In February, I blogged about an advisory opinion in which the North Carolina State Bar addressed a lawyer’s professional responsibility to learn to identify a common trust account scam.[i] The opinion concluded that failing to recognize the scam violated the duties of competence and diligence. In doing so, the opinion cited to “the vast notice and information directed to lawyers” about the scam, as well as to the scenario’s “number of red flags that should alert a lawyer practicing today to the potential for fraud.” My post is here, the opinion here.
I presented many CLEs in May and June. I discussed the North Carolina advisory opinion at most of them. When I did, I often stated something like this:
- “If the standard is ‘we’ve been warning about this scam for years,’ well, there are other scams we’ve been warning about too. For instance, we’ve been warning about wire scams for almost as long as we’ve been warning about the scam that’s the subject of the North Carolina opinion. Will failing to identify potential wire fraud soon be a violation of the rules?”
Maybe. So, today, I’m here to remind readers of an “old” wire fraud scam and to call attention to another that is “new” to me.
The “old” scam involves last-minute changes to wire instructions. I first cautioned lawyers about the scam in 2018, stressing the importance of employing a 2nd factor authentication system to confirm changes to wire instructions. The post included a tip from Andy Mikell, State Manager & Title Counsel at Vermont Attorneys Title Corporation (CATIC/VATC):
- “We are telling folks that the ONLY appropriate 2nd factor authentication method is for the ‘Wiring Firm’: (a) to initiate the verification call; (b) to a phone number that they independently obtained/verified. In other words, it is NOT acceptable: (a) to receive a confirmatory phone call or (b) to call a phone number in the email which contains the requested wire change.”
Apparently, we need to continue to spread the word.
Last week I learned of a situation in which a Vermont lawyer disbursed over $250,000 from trust after receiving an email that included a change to previously agreed upon wiring instructions. The email was not from the lawyer’s client and included tell-tale signs that it was fraudulent. Yesterday I learned of a similar incident in which a lawyer disbursed over $150,000 from trust in response to a fraudulent email that included “new” wiring instructions.
The scam that’s “new” to me is essentially the reverse: a client receives an email that appears to be from their lawyer. The email instructs the client to wire funds. In fact, the email is from someone pretending to be the lawyer and the funds, if sent, will soon be long gone. You can read more about the scam in this post from Money.
Yesterday, Andy Mikell informed me that a Vermont lawyer’s client recently fell victim to the “new” version of the scam. The client, a purchaser in a real estate transaction, wired $175,000 in response to an email that the client thought was from their lawyer. It was not.
Having spoken at several CATIC/VATC seminars over the years, I have first-hand knowledge that Andy and Liz Smith preach that law firms should adopt a standing policy of informing clients in-person and at intake that the firm will never send an email asking the client to wire funds. Indeed, yesterday Andy emailed me that CATIC/VATC
- “suggests that the time to inform buyer clients about the risks of wire fraud is at file intake. Clear oral communication between firm and client is imperative. Depending on the firm’s wire policies, oral communication might look like: ‘Wire fraud is rampant. We will NEVER EVER send you an email or a fax asking you to wire money to anyone or, if we do, we will NEVER EVER send you an email or a fax asking you to wire money to anyone without speaking with you directly on the telephone’. That same communication should also be set forth in the firm’s engagement letter and signed by the client. Clients should be told that if they receive an email or a fax asking them to wire money, to call the firm’s known phone number for confirmation, and not the phone number in the email or fax.”
Good tips. And remember: these scams are not limited to firms that represent buyers & sellers in real estate transactions. They’ll target anyone who might wire funds for whatever reason.
As always, let’s be careful out there.
[i] Lawyer is contacted by a client who is owed a debt. Client only deals with Lawyer by email. 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.
Trust Accounting Resources
- 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)
- Vermont’s rules on fees labeled “non-refundable” or “earned upon receipt”
- Beware the severance payment scam
- Reconciliation (again) is a good thing! Plus, a tip to protect against check fraud
- Timely reconciliation alerts firm to trust account fraud
- A lawyer’s professional responsibility to learn to identify common trust account scams
- 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.