Over the past few years, several attorneys in Connecticut have fallen victim to an Internet scam. Although there are multiple variations, the scam typically begins with an email to the attorney from a potential client who is overseas, often in Europe or Japan. The potential client requests representation in a commercial collection matter against a local debtor. The debt is usually in the six or low seven figure range. The attorney agrees to the representation and emails a retainer agreement to the potential client, which is signed and returned by email.
Almost immediately after the attorney is retained, the client reports that a settlement has been reached independently with the debtor and that the client has informed the debtor to mail the settlement proceeds via bank or cashier’s check to the attorney.
The client advises the attorney to deposit the debtor’s check when it is received, then to wire the net proceeds to the client after deducting the attorney’s fee. The attorney does as instructed: the check is deposited into the attorney’s clients’ funds account, then the net proceeds minus the attorney’s fee are wired to the client’s account overseas.
When the attorney’s bank presents the debtor’s check for payment from the issuing bank, the check is not honored because it is a forgery. By then, the client has disappeared with the money that was wired by the attorney from the bogus settlement. The attorney’s bank immediately deducts existing funds from the clients’ funds account to cover the wire transfer, which implicates the funds of other clients and third parties, and often results in an overdraft. If the clients’ funds account is overdrawn as a result of the scam, the overdraft must be reported to the Statewide Grievance Committee by the attorney’s bank.
Attorneys are required by Rule 1.15(b) of the Rules of Professional Conduct to safeguard the funds of clients and third parties in a clients’ funds account (a/k/a an “IOLTA” or “trust” account). When an attorney falls victim to the scam described above, the attorney’s bank will use whatever funds are available in the clients’ funds account to cover the dishonored check. This action jeopardizes client and third party funds that are in the account, and violates Rule 1.15(b) of the Rules of Professional Conduct.
The perpetrators of the scam are incredibly sophisticated and thorough in their story. We have seen the use of false websites and the misappropriation of the names of existing people and companies in both the foreign country and the United States. The forged check is impossible for an untrained person to spot as a fake. Be wary of correspondence, especially from the debtor, that does not contain a telephone number or email address. Prior to depositing the debtor’s check, the attorney should speak directly with the debtor to verify the transaction. Attorneys should wait for the funds to be honored by the issuing bank before wiring any funds.
If you are contacted by a scammer, notify your local authorities or the Connecticut regional office of the FBI at (203) 777-6311 or [email protected].
Remember, if something looks too good to be true it probably is. Direct questions to: [email protected].