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.
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.
Related Videos & Posts
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- Collecting & Disbursing Funds(33 minutes)
- 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
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- 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.