***ALERT*** Trust Fund Accounts Are Targeted By Fake “Clients” Scam

Scam background – The client contacts the insured attorney seeking representation regarding closing out a settlement or collecting a debt. The client provides the lawyer with contact information for the third party who is “settling” their claim with the client.

The settling party can be an alleged former employer, insurance adjuster, debtor or any other party who might negotiate a settlement. The lawyer contacts that person, arranges the settlement, and then receives a counterfeit check from the third party, which is then deposited into the lawyer’s trust account. The client often calls and/or emails the lawyer urging that the wire transfer be sent as soon as the funds are credited, alleging circumstances regarding an immediate need for the funds. Once the lawyer’s bank makes the funds available in the account, the lawyer then wires the funds to an account set up for the fraud.

The money is removed immediately, the account is closed, and the “client” disappears. After the lawyer’s bank determines that the check is counterfeit, the bank then sweeps the trust account for the funds, which are now gone. If the account had remaining funds that are being held for other clients, the bank will take those funds, thus depleting the account of monies the lawyer owes to others. If the account does not have sufficient funds, the bank then makes a demand on the lawyer for repayment of the amount of the counterfeit check, which is usually a substantial amount of money.

It is a common bank practice for banks to make funds “available” to the customer several days before the bank receives the funds from the payee bank. The risk is that under the UCC, the bank can recoup the funds from the depositor’s account if the check is later determined to be counterfeit or NSF. Lawyer malpractice insurance policies are not designed to protect against crimes committed on the trust account. As a result this will likely not be covered under your malpractice insurance policy.

What To Do To Protect Your Practice:

  • Do not disburse funds until the bank has confirmed that the check has been cleared by the payee bank and finally deposited into your trust account – when the bank shows that the funds are “available”, that does not mean that the check has cleared. Make sure the check has cleared.
  • Avoid wire transfers, except when dealing with well-known existing clients.
  • Advise new clients at the start of the representation that they will not receive any payment until the check has cleared and that this will take time.
  • Keep in mind that there is a difference between funds from a check being “available” and the check having “cleared”!
  • Review your cyber and/or crime policy to see if there is coverage for this type of activity.

Contact Kaestner & Berry with any questions or to get a quote for Cyber or Crime Insurance!

Cyber Coverage – Now More Than Ever!

The change in business operations, during the pandemic, has created new exposures for your business. In order to accommodate staff working from home, businesses are using new software and staff is making greater use of public internet. Those changes have increased the risk of a cyber incident that could adversely impact your business.

Many businesses rely on their network and anti-virus security systems, malware and cyber security training, to protect them from cyber injury. Recent headlines reported that Jeff Bezos, the richest man in the world, and former president Barack Obama, were hacked. I do not know the sophistication of the network security that these two gentlemen employ, but I suspect it is significantly more sophisticated than the average business. My point is that if Jeff Bezos and President Barack Obama can be hacked, no one is safe from a cyber injury.

The cyber criminals are more aggressive and savvy than ever before. A recent report from Verizon noted that 55% of the 2019 breach reports they reviewed were connected to organized crime. The cyber criminals are a step or two ahead of the defenses available to most businesses.

As a result, cyber insurance coverage is more important than ever for businesses. If you can not prevent the loss from happening, it is important to have a quality comprehensive cyber insurance policy to compensate you in the event of a loss. It is also important to have expert cyber liability attorneys and security professionals provided by your carrier to assist you if there is an incident.

Kaestner & Berry offers SafeLaw, a cyber product designed specifically for law firms.

Protect your firm from:

  1. Lost revenues as a result from being shut down due to a cyber incident;
  2. Regulatory fines;
  3. Legal action from clients;
  4. Fraudulent fund transfers; and
  5. Damage to your reputation.

Contact Kaestner & Berry for a no obligation cyber/security breach policy quote to protect your business. Pricing can be as low as $500 for the year!