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Beware of frauds against lawyers

Today I received a letter in the mail which contained a “cheque”, written to me, in the amount of $145,000.  The cheque appeared to be from a local non-profit agency.  Along with the cheque was a letter explaining that the writer had settled a divorce matter by way of a collaborative family law agreement.  The writer’s supposed former spouse was unwilling to provide payment directly to the writer.  Therefore, I was asked to be the intermediary to settle the matter.  I was invited to subtract any legal fees and would then contact the writer to arrange payment of the balance.  I was also advised the settlement was for more money which I could arrange with the writer’s supposed former spouse.  The documents came in an envelope without a return address.  The only contact information I was given for the writer was an email address and a mailing address overseas.

Obviously, this was a fraud.  This type of fraud has become far too common.  The general idea is that the lawyer deposits the money into their trust fund, waits for the cheque to clear, and forwards the funds overseas (less their legal fees which seem quite lucrative for the amount of work involved).  The cheques are not obviously fraudulent (to my untrained eye, it appeared completely real) and are often cleared by the banks since they appear to be coming from a legitimate source (like the Toronto non-profit) and have correct bank account details.  If the funds are in the account, there is often no reason for the bank to be suspicious.  Eventually, though, the fraud is discovered and the bank comes back to the lawyer for the money to be returned.  By this point the money has been transferred overseas.  The lawyer must then make a claim to their insurer, in Ontario the Lawyer’s Professional Indemnity Company, or Lawpro, which involves them paying a deductible.  Lawpro has issued several warnings about such frauds, an example being here.  The family law agreement is just an example of the backstory that goes into this type of fraud.  The story could just as easily be a bad debt that a party requires help collecting – the story can be as creative as the fraudster.

The next thing I did was contact both the non-profit and Lawpro to advise them of what was going on.  The non-profit was obviously quite concerned since the cheque I received was the third they had heard about today.  They had contacted police.  Lawpro advised me that they had received a similar report.  They also told me that this was the first time they had heard of physical cheques being sent to lawyers unsolicited.  What usually happens is the lawyer does a little bit of work on the “file”, such as sending a demand letter, before the cheque is provided.

The reality is that many lawyers do fall for these types of frauds which form a substantial amount of the claims made on the Lawpro policy every year.  While this one was obvious to me, it might not be to others who had not heard about this activity in the past (I learned about it during a presentation by a Lawpro staff member during an LSUC CLE on opening a law practice).  Other forms of this fraud, though, could be much less obvious and involve an actual relationship being formed by the fraudster and the unsuspecting lawyer.

I expect Lawpro will be issuing an advisory on this fraud early next week since numerous lawyers have been targeted (besides the lawyers who contacted the non-profit, I know of one other in Durham who received the same correspondence).  I will post the advisory when it is released as well as any suggestions Lawpro provides on how to better protect oneself.