Tuesday, Sept. 15, 2020

Posted by: Robert Meyers on Sep 15, 2020

I was almost the victim of a sophisticated email scam — Yikes! Here is how it all happened.

It started innocently enough.  During the last week in May, I received an unsolicited email from a prospective client. The prospective client, Gabriel Carlos, represented that he was looking for an employment lawyer to help him enforce a severance agreement against a large fortune 500 company. I thought, I am an employment lawyer, I can help, and I emailed him back offering to represent him if he cleared conflicts. So, I ran a conflict check and after clearing conflicts, I sent him an email with a retainer agreement, and I asked for additional information to support his claim.

The next day, Mr. Carlos returned the signed retainer agreement together with documents that supported his claim.  These documents included a signed severance agreement on Company letterhead and an email chain between the client and the Company’s HR department. In addition, the client provided a detailed narrative about the termination of his employment and negotiating the severance agreement. The severance agreement called for the Mr. Carlos to receive a one-time payment of $149,000, which he said he had not yet received. Mr. Carlos represented that this was two years' pay.

It was after receiving this email that I first began having concerns about the validity of Mr. Carlos’ claim. I was immediately surprised by the amount of the severance payment. It appeared excessively large for someone who represented that he was a medical technician. On the other hand, I had seen large companies throw money away before, so I set my concern aside.

Next, I sent Mr. Carlos an email outlining my strategies for enforcing the severance agreement. The client responded the next day, stating that in the interim he had contacted the Company’s HR Department and told them that I was representing him. He further stated that they told him that they agreed to pay the full severance amount by the following week. Shortly after that, I received a real-looking email purportedly from the Company’s HR representative acknowledging that the Company did owe the severance payment and would send a cashier’s check made payable to my law firm in the severance amount. In my reply email, I requested that the check be made payable to the client and not my law firm. The client then sent an email saying that I should deduct my attorney's fee out of the payment.

At this point, I was again growing suspicious. There was no reason to make the cashier’s check payable to my law firm. Furthermore, events were moving rapidly. I had not yet contacted Mr. Carlos’s employer to identify myself as his lawyer and demand the employer pay the severance amount. In retrospect, events were in danger of overtaking me. In addition, I also had a vague recollection of past scams involving law firm trust accounts. I thought, well, we will see who the check is made payable to and go from there.

A few days later a cashier’s check arrived made payable to my law firm in the full severance amount of $149,000. This further heightened my suspicion that something was not right with this transaction. I then began to investigate my suspicions. First, I carefully examined the transmittal letter, where I identified three red flags.

Red Flags

The first red flag was that the letter was signed by Company’s CFO. I thought this transaction was too small to involve the CFO of a company of this size. The next red flag was that the CFO wrote in the letter that the Company had been having financial difficulties. I did not believe any CFO would make such a statement in conjunction with this type of transaction. The last red flag was that I did not think the CFO’s area code matched the company’s HQ address. After a quick Google search, I was able to confirm the phone number in the letter was to a paint store in North Carolina and not the Company headquarters in Colorado.

Next, I called the company’s general counsel to ask about this transaction. Before, I could even finish explaining why I was calling, she told me this was a scam. She went on to relay that she had heard from several lawyers around the country who had been victims or near victims of this scam. She also related that her company was working with the FBI to stop this scam.

A Close Call

As for me, fortunately I never deposited the cashier’s check into my firm’s trust account. If I had made the deposit and then disbursed the funds, I would have cost my firm $149,000. Although I am not a banking lawyer, according to 12 C.F.R. § 229.31, a receiving bank has two days to notify a depository bank that it is dishonoring a check, which must be why my firm’s accounting department will not release funds for three days. A word of caution however, the two-day time period may be extended in certain circumstances. Therefore, it may be prudent to get clearance from the bank before releasing funds from your trust account. Otherwise, the bank will demand (and may unilaterally retake) the settlement funds back. By then it is too late for you to demand that your client return the funds. The scammer has received the money and vanished.

Is it a Violation to Report a Client?

Of course, nearly getting scammed made me angry. I wanted to report this scam to the FBI, but I worried that if I did, I would violate the attorney-client privilege. However, Tennessee Rule of Professional Responsibility 1.6(b) allows for the disclosure of fraudulent conduct by a client that would result in significant financial loss to another.[1]  With my concern allayed, I filed a complaint with the FBI through its Internet Crime Complaint Center (IC3).[2]

After this experience, I researched email scams targeting lawyers and found that we are frequent targets of these types of scams. Another email scam, primarily targeting real estate lawyers, is receiving last-minute changes to the original wiring instructions. In this situation, the new wiring instructions are fraudulent, and your client never receives the funds. Yet another scam occurs when shortly after the client receives his settlement check, he hands back the check and asks that the money be wired to him instead. What happens when this occurs? The client has used an online banking app to make the transfer from the check so that when he receives the wire transfer, he has been paid twice. Of course, there are other scams as well. The point is you must be diligent.

This brings me to my final point. In all these scenarios the funds were first deposited into the lawyer’s law firm’s trust account. Ask yourself, whose money did the scammers get?  The answer – other client’s money held in your trust account. Adding insult to injury, in addition to being scammed, you may have also committed an ethics violation.  Remember, lawyers have a duty to safeguard their client’s property as well as other duties related to maintaining an IOLTA account. Moreover, other states’ bar counsel are moving toward holding lawyers accountable for violating their state’s Rules of Professional Responsibility in these situations.[3]

So, learn from my experience. Do not be the scammer’s next victim. If your senses are telling you something is wrong, listen to them. Finally, stay vigilant and up to date. I am sure the scammers are thinking of new ways to scam you as you read this article.

 

NOTES

[1] Tennessee Rule of Professional Responsibility 1.6(b):

(b) A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary:

(1) to prevent the client or another person from committing a crime, including a crime that is reasonably certain to result in substantial injury to the financial interest or property of another, unless disclosure is prohibited or restricted by RPC 3.3;

(2) to prevent the client from committing a fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services, unless disclosure is prohibited or restricted by RPC 3.3;

(3) to prevent, mitigate, or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a fraud in furtherance of which the client has used the lawyer's services, unless disclosure is prohibited or restricted by RPC 3.3;

(4) to secure legal advice about the lawyer's compliance with these Rules; or

(5) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer's representation of the client; or

(6) to detect and resolve conflicts of interest arising from the lawyer's change of employment or from changes in the composition or ownership of a firm, but only if the revealed information would not compromise the attorney-client privilege or otherwise prejudice the client.

[2] Federal Bureau of Investigation Internet Crime Complaint Center, www.ic3.gov.

[3] See "Ethical Grounds: The Unofficial Blog of Vermont's Bar Counsel," https://vtbarcounsel.wordpress.com/2017/05/24/protect-client-funds-and-your-law-license-by-learning-to-identify-trust-account-scams.

 

ROBERT D. MEYERS is a member of Glankler Brown in Memphis. He is certified as a Civil Trial Specialist by the National Board of Trial Advocacy. A 1986 graduate of the University of Tennessee College of Law, Knoxville, he has defended companies and individuals before courts in Tennessee, Mississippi, Arkansas, Alabama, Texas, Georgia, Louisiana, Indiana and Virginia. He has been instrumental in assisting clients in dealing with employee medical issues including ADA, FMLA and workers’ compensation concerns. Meyers also has extensive experience representing public employers in claims brought under the Title VII, § 1981 and § 1983.

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