March 28, 2011
Internet Scams Target Lawyers
by James M. McCauley, Ethics Counsel
Virginia State Bar
The FBI continues to receive reports of counterfeit check schemes targeting U.S. law firms.
In the most recent series of schemes, scammers send e-mails to lawyers in which the scammers claim to be overseas and seeking legal representation to collect delinquent payments from parties in the United States. Often, the scammer will cite a connection with a legitimate company. The law firm is asked for its retainer agreement. The “client” returns the signed agreement along with invoices reflecting the alleged amount owed and, shortly thereafter, a check payable to the law firm. The firm is instructed to deduct its legal fee, including any other expenses associated with the transaction, and wire the remaining funds to banks in Korea, China, Ireland, Canada, or another country. By the time the check is determined to be counterfeit, funds have already been wired overseas.
In one version of the scheme, the scammer identifies himself or herself as a corporate officer of a legitimate overseas company. The con artist sends a legitimate-looking e-mail to the law firm seeking legal assistance in the collection of a debt from a business or other debtor in the lawyer’s geographical area. A proactive call to the “debtor” will generally reveal that the “debtor” has not done business with the overseas company and that the alleged debt is fictitious. But if the law firm agrees to assist the “client,” it will receive the signed engagement letter, and falsified documentation.
Typically, the scammer will shortly thereafter send the law firm an e-mail stating that the debtor has agreed to settle the debt to avoid litigation and that the debtor has agreed to pay a specified amount, usually a six-figure payment, out of which the law firm is to take its fee for the collection. A cashier's check is sent to the law firm payable to the law firm, with the remitter’s name being that of the “debtor” company. The law firm then deposits the check, keeps the agreed upon legal fee, and, after confirming with the law firm’s bank that the subject funds are available, wires the remaining money to an overseas account designated by the scammer. The cashier’s check mailed to the law firm turns out to be counterfeit; no funds were ever paid for it. By the time the law firm is informed the check is not legitimate, the wired amount has been collected, and usually the foreign account into which the funds were wired is closed and cannot be traced to the actual scammer.
In another version of the schedule the fraudulent client seeking legal “representation” describes herself as an ex-wife "on assignment" in an Asian country, and she claims to be pursuing collection of divorce settlement monies from her ex-husband in the United States. The law firm agrees to represent the ex-wife, sends an e-mail to the ex-husband, and receives a "certified" check for the settlement via delivery service. The ex-wife instructs the firm to wire the funds, less the retainer fee, to an overseas bank account. When the scam is executed successfully, the law firm wires the money before discovering the check is counterfeit.
What should lawyers do to avoid falling prey to these scams? First, be mindful that you have received an unsolicited e-mail from a company about which you will probably know nothing and with whom you will not have any prior contact or introduction. Second, beware of statements in the e-mail that say that you were recommended by the bar association, as bar associations do not usually make referrals except through a bona fide lawyer referral service — in which case you should have received a communication from that lawyer referral service. Third, the purported client will want you to act quickly and will ask nearly every day for a status on when the funds have been delivered to you and when you will deliver the funds to the “client.” Fourth, a “cashier’s check” drawn on a reputable bank will arrive very quickly with little or no effort on your part. Have an experienced banker look at this instrument, as there are signs he or she may recognize and specific inquiries that can be made that will reveal the check as fraudulent. Do not deposit the cashier’s check into your trust account unless you can obtain verification that the check is legitimate; or, alternatively, advise the “client” that you will not wire any funds unless and until the check has cleared. Consider depositing the cashier’s check into an escrow account separate from your Interest on Lawyers' Trust Accounts or general trust accounts until the check’s status can be determined. Your bank may tell you that there are funds available for you to disburse, but this does not mean that the check has cleared. If you disburse and the check proves to be counterfeit, the bank will charge back against your account for the loss. Finally, if you suspect you have been scammed or are being targeted for a scam, you should file a complaint with the Internet Crime Complaint Center at http://www.ic3.gov. You may also call the Virginia State Bar’s Legal Ethics Hotline at (804) 775-0564.
Some lawyers ask if it is ethical to report the scam after they have agreed to undertake representation, citing the duty to keep client information confidential. Although a formal opinion from the Standing Committee on Legal Ethics has not addressed this issue, the communications by and between the Internet scammer and lawyer are not protected as confidential. The initial uninvited e-mail communication from the scammer and the communications that follow are not for the purpose of obtaining any legal advice or legal representation. The scammer does not have any “reasonable expectation of confidentiality” in the communications used to obtain the lawyer’s money under false pretenses. Therefore, reporting such information to the appropriate law enforcement authorities is not a breach of the lawyer’s duty of confidentiality.
Updated: Mar 28, 2011