Trust Account Tuesday: 2 new CLE videos

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

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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.

 

Trust Accounting Tips

My drumbeat continues!  In my defense, it’s been 15 whole days.  Plus, back then, most of you probably still had too much summer on your mind to click on a trust accounting blog.  So, here we go again.

Over the years, more than one lawyer has told me the trust accounting rules are “too complicated.” Hence, my first post of 2018: Don’t Overcomplicate Trust Accounting.

A few moments ago, I came across a post on the Attorney at Work blog: Avoiding Common Trust Accounting Errors for Well-Intentioned Lawyers.  The post does a nice job uncomplicating trust accounting with five simple tips:

• reconcile monthly
• keep clients informed
• set up appropriate credit card processing system
• be the only signatory
• reduce personal funds in trust

Great tips.  With the respect to the final, remember, under Vermont’s rules, a lawyer may keep the lawyer’s own money in a client trust account, “for the sole purpose of paying service charges or fees on that account [and] only in an amount necessary for that purpose.”  V.R.Pr.C. 1.15(b).   As I blogged here:

• “Don’t guess.  Figure out what the normal charges and fees are or are likely to be and deposit that amount.  Randomly tossing in $500 or $1000 could lead to discipline.”

Anyhow, it’s never a bad idea for a quick refresher on the trust accounting rules.  The Attorney at Work post above is a good start.  Also, last spring, I embarked upon a Trust Account Tuesday quest in which I posted tips on trust accounting every – you guessed it – Tuesday.  I hoped the posts would serve as a companion to the Professional Responsibility Program’s Guide to Managing Client Trust Accounts.  The entries:

• Don’t Commingle
• Basic Requirements
• Don’t Disburse Absent Collected Funds
• Teddy KGB on Prompt Notification & Delivery
• Third-Party Interests in Funds Held on Behalf of a Client
• Nonrefundable Fees
• Misappropriation:  Don’t
• With Trust Accounts, Verify
• Third-Party Claims against Client Funds (an update)

And, some posts that weren’t part of last spring’s Trust Account Tuesday trope:

• T.I., Jack Torrance & Trust Accounting
• An Improper Contingent Fee
• The 6th “C”: Commingling
• Trust Accounts & ACH Transfers
• Matters of Trust: do you trust your trust accounting system

Finally, my posts on scams:

• Trust Account Scams Continue
• 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
• Trust Account Scams: disciplinary prosecutions possible?

Maybe the rules are complicated.  But the general notion isn’t:

• know whose money you have;
• how much; and,
• keep it separate from yours.

 

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.

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.

 

Scams Continue: Beware ANY Change in Wiring Instructions

In March, I cautioned lawyers to beware of last-minute changes to wiring instructions.  I followed up with a post on the latest scam, one that targets a lawyer’s clients by providing the client with “new” wiring instructions.

I’m writing again because the scams continue.  In fact, this is something that HAS HAPPENED & WILL CONTINUE TO HAPPEN even here in little ol’ Vermont.

Here’s an excerpt from an e-mail that I received last week.  I’ve removed identifying information.

• “I had a commercial closing today in which I was representing the seller and the seller’s proceeds (a substantial amount) were to be wired by the settlement agent [another lawyer] to a 1031 intermediary.  I had verified the wire instructions with the 1031 intermediary (with whom I have worked many times) and with [the settlement agent’s] office by phone in advance of closing.  Twenty minutes before the scheduled closing, [the settlement agent’s] office received an e-mail which purported to be from me concerning the wire instructions.  The e-mail was not from me, but it looked authentic but for an error in our office phone number and when you scrolled over the address, you could see it originated from a different e-mail address (not mine).  Fortunately, [the settlement agent’s office] realized it was a fraudulent e-mail and did not reply.  The hacker had clearly been following the e-mail traffic on this transaction and presumably the fraud would have involved the hacker providing revised wire instructions to its own account and our client’s proceeds would have been gone—even if [the settlement agent] had replied, this would not have occurred because I had a hard copy of the wire instructions with me to verify with her at the closing table.  Fraud averted, but it is a powerful reminder that we are not immune from these sophisticated frauds.  I ended up getting a check to FedEx instead of following through with the wire.”

I exchanged a few e-mails with the seller’s lawyer and we eventually spoke by telephone. While the scam sprung to life pre-closing, the lawyer told me something that makes good sense and that I thought I’d pass on.   In the lawyer’s words:

• “our policy [is] that there are no post-closing changes in payment method.  Once that check leaves [our possession at] the closing, that is it (we put that one in place after we first heard about the use of mobile deposit and the fraudster who use the mobile deposit app and then returned with the check to the closing agent and asked to have the funds wired instead).”

Finally, please do not think that real estate lawyers are the only targets of this scam.  Scammers will  target any type of transaction. Whether wiring settlement funds to a personal injury client, wiring sale proceeds to a seller, or wiring money to anyone for any reason whatsoever, beware of changes to wiring instructions.

 

 

The Latest Scam

Last week I re-posted Beware of Last Minute Changes to Wiring Instructions.  The blog was directed at lawyers who receive changes to wiring instructions shortly before disbursing from trust.

Well, scams work both ways.  Here’s the latest:

Last week, Lawyer was set to represent Buyer in a purchase of property.  Buyer intended to fund the purchase with Buyer’s own money.  Lawyer provided Buyer with instructions on how to wire the funds ($110,000) to Lawyer’s trust account.

Two days before closing, Buyer received a text message with revised wiring instructions.  Buyer did not call, e-mail, or otherwise confirm the change with Lawyer.  Buyer instructed bank to wire the funds to the account reflected in the text message.

It was a scam.

As pointed out in last week’s blog, lawyers should confirm with clients upon receiving a last-minute change to wiring instructions.  Lawyers should instruct clients to do the same and, in addition, inform clients that it is highly unlikely that a lawyer’s wiring information will change in the day or too before a closing.

Of course, the latest scam raises a question as to how the scammer knew to text Buyer.  Did Lawyer fail to take reasonable precautions to safeguard client information? For now, it’s too early to tell.

Beware of Last Minute Changes to Wiring Instructions

The final Friday of any month tends to be a busy day for Vermont’s real estate bar.  I suspect that there are lots of closings and refi’s scheduled for today & tomorrow. So, I thought I’d re-post this blog that originally ran on March 8.  If it helps, pretend I’m using my Elmer Fudd voice when I say:

Be very, very, wary of last-minute changes to wiring instructions.

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The 2018 Legal Malpractice and Risk Management Conference took place earlier this week in Chicago.  I didn’t attend, but followed the Twitter updates.

Two tweets caught my eye.  Each relates to trust account scams.  I thought I’d use them as teaching tools. Consider these tweets as messages from a substitute teacher in your legal ethics class.

The message: be VERY, VERY, VERY, VERY careful when wire instructions change.

The first tweet was from Dan Pinnington.  Dan is the director of practicePro .  He’s a well-known speaker on risk management, claims prevention, and tech ethics.  Two day ago, he tweeted this.

Jennifer Groszek is an attorney & VP at Pro Quest Insurance.  Per the company’s leadership page, Jennifer provides risk management and claims prevention services.  Yesterday, Jennifer tweeted this from the LRRM Conference:

Andy Mikell is State Manager & Title Counsel at Vermont Attorneys Title Corporation.  He’s also a former member of the VBA’s Board of Managers and, perhaps the most important feather of the many in his cap, a friend of this blog.  With respect to Jennifer’s point on 2-factor authentication, Andy notes:

• “We are telling folks that the ONLY appropriate 2^nd 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.”

Andy’s point is crucial.  Initiating the call is key because scammers can trick your caller ID into showing a number that you think to be the client’s.  Further, a last-minute change in wire instructions that’s accompanied by “oh, and i have a new phone number too, please call it to confirm” should set off alarms even if you don’t have any alarms.

Excellent points from folks in the field.

 

Change in Wire Instructions? CAUTION!

Update:  Original post updated at noon on March 8 to include a great tip from Andy Mikell.

The 2018 Legal Malpractice and Risk Management Conference took place earlier this week in Chicago.  I didn’t attend, but followed the Twitter updates.

Two tweets caught my eye.  Each relates to trust account scams.  I thought I’d use them as teaching tools. Consider these tweets as messages from a substitute teacher in your legal ethics class.

The message: be VERY, VERY, VERY, VERY careful when wire instructions change.

The first tweet was from Dan Pinnington.  Dan is the director of practicePro .  He’s a well-known speaker on risk management, claims prevention, and tech ethics.  Two day ago, he tweeted this.

Jennifer Groszek is an attorney & VP at Pro Quest Insurance.  Per the company’s leadership page, Jennifer provides risk management and claims prevention services.  Yesterday, Jennifer tweeted this from the LRRM Conference:

Andy Mikell is State Manager & Title Counsel at Vermont Attorneys Title Corporation.  He’s also a former member of the VBA’s Board of Managers and, perhaps the most important feather of the many in his cap, a friend of this blog.  With respect to Jennifer’s point on 2-factor authentication, Andy notes:

• “We are telling folks that the ONLY appropriate 2^nd 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.”

Andy’s point is crucial.  Initiating the call is key because scammers can trick your caller ID into showing a number that you think to be the client’s.  Further, a last-minute change in wire instructions that’s accompanied by “oh, and i have a new phone number too, please call it to confirm” should set off alarms even if you don’t have any alarms.

Excellent points from folks in the field.

 

 

 

 

 

 

Scam Targets Real Estate Closings

Here’s the latest on trust accounts scams: a scam that targets lawyers who handle closing funds.

Rather than describe the scam, I suggest that you read THIS POST from Lawyerist.

Then, read THIS POST from the ABA Journal.

Maybe you’re thinking “this can’t happen in Vermont….or to me.”  If so, think again.

It happened in Vermont.  Last year.

A lawyer handled a closing for the seller.  Lawyer emailed Seller and asked whether Seller wanted the sale proceeds by trust account check or sent by wire.  Lawyer received an email in which Seller directed Lawyer to wire the funds.  Lawyer wired the funds.

Minutes later, Seller arrived at Lawyer’s office.  Seller asked for her sale proceeds, by trust account check.

Lawyer figured out something was wrong.  Fortunately, once alerted, Lawyer’s bank and the bank to which Lawyer had been instructed to wire the funds stopped and reversed the wire.

Hackers had been monitoring Lawyer’s or Seller’s email.

H/T to Kevin Ryan, @VTBAR Director of Education & Communications for the Lawyerist link.