IOLTA SCAM ALERT ! ! !
Fake Check Scams Are Targeting Law Practices
By Gloria Barr, Trust Account Auditor/Investigator, and Patricia Sallen, Ethics Counsel, State Bar of Arizona
Learn the Red Flags and Avoid the Traps
Out of the blue, you receive an email from the representative of a potential foreign client, maybe from China. He flatteringly tells you – in pretty decent English -- that he is looking for a trustworthy attorney in Arizona to help his company with a collections issue. You – you! -- are the trustworthy attorney he has found. Your charge: you would receive money from a debtor and then transfer it to the potential foreign client. You might even be paid with a percentage of the money.
Sounds promising, right? Some easy money? And tempting, because who knows where this one job for an international client might lead?
You send a fee agreement to the representative. He maybe sends the agreement back, signed, and tells you that it′s imperative that you wire the money as soon as possible after receiving it from the debtor. You promptly receive a check from the debtor and deposit it into your trust account. Being a diligent attorney, you confirm with your bank that the money has been credited to your account, and you wire it as directed.
And then a few days later, your bank tells you that the check wasn’t legitimate. The bank has debited your trust account thousands of dollars.
You already know about the email scams in which a Nigerian government official allegedly needs your help to move money out of the country. You’ve probably received those emails and immediately – and rightly -- disregarded them because they look so bogus. This new wave of check scams just looks less bogus, more legitimate, and targets attorneys. It has hit close to home, too. The State Bar is aware of several Arizona attorneys who have been approached by the scammers, and a few who have taken the bait.
The checks that scammers send you, whether they are personal checks or cashier’s checks, look and feel real, and may even fool bank tellers. The checks may even be from a legitimate business or corporation, but may have been written fraudulently.
In another variant of the scam, no checks are involved. Instead, money is transferred directly from another account to your trust account. The other account is often the account of someone who fell for another scam. Once again, when the scam is discovered your bank will cancel the deposit. You will lose your other client′s money and you could be charged with the crime of money-laundering.
The following is a compilation of information from the Comptroller of the Currency (http://www.occ.treas.gov/ftp/bulletin/2007-2.html), National Fraud Information Center (http://www.fraud.org/tips/internet/fakecheck.htm), Internet Crime Complaint Center (http://www.ic3.gov/crimeschemes.aspx#item-3) and Federal Bureau of Investigation (http://www.fbi.gov/majcases/fraud/fraudschemes.htm) about the scams, with additional information we’ve added specifically for attorneys.
How these scams work
These scams work well for three reasons:
- The scammer appears to send you "real" money -- usually a cashier’s check or certified check drawn on a U.S. bank (sometimes even a postal money order) --before asking you to wire or express-mail part or all of that money to the scammer or a third party. The scam relies on your belief that real cashier’s and certified checks and postal money orders are more trustworthy than personal checks. However, the counterfeit checks or money orders that the scammers send are very good and tough to identify as fake.
- The scam is initiated in response to a legitimate activity, such as offering legal services and legal representation. In the original versions of the Nigerian scam, the "offer" arrives unsolicited, in a letter, an email or a fax.
- Once the scammer is in touch with you, he often will chat via email or phone, talking about the legal services he needs. He appears friendly, sincere and aboveboard. He works hard to win your trust, but appearing trustworthy is the con artist′s primary tool in getting you to act.
Specific red flags to keep in mind
You are asked to pay money out of your account. This is a five-star red flag. If you are asked to do this, run, don′t walk, away from the "deal." The basic pattern of all the fake check scams is that the con artists will send you a "cashier′s" or "certified" check (or postal money order) to deposit into your account. Then they will give you a reason to quickly wire or express part or all of the money out of your account to them or to some third party they identify. Often the wired money is to go to a foreign country.
You are asked to act very quickly. The scammers don′t want you to have time to verify whether the cashier′s check or certified check is authentic or counterfeit or to wait for the check to clear. The scammers typically ask you to wire cash as quickly as possible. They know that their fakes are very professional and usually will pass an initial visual inspection at the financial institution taking the deposit. Some counterfeits are so good that it may take weeks to identify the check as counterfeit. At that point, you are left holding the bag: the scam artists have your money and you may even be suspected of fraud.
Fake check scammers often claim to be in another country. That makes it difficult, they say, for them to do business in the U.S. so they need your help to receive payments by checks on U.S. banks. Often you are asked to wire the funds out of the country.
The deal is too good to be true. This old, smart consumer advice holds true in these cases. If a "client" is eager, sight unseen, to enlist your legal services, smell a rat. If after a few emails or phone conversations, a "client" wants to hire you, slow down.
Avoiding the scam
Wait for a cashier′s or certified check to clear before using the money. Although your financial institution may quickly make funds available that you′ve deposited, or may tell you that the deposit has been credited to your account, that does not mean that the check is good or has cleared through the original issuing institution. That can take many days. Sometimes it can take weeks to discover a very good forgery, and the check won′t bounce until then. Therefore, verify the check with the issuing bank and then wait for final clearance. All it will take is one insufficient-funds check for your trust account to be in the red. (And you know, of course, that banks have to report to the State Bar when your trust account becomes overdrawn?)
Don′t be fooled into thinking that the company is real or legitimate just because its website looks good. Some of the sites run by scammers look extremely professional.
Know with whom you are dealing. The law generally assumes that you, not your financial institution, have the best knowledge of the person who gave you the check because you are dealing directly with them. Therefore, if you are dealing with a stranger, make sure you have that person′s name address and phone number, then verify those independently using online directories. If the number or address in the directory is different, call the person using those numbers. You may have stumbled into an identity-theft situation and can help another consumer.
There is no legitimate reason for someone who is giving you money to ask you to wire money back. Always insist that the check be in the exact amount or deal in cash. Emphasize that you prefer a check from a local bank or a national bank with a branch in your area.
Your deposits are your responsibility. If you have deposited a check that then bounces, the bank will withdraw the original dollar amount credited to your trust account. If your trust account doesn′t have enough money to cover the deduction, the bank may freeze your trust account or, worse, the bank may sue you to recover the funds. The problem for attorneys is that if you hold funds for clients or third parties, you have to hold it in your client trust account. As a result, in this scam, if you′re complying with the ethical rules, you would have put the money into your trust account and then you’re disbursing out of your trust account. If the check you deposit turns out to be fake, then you may have converted the other clients′ funds in your account.
So what do you do if you′ve been ensnared in a scam?
If you′ve been scammed, call the State Bar′s ethics hotline (602-340-7284) or trust-account hotline (602-340-7305) and your bank for advice. If you find that you′ve taken a fake check, don′t deposit it. If you want to report it, go to the website of the National Fraud Information Center, http://www.fraud.org/.