Apps
• Taylor Swift & Trust Accounts: Don’t Say I Didn’t Warn Ya
• Disbursing without Collected Funds
• Mobile Payments & Legal Fees
• Trust Accounting Tips
• Trust Account Scams Continue
• I. & Jack Torrance: an overview of the trust account rules
• Third-Party Claims against Client Funds
• With trust accounts, verify
• Misappropriation: Don’t.
• Misappropriation: Don’t.
• Trust Account Tuesday: Nonrefundable fees
• Teddy KGB on prompt notification and delivery
• When a third-party asserts an “interest” in funds held in trust
• Trust Account Tuesday: (generally) don’t disburse absent collected funds.
• Trust Accounting: Basic Requirements
• Trust Account Tuesday: Don’t Commingle
• Trust Accounts & ACH Transfers
• Trust Account Scams: Change in Wire Instructions? CAUTION!!!!
• Don’t overcomplicate trust accounting.