WARNING - DANGEROUS FRAUD ON COUNSEL

There is a dangerous and very sophisticated fraud being perpetrated against counsel.  It has succeeded in defrauding several counsel of very sizable amounts.  It appears that the fraud is not covered by customary insurance.  My firm was a target but, fortunately, we caught the fraud and were not actual victims.

 

A client emails or telephones counsel from out of Canada.  The client says he is a principal of, say, a British company that needs help collecting a debt in Canada and he was referred to counsel by a former client – if asked a rather generic name is given (and busy counsel may well not recall a client from 5 or 10 years ago).  The client asks for a litigation budget and then negotiates on the budget.

 

The client agrees to proceed and sends a modest retainer which clears the bank. 

 

A demand letter is sent by counsel to the debtor and, surprisingly, the debtor negotiates in good faith and, after a little back and forth, sends a cheque for a sizeable amount – several hundred thousand dollars – payable to the law firm in trust.  The client is delighted and suggests counsel take a success based fee and remit the remaining funds by wire transfer to an offshore bank.  The lawyer takes the fees, remits the rest of the money as requested and goes home having done good work.

 

Guess what?  The “certified cheque” is a forgery and counsel has just wired several hundred thousand dollars off shore.

 

What makes the fraud so solid is that the client negotiates the fees (something a normal client would do), the debtor seems to exist (they respond to letters and leave a voice mail and have an operating voicemail system) and haggles a bit and, in most cases, a real, if small fee, is actually paid.  The lawyer isn’t offered a deal that’s too good to be true (although it is unusal that a client is so happy as to suggest a bonus based on success) and it seems like a legitimate business process.

 

THE MORAL OF THE STORY IS TO MAKE VERY SURE THAT EVEN “CERTIFIED FUNDS” HAVE CLEARED BEFORE SENDING OUT MONEY.

 

James Morton

Steinberg Morton Hope & Israel

1100-5255 Yonge Street

Toronto, Ontario

M2N 6P4

 

416 225 2777

 

Blog:  http://jmortonmusings.blogspot.com/