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Scam Directed at Lawyers Is Expanding

455235053The following is a guest blog post by Richard G. Burt. Mr. Burt provides legal services to new and established businesses, including forming business entities, negotiating and drafting agreements, and advising clients on business law issues.

A scam that has been commonly pulled on collection lawyers and other litigators is now being aimed at transactional lawyers. Be alert to it and know how to avoid becoming a victim.

Here’s how the scam works: A prospective client emails a lawyer to ask him or her to represent the client in a transaction. After agreeing to the representation, the lawyer receives a cashier’s check, typically drawn on a foreign bank. The check is received quickly, often before a fee agreement has been signed or a fee deposit has been received (and sometimes even before the lawyer has agreed to take on the matter). The lawyer deposits the check into a trust account. After the bank tells the lawyer that he or she has “good funds” in the account, the lawyer wire transfers the funds to a bank (typically foreign) per the client’s instructions.

It then becomes clear that the parties to the transaction are fictitious, the transaction is phony, and the cashier’s check is counterfeit. The bank’s advice of “good funds” only means that the bank has given provisional credit to allow the lawyer to draw on those funds, not that the check has cleared. The lawyer usually ends up getting stuck reimbursing the bank for the wire transfer. If other clients’ funds were in the trust account, it gets worse: the State Bar deems the lawyer to have misappropriated funds of the other clients (because their funds would have been used to fund part or all of the wire transfer).

The hallmark of all these schemes is that the lawyer is to receive and deposit a check and then wire transfer funds as directed. Here’s how to avoid being victimized by this type of scam: don’t accept checks drawn on foreign banks! And include the following language in every fee agreement:

Funds from a check deposited into our trust account will not be disbursed until 14 days after deposit.

Then don’t deposit the check or otherwise take action without a signed fee agreement containing such a clause and don’t disburse any funds until fourteen days has elapsed from the date of deposit. Why fourteen days? It will give adequate time for a bad check drawn on a US bank to be returned.

Should this delay apply to all clients, not just suspected scammers? Yes! A legitimate client’s check can be dishonored for a number of reasons, and the delay protects the lawyer against the same risks as a fraudulent check poses.

Where there is money, there will be scammers. Lawyers need to be alert to the ever-evolving scams and develop strategies to combat them. Your fee agreement can be an excellent source of protection. For sample fee agreements, turn to CEB’s Fee Agreement Forms Manual.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.


One reply on “Scam Directed at Lawyers Is Expanding”

I would hold the check for more than 14 days. I happen to have two checks, each in the amount of $300,000, purportedly from a Canadian bank, that I’m holding in case the FBI wants them. I sussed out the scam at the start, but they sent the checks anyway.

The other key is that the initial inquiry is always on a gmail or yahoo mail account. So why would the CEO of a major company be using a free gmail account, instead of his company email? That’s your giveaway. Then you’ll find all kinds of other inconsistencies.

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