What You Need to Know About this New Cashier’s Check Scam

Fraudsters continue to try and entice lawyers with too-good-to-be-true legal engagements, using professional, official-looking cashier’s checks to introduce their schemes. Here’s one that a lawyer recently forwarded to the WSBA.

How the scam works
On Jan. 13, 2016, the client service manager of an investment company sent an email to a lawyer, introducing their self as a brokerage firm representing a construction company. (The names of the investment company, the construction company and the bank used in the scam are not provided in this article. The scammers used names that appeared to be legitimate companies, and the bank is well known.) They were authorized to issue a deposit payment for the purchase of certain costly construction equipment. A few days later, the lawyer received the offer letter along with a cashier’s check for $473,396 via courier. The letter was on professional-looking stationery with an official-looking company logo and the cashier’s check was an official-looking check from a well-known bank. (See the check below.) The letter stated that the total purchase price was $1,632,400 with the $473,396 being the earnest money deposit. The letter provided that both the buyer and seller have agreed that attorney fees be taken from the initial deposit. The attorney has also been “authorized” to release $228,900 to seller for final inspection.

An unsuspecting lawyer might assume such a transaction is legitimate and think nothing of the “client” requesting the lawyer disburse funds immediately to the seller. At that point, since the check has been received and deposited into the trust account, the lawyer is typically instructed by the fraudster to wire payment to the seller via wire transfer immediately so that the deal “won’t fall through.” The fraudster also encourages the lawyer to withdraw legal fees — frequently a very generous fee. (If you are asking yourself whether this is too good to be true, then you know the answer.) The scam succeeds when the lawyer deposits the fee check into the firm operating account and wires the $228,900 via the wire instructions.

Consequences for scam victims
This is the beginning of a potentially disastrous situation for the lawyer if reasonable diligence in identifying and avoiding these common schemes is not exercised. (Not exercising due diligence could be a competence issue under lawyer ethics rules.) Before depositing the check into the trust account, lawyers have an ethical duty to conduct a reasonable investigation to ascertain whether or not the representation relates to a legitimate prospective client.

In this case, the lawyer immediately sent the cashier’s check to the bank and determined the check was fraudulent. The lawyer informed the scammer via email that they would not be representing them and would be referring the matter to the FBI. If a lawyer does not conduct a reasonable investigation to ascertain whether or not the client and the check are legitimate, the bank will eventually determine that the cashier’s check is fraudulent. The check deposited into the lawyer’s operating account will most likely be returned due to insufficient funds, and the trust account will be short $228,900 (the amount wired to the fraudster’s bank account). This is because a wire transfer, if completed, usually cannot be pulled back. If the lawyer has other client funds in the trust account, those funds will be used to pay the wired amount.

For example, suppose a lawyer has $100,000 of client funds in the trust account. The $100,000 is used to pay the wire. All of the client funds are now completely depleted and the balance in the trust account is -$128,900. At this point, discussions should commence with the bank to determine responsibility for the loss, but the immediate situation is that the lawyer must replace the shortage and promptly notify the affected clients. In addition, the lawyer will have to explain to the Office of Disciplinary Counsel why the trust account was overdrawn. Undoubtedly the time lost resolving the situation could better have been spent on billable time or other productive activities.

Words of wisdom from a WSBA auditor

1. If you receive a cashier’s check, don’t assume it’s legitimate. Just as cash can be counterfeit, so can a check. Yes, even a cashier’s check. Here is the fraudulent cashier’s check received by a local lawyer:
   
2. Even if you know the source of the cashier’s check and you know it’s good, you cannot disburse the funds immediately. The trust account rule, RPC 1.15A(h)(7), requires that a lawyer must not disburse funds from a trust account until the deposits have cleared the banking process and have been collected. After a check is deposited into your trust account, it must go to the bank it was drawn on to be collected. The actual funds will not be in the account by merely depositing the check into your trust account.
3. Require the client to wire the funds into your trust account. Wired funds are immediately deposited. Even if you take this precaution, discuss the wire transfer with your bank. Let the bank know you do not know this client well, or at all, and ask if there is any chance that the wired funds can be pulled back. Get something in writing from the bank, if possible. Remember to do your due diligence when accepting and depositing funds into your trust account to determine the authenticity of the transaction.
4. If it seems too good to be true, trust your gut and assume it is. Do not fall for the scheme. Remember, it is your ethical responsibility to protect your existing clients.

If there are red flags concerning your potential new “client,” the best thing to do is probably to ignore the request.

Other resources on the WSBA website

• WSBA “Managing Client Trust Account” booklet
• “Peggy I Gotcha Scam” (Florida Bar News)