By Mark D. Killian
Many Florida lawyers undoubtedly roll their eyes when they see yet another cashier’s check fraud story in the News, thinking, “Does anyone really fall for these scams?”
Well, yes, they do, and it has happened again.
The latest victim of this con recently contacted The Florida Bar’s Ft. Lauderdale branch office to report $80,000 was swindled from his trust account.
Michael C. Greenberg, a senior attorney with the Bar’s Ft. Lauderdale office, said the lawyer was approached by a Realtor with whom he had a long-term relationship to do a closing on the purchase of a house.
“The purchaser of the house was a ‘doctor’ from England whom the attorney spoke with several times over the phone,” Greenberg reported. “The purchaser was initially going to wire transfer the funds ($125,000) to the attorney’s trust account, but in the end advised the attorney that he was sending a cashier’s check instead.”
The cashier’s check was drawn on a Canadian bank in the amount of $205,000 “U.S.” The purchaser advised the attorney to retain the funds over the purchase price to be used for expenses associated with the closing. The purchaser then sent an email to the attorney requesting that $80,000 of the funds be sent to an account in Japan, where the “doctor” was opening a “new clinic.”
Greenberg said the lawyer told him that before wiring the $80,000 to the Japanese bank, he checked with his bank to ensure the cashier’s check had cleared. The bank advised him the funds were available, so he wired the money to Japan.
“The attorney’s bank subsequently rejected the cashier’s check, advising him that it was either ‘altered or fictitious,’” Greenberg said. “While responsibility for the transaction is being reviewed by the bank and the attorney, the attorney has offered to replace the $80,000 in his trust account from his personal funds.”
The cashier’s check scam works because banks typically permit the immediate disbursement of funds based on a cashier’s check before it is finally settled, and because Bar Rule 5-1.1(j) holds that cashier’s checks carry a “limited and acceptable risk of failure” and are allowed to be disbursed before they are “finally settled, and credited to the lawyer’s trust account.”
Elizabeth Tarbert, the Bar’s ethics counsel, said if a lawyer disburses money against uncollected funds — even if it is one of the exceptions in which the lawyer is allowed to disburse — it is at the lawyer’s own risk, and the lawyer will be responsible for replacing the missing money.
“If the lawyer disburses against uncollected funds and one of the exceptions does not apply, the lawyer has violated the trust accounting rules and must report that to the Bar as part of the lawyer’s trust account certificate,” Tarbert said.
Tarbert emphasized that just because a bank makes funds from a cashier’s check available, it doesn’t mean the money is actually sitting in the account.
“What it usually means is the bank will clear it because you have enough money in your account to cover the check,” Tarbert said. “It actually takes longer for the funds to become collected than the bank clearing it for you to make disbursements against.”
Tarbert also said just because there is an exception in Bar rules that allows lawyers to make disbursements against some uncollected funds, “doesn’t mean that you should, because you are doing so at your own risk and you are not required to do so.”
Here is Bar Rule 5-1.1(j):
“(j) Disbursement Against Uncollected Funds. A lawyer generally may not use, endanger, or encumber money held in trust for a client for purposes of carrying out the business of another client without the permission of the owner given after full disclosure of the circumstances. However, certain categories of trust account deposits are considered to carry a limited and acceptable risk of failure so that disbursements of trust account funds may be made in reliance on such deposits without disclosure to and permission of clients owning trust account funds subject to possibly being affected. Except for disbursements based upon any of the 6 categories of limited-risk uncollected deposits enumerated below, a lawyer may not disburse funds held for a client or on behalf of that client unless the funds held for that client are collected funds. For purposes of this provision, ‘collected funds’ means funds deposited, finally settled, and credited to the lawyer’s trust account. Notwithstanding that a deposit made to the lawyer’s trust account has not been finally settled and credited to the account, the lawyer may disburse funds from the trust account in reliance on such deposit:
“(1) when the deposit is made by certified check or cashier’s check;
“(2) when the deposit is made by a check or draft representing loan proceeds issued by a federally or state-chartered bank, savings bank, savings and loan association, credit union, or other duly licensed or chartered institutional lender;
“(3) when the deposit is made by a bank check, official check, treasurer’s check, money order, or other such instrument issued by a bank, savings and loan association, or credit union when the lawyer has reasonable and prudent grounds to believe the instrument will clear and constitute collected funds in the lawyer’s trust account within a reasonable period of time;
“(4) when the deposit is made by a check drawn on the trust account of a lawyer licensed to practice in the state of Florida or on the escrow or trust account of a real estate broker licensed under applicable Florida law when the lawyer has a reasonable and prudent belief that the deposit will clear and constitute collected funds in the lawyer’s trust account within a reasonable period of time;
“(5) when the deposit is made by a check issued by the United States, the State of Florida, or any agency or political subdivision of the State of Florida;
“(6) when the deposit is made by a check or draft issued by an insurance company, title insurance company, or a licensed title insurance agency authorized to do business in the state of Florida and the lawyer has a reasonable and prudent belief that the instrument will clear and constitute collected funds in the trust account within a reasonable period of time.
“A lawyer’s disbursement of funds from a trust account in reliance on deposits that are not yet collected funds in any circumstances other than those set forth above, when it results in funds of other clients being used, endangered, or encumbered without authorization, may be grounds for a finding of professional misconduct. In any event, such a disbursement is at the risk of the lawyer making the disbursement. If any of the deposits fail, the lawyer, upon obtaining knowledge of the failure, must immediately act to protect the property of the lawyer’s other clients. However, if the lawyer accepting any such check personally pays the amount of any failed deposit or secures or arranges payment from sources available to the lawyer other than trust account funds of other clients, the lawyer shall not be considered guilty of professional misconduct.”