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MCLE Self-Assessment Test

Counterfeit check scams continue
to target law firms

SCAMA lawyer receives what appears to be a legitimate solicitation email from a prospective client seeking representation in a debt collection matter. The terms of a relationship, including a fee agreement, may be negotiated. The lawyer then receives what appears to be a valid cashier’s check, supposedly a settlement check from a debtor, from a reputable bank. After the money is deposited in the lawyer’s client trust account, the “client” asks that the funds, less the fees, be wired to a foreign bank.

The cashier’s check was fraudulent and the lawyer is left holding the bag.

This scenario continues to be replayed as part of a sophisticated Internet scam that often targets collection lawyers. The Santa Clara District Attorney’s office recently was alerted by a local law firm that was contacted by a “client” who said his east coast company provided materials to a local medical company that hadn’t paid its bill. The out-of-state company provided legitimate-looking documents, such as contracts and invoices, to support its claim, and the law firm found a website for the client’s company. A retainer agreement was executed.

The client said it would make a last ditch attempt to collect the debt before authorizing a lawsuit and two days later, the firm received a $270,000 cashier’s check from the medical company. The client told the firm to withhold its fee, plus a little extra, and wire the remaining funds to an account that turned out to be overseas. Despite pressure from the client for the money, the law firm waited for the check to clear.

That never happened.

The alleged debtor was a real company that was not involved with the “client,” who remains unidentified and may be located overseas. According to Santa Clara County Deputy district Attorney Mike Fletcher, the suspects “generated very authentic-looking documents, created a website and are executing a sophisticated scheme with the potential to significantly harm law firms.”

But in addition to winding up with an overdrawn bank account, victims can face State Bar discipline and damage to his or her reputation. In order to help lawyers avoid being taken in, the bar’s Committee on Professional Responsibility and Conduct (COPRAC) issued an ethics alert earlier this year describing both how the scams work and how lawyers can protect themselves.

The scam leaves the lawyer appearing to have retained a client, triggering various ethical duties governed by professional responsibility rules. The ethics alert offers both a warning and suggestions for how lawyers can protect themselves.

“If it is too good to be true, it usually is,” the alert concludes. “Hitting the delete button may be the best course of action for the attorney, not to mention those caught up in the cascade of adverse consequences of a successful scam.”

The FBI reports the debt collection scam is well-known and occurs nationwide. Another scheme has the fraudulent client posing as an ex-wife “on assignment” in an Asian country and pursuing collection of divorce settlement funds from her ex-husband in the U.S. Once a law firm agrees to represent the wife and contacts the ex-husband, it receives a “certified” settlement check. As with other scams, the wife instructs the firm to wire the funds, less its retainer fee, to an overseas bank account.

If funds are sent before discovering the check is counterfeit, the firm is left in the lurch.

The FBI urges firms or victims of an internet scam to file a complaint with the Internet Crime Complaint Center.