Elaborate check scams target solo, small-firm lawyers

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The basic scam goes like this: A new client calls or e-mails asking an attorney to act as intermediary in collecting a debt, obtaining a business loan or obtaining a lump sum alimony settlement.

Within days, sometimes before the attorney even sends a letter on the matter, a third party sends a check for the full amount requested. The client, in rush-rush mode, asks the attorney to wire the money to an overseas account, minus the attorney fees.

The attorney complies, then discovers that the initial check was fraudulent.

It’s a scenario that is playing out throughout North America, as tech-savvy con artists target solo and small-firm lawyers with sophisticated check fraud scams.

Dan Pinnington, director of the legal malpractice claims initiative at Lawyers Professional Indemnity Company in Toronto, said fraudsters target solos and small firms because they don’t have accounting departments to scrutinize checks.

Pinnington started noticing check fraud scams in Ontario, Canada, about two years ago.

“I think it was happening in the U.S. at least about the same time,” he said.

But because malpractice insurance in the United States, unlike Ontario, is not mandatory, there wasn’t a single agency, such as Pinnington’s, tracking reports of check fraud scams.

Jim Calloway, head of practice management at the Oklahoma Bar Association, said there’s another reason word about the scam has been slow to spread in the United States: “Lawyers who are victims of scams hate to broadcast it because it’s embarrassing.”

But Calloway, other state and local bar association officials, and attorneys themselves are starting to share information about these schemes.

Richard Follender, a solo lawyer in Nashua, N.H., became suspicious when a client contacted him over the Internet last year, asking his help with collecting a commercial debt.

They signed an agreement over the Internet, but before Follender had done any work, a check for $380,400 arrived from the debtor. Follender was instructed to deposit the check, take his fee and wire the rest.

Follender said he was suspicious for several reasons: the check allegedly came from a company in Pennsylvania, but was delivered overnight from Canada; the check was made out to him personally, not the client; the deal was hurried and the amount of his fee was unreasonably large.

He phoned the company in Pennsylvania to double-check.

“I spoke with the comptroller, and he started laughing,” Follender recalled. “He said I was the 25th lawyer to call.”

The company had no knowledge of the “client” or the check it supposedly sent Follender.

Scams ‘more sophisticated’

The latest swindle targets family law attorneys, and has hit Wisconsin.

Madison attorney Charles K. Kenyon Jr. said he received an e-mail from overseas recently, asking him to collect an unpaid property settlement from an ex-spouse, pursuant to a divorce decree. The e-mail said that they thought the ex-spouse would pay once a demand was made from a local attorney.

Kenyon noted two red flags. It referenced “your jurisdiction,” rather than Wisconsin or Madison specifically; and it contained no phone number.

Kenyon deleted the e-mail, and did not fall for the bait.

Marlene Eskind Moses, a partner at Moses & Townsend in Nashville, Tenn. and president of the American Academy of Matrimonial Lawyers, said she’s received similar e-mails and immediately deletes them.

“It’s surprising to me, frankly, that my colleagues would fall for that,” she said. “Clearly, the best practice is that you wouldn’t disburse funds until you have funds in an account that have cleared and are available for disbursement.”

But, while some of the scams involve poorly written e-mails with obvious misspellings, others are “much more sophisticated,” Pinnington said.

In Oklahoma, for example, several attorneys have been contacted recently by callers who used the names of local realtors to try to hook them into a real estate scam, according to Calloway.

And in Ontario, 18 solo and small-firm lawyers were targeted by “clients” who visited the attorneys’ offices in person last year.

“This is a live person coming into your office, with a fake driver’s license and all the documentation,” Pinnington explained.

The fraudsters paid $1,000 Canadian cash each to incorporate a business. Then, a month later, just before Canada’s Victoria Day holiday in May, they phoned the lawyers, asking for help in obtaining a $300,000 (Canadian) business loan to purchase inventory or equipment.

Several attorneys — who had been warned by Pinnington about such scams —alerted him. He listened in on several of the calls, then blasted an e-mail to all the attorneys in Ontario, with specific information about the scheme.

None of the 18 lawyers who were targeted fell for the scam. Although some figured it out on their own, “one-third had no idea until they saw our e-mail,” Pinnington said.

How to avoid becoming a victim

By Nora Lockwood Tooher,
Lawyers USA

Tech-savvy con artists are targeting solo and small-firm lawyers with sophisticated check fraud scams. Here are some ways that lawyers can minimize the risk of being ripped off:

• Use extra caution when dealing with an unknown prospective client who is in big hurry around bank holidays.

Sheila Blackford, practice management adviser for the Oregon State Bar Professional Liability Fund, said this time is frequently picked because the fraudster knows detection will be postponed by a long, three-day weekend.

• Get a retainer.

Scam artists will usually avoid paying a retainer, especially by check, according to Dan Pinnington, director of the legal malpractice claims initiative at Lawyers Professional Indemnity Company in Toronto.

• Ask your bank the right question when you deposit a check into your clients’ trust account.

“The question to ask is not whether the funds ‘are available,’ which only tells you that you have funds available in your account to cover the check,” Blackford explained. “The right question to ask the bank is: are the funds collected? This tells you that the issuing check has released the money and the money is in your account.”

• Send any suspicious checks “for collection.”

The bank charges a fee — usually around $25 — but if the check is good, a cashier’s check will come to your bank from the payer.

“Usually, you’ll get a call from the bank saying we have received payment on your collection letter and it will be deposited into your account,” explained Robert T. Luttrell III, an attorney with McAfee & Taft in Oklahoma City who represents banks.

• Use common sense.

“If it sounds too good to be true, it probably is too good to be true,” Pinnington said. “And if you’re suspicious it’s a fraud, ask more questions.&
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Get more info

Lawyers seeking more information about check fraud scams should check Lawyers Professional Indemnity Company in Toronto’s fraud fact sheet at: www. http://www.practicepro.ca/practice/fraud.asp.

Also, the Oklahoma Bar Association is posting articles and advice about the issue at: http://www.okbar.org/scams/.