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trust account scams

Trust Accounting in a Nutshell

September 14, 2022September 14, 2022Michael

The theme of yesterday’s post was that “back to school” season means that it’s time to get “back to basics.” In it, I shared thoughts on competence, communication, confidentiality, conflicts, and candor.

Today, it’s time to get back to the basics of trust accounting.  I know (all too well) that it’s nobody’s favorite topic.  Still, it’s important and it’s my job.

I want to be very clear about why trust accounting is important.

  1. The rules are meant to ensure that lawyers act competently to safeguard client funds.  I’m not sure there’s a greater threat to the public’s confidence in the profession’s ability (and privilege) to self-regulate than would be posed by an abdication of this duty.
  2. Understanding the rules is good way to avoid a disciplinary sanction.

I wanted this post to be long enough without being too long.  So, I decided to present the information in a syllabus, as if we are beginning a semester-long course.  Alas, WordPress didn’t like the outline’s formatting. 

Here it is:

Trust Accounting in a NutshellDownload

Feel free to download and share.

Finally, my original plan was to present the syllabus/nutshell via video.  Not just any video, but a video recorded on my deck and during which I paused during the transitions to display and taste the herbs & spices that I’m growing out there. 

Alas, I’ve been informed that nothing I’m growing is a spice.  As such, so much for the idea of “spicing up” trust accounting with a video in which my “spices” were special guests.

Still, I decided to record from the deck anyway.  Midway thru, I got caught in a rainstorm.  So, the outline will have to do.

The best laid plans.

As always, let’s be careful out there.

Law offices should learn to identify wire fraud scams and discuss those scams with clients.

August 23, 2022August 23, 2022Michael

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. 

RELATED POSTS

Trust Accounting Resources

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

  • 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.

Timely Reconciliation Continues To Protect Vermont Law Firms Against Trust Account Fraud

August 2, 2022August 2, 2022Michael 1 Comment

Hello.  Long time no blogging.  I’d write that I’m glad to be back, but this isn’t one of the posts. Rather, I’m here to warn about trust account fraud and emphasize the role that timely reconciliation plays in protecting against it.

Last winter, I posted about two instances in which timely reconciliation had alerted firms to trust account fraud.  The first involved fraudulent checks.  The second involved unauthorized ACH disbursements made from a trust account.

The former has resurfaced.  If it ever left.

A Chittenden County lawyer contacted me this morning.  Reconciling the firm’s pooled interest-bearing trust account (IOLTA), the bookkeeper noticed multiple checks that looked exactly like the firm’s trust account checks, bore the proper account and routing numbers, and even included the bookkeeper’s signature. However, the bookkeeper knew that she had not issued checks to the named payees. The checks were fraudulent. Somehow and somewhere, someone accessed one of the firm’s actual checks, generated fraudulent facsimiles thereof, and expertly changed the payee.  Upon being alerted to the fraud, the firm’s bank made good on the funds.

How the fraud occurred remains unclear.  Here’s what’s clear.

Yes, trust account fraud is unrelenting and increasingly sophisticated. But regular and timely reconciliation can reveal fraud and help lawyers to safeguard funds that would otherwise be gone from trust.

In February’s post about the firm that discovered unauthorized ACH disbursements, I noted that the firm had “moved to a version of ‘positive pay.’”  I encouraged others to consider doing the same. On the CLE circuit this spring, I learned that many have.  You can read more about “positive pay” here.   (Note: my sense is that most Vermont firms use “reverse positive pay.”)  Anyhow, here’s an excerpt from February’s post that bears repeating:

“Nothing in this post should be read as me stating that the Vermont Rules of Professional Conduct require lawyers and law firms to enroll in a “positive pay” program.  However, it’s worth considering.  As I mentioned in A Lawyer’s Professional Responsibility to Learn to Identify Common Trust Account Scams, if trust funds go missing, the question will be whether the lawyer took reasonable steps to safeguard them.  I could envision a disciplinary prosecutor asking, “did you ever check whether your bank offers a ‘positive pay’ or a similar service?”

As always, let’s be careful out there.

fraud

Trust Accounting Resources

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

  • 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
  • & 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.

Beware the “severance payment” trust account scam.

March 2, 2022March 2, 2022Michael 3 Comments

Today I learned that a Vermont law firm was targeted this week in the so-called “severance agreement scam.”  It was the first I’d heard of the scam happening here.  Fortunately, a non-attorney employee was suspicious of the transaction. As a result, before disbursing, the firm was able to verify that a check that had been deposited to the trust account was fraudulent.  Crisis averted.

Here’s how the scam works.

Someone contacts a lawyer claiming to be owed a severance payment by a former employer. Once the lawyer is involved, the “former employer” sends a check.  The check is fraudulent.  Alas, by the time the unsuspecting lawyer’s bank notifies the lawyer that the check was fraudulent, the lawyer has already disbursed funds that belong to other (and actual) clients.

Stewart Sutton practices law in Maryland.[1]  In 2019, Attorney Sutton outlined the scam.  The Virginia State Bar issued this warning the same year.

While relatively new, the “severance payment scam” is but a variation on an old theme.

A few weeks ago I posted A Lawyer’s Professional Responsibility to Identify Common Trust Account Scams. In it, I referred to North Carolina State Bar 2021 Formal Ethics Opinion 2.  The advisory opinion addresses a common 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.

Scams of this nature most often involve an out-of-state client who (a) claims to be owed money by a person or business located in Vermont; and (b) only communicates with the Vermont lawyer by e-mail .  I’m aware of it playing out in different contexts, including:

  • Person or business claims to have delivered goods to a person or company that won’t pay.
  • Deployed member of the military claims that ex-spouse sold the marital home and refuses to share the proceeds.

We can now add:

  • Person claims to be owed “severance payment” by former employer who won’t pay.

As always, be careful out there.

scam

[1] I don’t know Attorney Sutton and have never communicated with him.  But I’m happy to learn from his profile that he’s a member of Red Sox Nation.

Related Videos & Posts

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

  • Reconciliation (again!) is a good thing. Plus, a tip to protect against check fraud.
  • A lawyer’s professional responsibility 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.

 

Again, reconciliation is a good thing! (And a tip to protect against check fraud.)

February 18, 2022Michael 4 Comments

A few weeks ago I posted Timely Reconciliation Alerts Firm To Trust Account Fraud.

Well, it has happened again.

And, this time, the firm that shared its story also shared a tip to prevent check fraud.

fraud

A lawyer called yesterday to discuss a trust account issue.  In the process of a daily reconciliation, the firm noticed an unauthorized ACH disbursement from trust. Someone had accessed the trust account to pay their credit card.  The firm is working with law enforcement to identify the culprit and has confirmed that it was not an employee, client, former client, or anyone to whom the firm delivered funds on behalf of a client.  The most likely explanation is the simplest: someone came across one of the firm’s trust account checks and wrote down or took a picture of the account and routing numbers.  Fortunately, the daily reconciliation alerted the firm to the problem.  The bank refunded the money, and the firm has taken additional steps to safeguard client funds and to protect against check fraud.

Among other things, the firm has moved to a version of “positive pay.” Every day, the bank sends the firm a list of checks that have been presented against the trust account.  The firm approves or disapproves each.  You can read more about “positive pay” in this post from Investopedia.  Note: the firm uses “reverse positive pay.”

Nothing in this post should be read as me stating that the Vermont Rules of Professional Conduct require lawyers and law firms to enroll in a “positive pay” program.  However, it’s worth considering.  As I mentioned in A Lawyer’s Professional Responsibility to Learn to Identify Common Trust Account Scams, if trust funds go missing, the question will be whether the lawyer took reasonable steps to safeguard them.  I could envision a disciplinary prosecutor asking, “did you ever check whether your bank offers a ‘positive pay’ or a similar service?”

Personally, I’d not want my answer to be “a what?”

As always, let’s be careful out there.

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

February 9, 2022February 9, 2022Michael 4 Comments

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.

scam-alert

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.

 

Timely Reconciliation Alerts Firm to Trust Account Fraud

January 11, 2022Michael 1 Comment

In Vermont, client trust accounts must be reconciled no less than monthly.  In addition to being required by the rules, timely reconciliation can help to alert a lawyer or law firm to trust account fraud.

Fraud

Last Friday, an employee of a Vermont law firm reconciled recent trust account activity.  Reviewing digital copies of checks presented against the account, the employee discovered three fraudulent checks.

I’ve seen images of the fraudulent checks.  They look almost exactly like the firm’s real checks. Each includes the firm name, address, account number, routing number, and a forged signature of one of the firm’s partners.

The employee caught the fraud because two of the checks were duplicates.  That is, each was the same number as a legitimate check that the firm had issued.  The third bore a number that was well outside the range of the firm’s current checks.

Each fraudulent check had been negotiated using a mobile banking app.  The mobile deposits were to accounts at a different bank than where the firm’s trust account is maintained.  Many thousands of dollars were stolen. It seems that the fraud occurred outside the United States as two of the fraudulent checks were dated using the “dd/mm/yy” construct.

The law firm immediately notified its bank and law enforcement.  Funds that remained in trust were transferred to another account.  A few legitimate checks remain outstanding. The bank agreed not to honor them without contacting the firm for approval.  As of last night, it appears that the banks are going to make good on the funds fraudulently obtained from the firm’s trust account. The firm and the bank are discussing whether the bank can make it so that the firm’s trust account checks cannot be negotiated electronically.

The situation shows the importance of timely reconciliation. The employee discovered the fraud within days of it happening.  It’s also an example of the importance of “actual” reconciliation.  Don’t just glance at the statement and conclude that the balance “looks about right.”  That is not reconciling.  An actual reconciliation includes reviewing each and every transaction on the account.

As always, be careful out there.

Related Material

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:

  • 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
  • T.I. & Jack Torrance: an overview of the trust account rules
  • Third-Party Claims against Client Funds
  • With trust accounts, verify
  • 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.

Resources

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

 

Monday Morning Answers #215

December 7, 2020December 7, 2020Michael

For the wonderful duration of the first 2 or 3 seconds that I was awake this morning, I thought it was Sunday.

Reality bites.

Friday’s questions are here.  The answers follow today’s Honor Roll.

Honor Roll

  • Karen Allen, Esq
  • Matthew Anderson, Pratt Vreeland Kennelly & White
  • Penny Benelli, Dakin & Benelli
  • Geoffrey Bok, Stoneman, Chandler & Miller
  • Beth DeBernardi, Administrative Law Judge, VT. Dept. of Labor
  • Alberto Bernabe, Professor, John Marshall Law School
  • Erin Gilmore, Ryan Smith & Carbine
  • Benjamin Gould, Paul Frank + Collins
  • Glenn Jarrett, Jarrett & Lutjens
  • Elizabeth Kruska, President, VBA Board of Managers
  • John Leddy, McNeil, Leddy & Sheahan
  • Pam Marsh, Marsh and Wagner
  • Jack McCullough, Project Director, Vermont Legal Aid Mental Health Law Project
  • Jeffrey Messina, Bergeron Paradis Fitzpatrick
  • Herb Ogden, Esq.
  • Jay Spitzen, Esq.
  • Jonathan Teller-Elsberg, Hershenson, Carter, Scott & McGee
  • Thomas Wilkinson, Cozen O’Connor
  • Peter Zuk, Gale & McAllister

 Answers

Question 1

It happened again.  So, fill in the blank.

A change to wiring instructions should put a lawyer on alert to a potential _________:

  • A. conflict of interest.
  • B   situation in which the client is not competent to make informed decisions about the representation.
  • C.  violation of the rule that prohibits unreasonable fees.
  • D.  trust account scam.

 I’ve blogged often on this. Indeed, it’s been more than two years since this post in which I quoted several industry experts warning lawyers to confirm changes to wire instructions.  The post included a quote from Vermont’s own Andy Mikell:

  •  “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.”

 Question 2

 Lawyer called with an inquiry.  I answered, “you need to make sure to avoid noisy ______________.”

Given my answer, it’s most likely that Lawyer called to discuss:

  • A.  withdrawal.
  • B.  clients.
  • C.  judges.
  • D.  technology

Last week, I blogged about “noisy withdrawal” here.  Note: several readers mentioned that there’d been a problem with noisy technology.  That’s not something I knew about.

Question 3

 I often refer to the 7 Cs of Legal Ethics.  A rule involving one of the Cs includes a comment that reads:

“A lawyer should adopt reasonable procedures, appropriate for the size and type of firm and practice, to determine in both litigation and non-litigation matters the persons and issues involved.  Ignorance caused by a failure to institute such procedures will not excuse a lawyer’s violation of this rule.”

Which C?

Conflicts.  This language appears in Comment [3] to V.R.Pr.C. 1.7.

Question 4

When a lawyer holds funds in trust and in which two or more persons claim interests, a rule specifically requires the lawyer:

  • A.  to resolve the dispute.
  • B.  to keep the funds separate until the dispute is resolved.
  • C.  to promptly distribute all portions that are not in dispute.
  • D.  B & C. V.R.Pr.C. 1.15(d) and (e).

Question 5 & Bonus

There’s a lawyer who has been in the news a lot lately.  The news has included reports that disciplinary complaints have been filed against the lawyer in at least five jurisdictions.

A few weeks ago, the lawyer held a press conference in which the lawyer analogized a client’s claims to a famous scene in this blog’s favorite legal movie, My Cousin Vinny.

Name the lawyer.

Bonus:  identify the specific issue that both the lawyer and Vinny argued rendered witnesses unreliable.

Rudy Giuliani.  The common issue was the witness’s ability to see from distance.  The Hill has the story here.

mycousinvinny2

Twofer

July 23, 2020July 23, 2020Michael 1 Comment

Two days late, but a two-fer nonetheless.

  1. Beware Changes to Wiring Instructions!

Here’s a post in today’s ABA Journal: BigLaw firm sued over $3M wire transfer to fraudster’s account.  But for involving $3 million and a so-called “Big Law” firm, the scam was garden variety.  No different than one that often targets Vermont lawyers, especially real estate practitioners, it was predicated on a change in wiring instructions.

As I’ve blogged here, here, here, here, and here, a change in wiring instructions should set off alarm bells.  Further, if the change in wiring instructions comes by email, I suggest confirming the change by some other method than responding to the email.

Andy Mikell is State Manager & Title Counsel at Vermont Attorneys Title Corporation.  In a prior blog, I used this quote from Andy to highlight the importance of using two-factor authentication to confirm changes to wiring instructions:

    • “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.”

Big Law should follow this blog.

  1. File Retention & Delivery

Over the past few weeks, I’ve heard from a few lawyers on the issue of file retention.  Each started by saying “I have to keep the file for 6 years, right?”

Wrong.

The Vermont Rules of Professional Conduct do not specify a file retention period and never have.  Rather, V.R.Pr.C. 1.16(d) states that “upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interests, such as . . . surrendering papers and property to which the client is entitled.”  In my opinion, the file is among “the papers and property to which the client is entitled.”  So, as I’ve stated at CLEs and in this space, Deliver The File.

Nothing in Vermont’s rules affords a lawyer a 6-year window to deliver the file.  Nothing in Vermont’s rules conditions file delivery upon the client’s request.  Nothing in Vermont’s rules authorizes a lawyer to destroy an undelivered file 6 years after the representation ends.

Indeed, in 1997, the VBA’s Professional Responsibility Committee issued Advisory Ethics Opinion 97-08.  While issued under the old Code of Professional Responsibility, the opinion remains helpful.  The Committee’s conclusion is almost exactly what I might say at a seminar:

  • “We cannot state that there is a specific time during which a lawyer must preserve files and, beyond which, he or she is free to destroy them. The sound exercise of good professional and business judgment should provide answers to most storage and/or retention questions that may arise.”

From there, the Committee listed factors a lawyer should consider prior to destroying a file.  Again, many remain relevant today.  In no particular order, here are thoughts & tips I’ve shared with lawyers:

  • it’s okay to go paperless.  But don’t destroy any important originals.
  • once delivered, there’s no requirement to keep a copy of the file.  But your liability policy might require you to, and it might be helpful to have a copy if a disciplinary complaint or malpractice claim is ever filed.  Also, title insurers sometimes require agents to maintain copies of files.
  • cull files for important originals before destroying.  Especially if even one file might contain a will.
  • Absent a client’s consent, anything that the client gives to the lawyer must be returned.
  • give notice before destroying files.  If not in the representation agreement itself, then again – even by publication – years later.
  • Different types of cases require different retention periods.  For more, see this opinion from the Kentucky Bar Association.
  • A lawyer MUST keep records of client funds & property for 6 years after the termination of the representation. So, keeping a log of client files is a good idea.

For more, in 2018, I posted File Retention: How Long?  Let’s see if anyone is still reading.  In the 2018 blog, I wrote:

  • “To paraphrase another Irish guy, it’s not uncommon for me to hear a frustrated lawyer say something like:
    • ‘I can’t believe the files in here.  I can’t close my eyes and make them disappear!  How long? How long must I sing this song?’”

Who is the “Irish guy” to whom I referred in the 2018 post?

And with that, I’m calling it a Thursday.  Have a great night!

Screenshot 2020-07-23 at 6.30.56 PM

 

Trust Account Tuesday: 2 new CLE videos

April 7, 2020April 10, 2020Michael

Originally posted on April 7.  Updated on April 10 to add third video: Contingent Fees, Referral Fees, and Fee Sharing

*********

CLEs on the trust accounting rules are not my favorite.  Yet, they’re critical.  Recording them in my garage makes it seem easier to present an otherwise dry topic.   So, given the topic’s importance, that’s what I’ve done.

Today, I recorded the final installments of the Garage Series on Trust Accounting:

  • Trust Accounting 3: Collecting and Disbursing Funds
  • Trust Accounting 4: Flat Fees, Misappropriation and Trust Account Scams

Part 3 (33 minutes) focuses on Rule 1.15 and the general prohibition against disbursing from trust without collected funds.  Meanwhile, part 4 (35 minutes) addresses how to handle fees paid in advance, cautions against even thinking about “borrowing” from trust, and shares tips on how to identify common trust account scams.  Each includes a screen share of my notes and an interactive quiz.

I have not reviewed or edited the videos.  Watching will be as if you showed up to hear me speak. You get what you get.

Enjoy.

Prior videos in the Garage Series on Trust Accounting:

  • Trust Accounting 1: Don’t fear, simplify.
  • Trust Accounting 2:  The Basics. And don’t commingle.

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