A
creative and sophisticated Internet scam has targeted sophisticated law firms.
Indeed,
the Gioconda Law Group PLLC was targeted by this type of scam artist, but
(thankfully) we were able to recognize it very quickly.
It works
like this: A potential foreign client that appears to be legitimate will
send an unsolicited e-mail inquiry seeking legal assistance in collecting a
relatively modest commercial debt that it claims is owed to them.
For
example, a Taiwanese company that supplies parts and equipment to electronics
vendors will contact a New York law firm, claiming that it sold $1.2M worth of
goods to a New York-based electronics business.
The company will provide a variety of written documentation to the law
firm that appears totally legitimate, including signed contracts, supply agreements,
purchase orders and invoices.
The
company will gladly sign a formal lawyer's engagement letter and agree to pay the
lawyer for his time and effort in seeking to collect on the debt.
The
company will eventually send an e-mail to the lawyer saying, "Great news!
The debtor has agreed to pay for the goods and send you the settlement check for processing.
Please deduct your fee and send us the remainder by international wire transfer."
If the
lawyer doesn't catch on by then, he may indeed deposit the settlement check, and wire the
funds to the company.
However,
the check he deposits is counterfeit, and the law firm is left holding the bag for the
missing funds that it wired to the foreign company from its trust account.
Sound
implausible?
Some of the biggest law firms in the country have been
suckered into writing trust account checks or wiring money to bank accounts
based on funds they thought had cleared their trust accounts, only to later
learn that the check deposited with the law firm was a forgery. The result is
that the law firm ends up on the hook for hundreds of thousands of dollars, while
the recipient of the money has disappeared.
Minnesota
law firm Milavetz, Gallop & Milavetz (MGM)
fell victim to such a fraud three years ago. Founding partner Robert Milavetz
says that when MGM got an email from a 40-year old Korean woman seeking to
collect a $400,000 judgment owed her for an accident, the firm thought nothing
of it: "We do this kind of thing every day," he says. "We help
people get settlements. That's what lawyers do."
In one recent case, a pair of foreign nationals are
facing criminal charges for allegedly having duped 70 U.S. lawyers and law
firms out of $29M and of having tried to make off with another $100M from 300
more.
Lawyers must implement and consistently utilize a high level of due diligence when taking on new clients, especially ones that are self-introduced through online channels.
Ask for tax returns or other official documentation demonstrating that the client has been a solvent business for at least the previous two or three years. Ask for professional references or other credentials, and don't let your zeal to take on a new matter cloud your judgment.
The moral of the story is, if the deal sounds too good to be true, it probably is.