Nov. 6, 2024 – Is it true that disciplinary agencies are now going after lawyers who fall for wire transfer scams?

Question

I’ve heard for years about scams that target lawyers’ trust accounts and attempt to trick the lawyer into wiring money to the fraudster. I believe I am careful, and while I have received some of the phishing emails, I have never fallen for the scam.

From time to time, I do read about a lawyer or firm that falls victim to the scam, but recently someone said they had heard of lawyers being disciplined for falling for the scam.

Is it true that disciplinary agencies are now going after lawyers who fall for these scams?

Answer

The scam in question has been around for many years and targets lawyers’ trust accounts. The general parameters are as follows:

1. The lawyer receives an email from someone previously unknown to the lawyer who requests the lawyer’s assistance in recovering a sum of money from a third party;

2. The lawyer agrees to represent the person, or states that they may consider doing so, and sometimes the scammer will agree to an engagement agreement;

3. Shortly thereafter, the scammer will email the lawyer stating that opposing party, upon hearing that the lawyer was engaged, has agreed to pay the sum in question and will be mailing a check to the lawyer, which the scammer tells the lawyer to deposit in their trust account, deduct their fees and then wire transfer the remainder to an account provided by the scammer. The scammer will typically insist on haste and the account will be overseas;

4. Once the lawyer deposits the check, the financial institution will typically credit the lawyer’s account with the full amount of the deposit in a few days and the lawyer then wire transfers the funds after deducting their fees;

5. A few weeks later, after the instrument has actually cleared the bank system, it will be discovered by the institution to have been fraudulent and the deposit will be wiped out, which will mean the trust account is overdrawn or the funds of other clients will have been drained by the wire transfer. The lawyer will then be responsible for making up the shortfall.

There are many variations, but they all typically seek to induce the lawyer to deposit a payment and quickly send funds out by wire transfer. Some lawyers have lost hundreds of thousands of dollars in these scams.¹

As this scam is nothing new, there have been years of efforts by the Office of Lawyer Regulation and the State Bar, as well as others, to educate lawyers about the risks and how to avoid them.² But until recently, there have been no instances of a Wisconsin lawyer being subject to professional discipline.

In 2024, the Office of Lawyer Regulation imposed a private reprimand on such a lawyer, which is summarized, in part, as follows:

Private Reprimand 2024-OLR-08

Violation of SCR 20:1.15(b)(1) Safekeeping property; trust accounts and fiduciary accounts

A lawyer was to disburse more than $270,000 to his clients from their trust account pursuant to a settlement agreement. A third-party fraudster sent the lawyer an email message from an email address that was similar but not identical to the clients’ email address. The message included wire transfer instructions to an out-of-state bank where the clients did not have accounts.

The lawyer did not contact the clients to confirm the wire transfer instructions and did not contact the bank to confirm the account belonged to the clients. Instead, the lawyer sent the funds by wire transfer to the out-of-state bank pursuant to the fraudster’s wire transfer instructions. The clients never received the funds. After the fraud was discovered, the lawyer reimbursed the clients with proceeds from the law firm’s malpractice insurance carrier.

By initiating a wire transfer of client funds pursuant to fraudulent wiring instructions without taking reasonable steps to safeguard client funds, including the failure to verify the wiring instructions with the client or client’s bank and the failure to recognize numerous red flags that should have raised suspicions about the fraud, the lawyer violated SCR 20:1.15(b)(1).

While the particular details represent a variation on the theme, the basics of attempting to induce the lawyer to wire money to a suspicious account remain. In 2023, the North Carolina Bar imposed public reprimands on three lawyers under similar circumstances, stating in one:³

You and your staff, under your supervision, initiated a wire transfer of a client’s proceeds pursuant to fraudulent wiring instructions without verifying the wire instructions with the seller and failed to note numerous “red flags” which should have raised your suspicions about the fraud. By failing to adequately supervise your staff, failing to verify the wiring instructions with the seller prior to the disbursements, and failing to immediately self-report the misappropriation to the State Bar’s Trust Account Compliance Counsel, you violated Rule 5.3, Rule 1.15(2)(a), Rule 1.15-2(k), Rule 1.15-2(n), and Rule 1.15-2(p). See 2015 FEO 6, Opinion #5 (an attorney fails to use reasonable security measures if he does not verify disbursement change in wiring instructions).

After years of educational efforts, disciplinary agencies are now expecting lawyers and law firms to be cognizant of and alert for red flags signaling such scams and appropriately train their staff. Failure to do so may be prosecuted under SCR 20:1.15(b) as a failure to take reasonable steps to safeguard client property.

Prevention: How Not to Fall Prey to a Scan

Basics of red flags and steps to avoid falling prey can be found in this November 2022 InsideTrack article, and the Wisconsin Law Firm Self Assessment Trust Account Module provides a training resource on sound trust accounting practices for lawyers and staff.

Travis Stieren, the OLR Trust Account Program Administrator, recommends the following steps to avoid wire transfer scams:⁴

• Verify the identity of the client and adverse party independent of client-provided information.

• Meet with client in person, or at least via video conferencing. The client should want to meet with the lawyer who will be representing them.

• Beware of suspicious requests, such as a high fee for little work, requiring immediate transfer of funds, or threats against the lawyer if they do not take immediate action.

• Notify the client, in advance, that you will be unable to disburse funds until they have cleared the banking system, NOT just “available” at the depository bank.

• Be wary of last-minute changes to payment or wire transfer instructions.

• Check with your bank AND the issuing bank to ensure the check is legitimate BEFORE depositing. Only the supposed issuing bank can confirm if the check is real.

• Hold deposits until the funds actually clear the banking system before issuing any disbursement, again NOT just “available” at the depository bank.

• Train your staff regarding scams and internet security.

• Know what steps to take if you become a victim of fraud, including contacting the bank, local and federal law enforcement, and your insurers.

• Listen to your instincts. If something feels wrong, it probably is.

As always, lawyers and their staff members can seek further guidance from the State Bar Ethics Hotline at (800) 254-9154 and Practice 411 at (800) 957-4670.

Endnotes

1 See, e.g., Robert J. Ambrogi, Law Firm Snared in $312K Email Scam Loses Lawsuit to Recover from Bank, LawSites, May 21, 2020.

2 For a few examples, see articles from Wisconsin Lawyer in June 2016, and InsideTrack on Oct. 16, 2013; Nov. 16, 2022; and Aug. 18, 2021. The topic is also frequently raised at CLE presentations.

3 See Public Reprimands of Jeremy C. King, Richard M. Morgan and William H. Morgan. The North Carolina State Bar has a searchable database of disciplinary orders on its website.

4 For further guidance from the OLR, see the document "Scams Targeting Lawyers and Trust Accounts."