In 2009 the Kentucky Supreme Court substantially revised the Kentucky Rules of Professional Conduct.
Articles in this index written before 2009 citing Kentucky Rules of Professional Conduct must be checked for any changes to the rule cited.

Lawyer Scams II: Business Loan Fraud; Debt Collection Fraud

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Lawyers are frequently the target of scams that, if effective, result in losses in client trust accounts and violations of trust account fiduciary rules. Real estate, litigation, and estate planning lawyers are primary targets, but all lawyers should expect a scam attempt. The Lawyers’ Professional Indemnity Company (LawPro) is doing outstanding bar service by providing information and guidance on scams. LawPro’s fact sheet Fraud – How to avoid becoming its next victim offers the following advice:

Fraudsters retain the firm on a contrived legal matter so that they can run a counterfeit check or bank draft through the firm trust account and walk away with real money. When the bad check or draft bounces, there will be a shortfall in the trust account.

Business loan fraud

  • New client retains your firm’s services to help with buying small business equipment or inventory.
  • Documentation in client’s file looks real (invoices, letters, etc).
  • Background checks (corporate … searches) may look normal.
  • You’re asked to represent lender and borrower.
  • Certified check from “lender” arrives promptly, gets deposited to your trust account.
  • Certified check looks authentic and has all normal security features.
  • Funds are disbursed to the client.
  • Days later your bank tells you the check/draft is fraudulent.

Debt collection fraud

  • Generally targets litigators.
  • New client (often offshore) contacts your firm seeking representation on a debt collection.
  • Client provides legitimate documentation including invoices, demand letters, etc.
  • Collection is hassle-free; debtor returns calls and pays up promptly.
  • Certified check looks authentic and has all normal security features.
  • You’re instructed to send funds, minus legal fees, to an offshore account.
  • Days later your bank tells you the check/draft is fraudulent.

RED FLAGS

  • Client is offshore, unknown to the firm and/or in a rush – pressures you to “do the deal” quickly.
  • Client willing to pay higher-than-usual fees on a contingent basis from (bogus) funds you are to receive.
  • Client shows up around banking holidays – when banks are closed and offices short-staffed.
  • Debtor pays without any hassle – unusual given client’s need to retain you to get payment in the first place.

TIP: DIG DEEPER

  • Do a reverse phone number search on the company and use Google to verify phone numbers, addresses and e-mail contacts.
  • Contact the company to confirm that they are expecting debtor’s payment or business loan.
  • Go to bank website to verify branch transit number, address and phone number on the check.
  • Hold funds until your bank confirms the funds are “good” by contacting the other bank, and it’s safe to withdraw the deposit.

Go to LawPro’s Website www.practicepro.ca/fraud (last viewed on 10/6/2009) for the rest of this article and many other highly useful articles on dealing with fraud from both within and without the firm.

 


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