lawyers increasingly targets of fraud check schemes_AFI

1. LawyersareIncreas- inglytheTargetsof Email/Fraudulent CheckSchemes • Lawyers are increasingly receiving emails from alleged potential foreign clients looking to collect debts from customers. More likely than not, the email is the first step in a fraudulent scheme which involves a deposit and withdrawalfromyourspecialclientfundaccount.AbasicknowledgeofArticle4oftheUCC andsimpleprecautions can help lawyers avoid becoming a victim of these schemes and protect against other potential fraudulent deposits intolawyer’sspecialaccounts,includingfraudulentsettlementchecksandretainerchecks. • Thescenarioisafamiliaronebynowformanylawyers.Therearevariations,butitgenerallyunfoldssomethinglikethis: • Alawyerreceivesanemailfromanewpotentialforeignclientlookingtocollectanoutstandingdebtfroma customerinthelawyer’sjurisdiction. • Thelawyer–alwaysanxiousfornewbusiness–agreestorepresentthenewclientandcollectthedebt. • Shortlythereafter,theclientinformsthelawyerthatitscustomerhasagreedtovoluntarilypaytheoutstanding debt and that the customer will shortly be forwarding a check to the lawyer. The client further asks that the lawyerdepositthecheckintohisaccountand,afterconfirmingthatthecheckhascleared,wirethefundstothe clientafterdeductingthelawyer’sfees. • Sureenough,achecksoonarrivesfromthecustomer.Thelawyerdepositsthecheck,waitsforittoclear,and thenwiresthemoneytotheclient. • Soundslikeagreatwaytobuildyourpractice,right?Thinkagain.Invariably,lawyerswhorespondtothese sortsofemailsolicitationsandengageintheabove-describedscenarioarereceivingcallsfromtheirbanks AttorneysFirstInsurance www.attorneysfirst.com•727-799-4321 36310US19N.,PalmHarbor,Florida34684 attorneyprotective.com This document should not be construed as legal advice. Because the facts applicable to your situation may vary, or the laws applicable in your jurisdiction may differ, please contact your attorney or other professional advisors if you have any questions related to your legal or medical obligations or rights, state or federal laws, contract interpretation, or other legal questions. AttorneyProtectiveisaMedProGroup/Berkshire Hathawaycompanythatprotectsthereputationsand assets ofattorneys acrossthenation.“AttorneyProtective”and“AttPro”arealsoused as marketing names used to refer to the attorney professional liability programs administered by Attorney Protective or its affiliates and underwritten by National Liability & Fire Insurance Company, AttPro RRG Reciprocal Risk Retention Group, National Fire & Marine Insurance Company – each of which has earned an A++ financial strength rating from AM Best – or other BerkshireHathawayaffiliates.Productavailabilityisbaseduponbusinessand/orregulatoryapprovalandmaydifferamongcompanies.©AttorneyProtective.AllRights Reserved.

2. informingthemthatthecheckstheydepositedintheiraccountsarecounterfeitanddemandingimmediate reimbursementfromthelawyers.Andthebanksareperfectlywithintheirrightstodo so! The mistake most lawyers make is that they assume that once they hear from their bank that the deposited check has “cleared” and the funds are available there is no risk in wiring those funds. This is simply not true. The Expedited Funds Availability Act, 12 U.S.C. 4001, et seq., requires banks to disclose when deposited funds will be made available. However, a bank’s making funds available is only provisional until the check is actually paid by the payor bank (i.e., final settlement). UCC § 4-201 provides that prior to final settlement, thedepositor’sbank merely acts asthecustomer’sagentforcollectionofthecheckandany advancementof fundsbythedepositor’sbankisprovisional.UCC§4-214furtherprovidesthatifthereisnofinalsettlement (i.e.,thepayorbankdoesnotpaythecheck),thedepositor’sbankmaychargebackthesumofanyprovisional advancementoffundsordemandarefundfromthe customer. Asappliedtoourillustrationabove,thismeansthattheattorneywhodepositsthecheckandwiresthefundstohis “client”oncethecheckclearsmayultimatelybeliabletothebankfortheamountofthefraudulentcheck.Thebank mayeitherchargethelawyer’saccountifsufficientfundsareavailableinthelawyer’saccountordemandarefund andpursuelegalactionagainstthelawyerfortheamountofthecheck. Lawyerscantakesomestepstoavoidbeingvictimsofthesefraudulentcheckschemes.First,beextremelywaryof takingonanyrepresentationfromaforeignclientwhocontactsyouonlyviaemail.Aswithanynewclient,alawyer shouldinvestigatetheclientthoroughly.Thisincludesdeterminingtheactualexistenceoftheclientandthevalidity of its operations. A diligent lawyer should call references for the client, check public records, and obtain supporting documentationoftheallegeddebtthatisowedtotheclient. Second, never assume that simply because a check has cleared and funds are available that a check has been paid by a payor bank. Upon receiving a check from a suspicious client, a diligent lawyer should call the payor bank to verifytheaccountanddetermineifthecheckisaforgery.Alawyershouldalsonotdrawondepositedfundsfroma suspiciousclientuntilheorshereceivesconfirmationfromthebankthattherehasbeena“finalsettlement”andthe depositedcheckhasactuallybeenpaidbythepayorbank. Finally,lawyersshouldbecognizantthatanychecktheyreceivemayultimatelybedishonoredandtheymaybeliable if they draw upon any provisional funds supplied by the depositor bank. Prudent practice dictates that attorneys ensure that they receive “final settlement” on retainer checks from clients, and settlement checks from opposing partiesandattorneys,beforedisbursingfundsfromthosechecks. attorneyprotective.com