Attorneys Beware: The Check Scam

It has never been easier than the present day to conduct law firm business without ever meeting clients in person.  The result is greater efficiency and ease for both the attorney and client in most cases. Unfortunately, however, we see situations where attorneys are too trusting of purported clients and fall victim to fraud. With the hope of total and utter failure in 2022 and beyond for the fraudsters, I will outline a common scam continuing to target small and solo law firms.

Initially, the attorney is contacted via email by the purported client (“PC”). PC usually advised that PC found the attorney’s contact information on the state bar website and asks if the attorney is available to represent PC in connection with a lease, commercial, and/or businesses agreement. A particularly common request by a PC is to assist with a lease of subsea well intervention equipment and/or drilling equipment (which I will use as the detailed example here).

If the attorney responds, the PC requests a retainer agreement. Once the retainer agreement is signed, the lease agreement comes together miraculously fast. The purported lessor sends the attorney a letter of intent and a check with instructions for the funds to be deposited into the attorney’s IOLTA account. The amount of the check represents the purported cost of inspection of the equipment and the attorney’s retainer fee. The attorney is then instructed to retain approximately $10,000 for attorney’s fees and immediately disburse the inspection funds pursuant to the wiring instructions, which is usually in the $200,000 to $300,000 range.

Once the check is in the attorney’s possession, the PC pressures the attorney to transfer the “inspection fee” immediately to the lessee in order that the inspection process can begin. PC usually requests confirmation from the attorney of the timing of the check deposit and confirmation of the timing of the wire transfer. As may be obvious, the faster the attorney pushes the money through, the greater the likelihood is that the funds are actually transferred prior to the fraud being detected.  Incidentally, even after a transfer, if the fraud is timely detected, we have seen situations where the bank is successful with efforts to reverse the transfer.

In the event that the transfer occurs and is not successfully reversed, whether the bank approves the deposit, “clears” the check, or even puts a multiple-day hold on the check prior to releasing the funds does not seem to protect the attorney. There is typically contractual language associated with the IOTLA account that gives the bank the right to charge back to the account the amount of any item deposited which was initially paid by the payor bank and which later is returned due to an alleged forgery. Usually, the bank makes a demand on the attorney for the full amount of the counterfeit check if the funds are not recovered.

The well intervention and drilling equipment lease is not the only purported representation the scammers use to defraud attorneys. For example, a business licensing agreement or an intellectual property rights dispute that quickly resolves after the attorney is retained, with the resolution including money being transferred through the attorney’s IOLTA account, is another scam to watch out for.

Another red flag for attorneys to watch out for is that the PCs are generally never available by phone or video conference. Their correspondence is almost exclusively via email. They miss phone/video appointments but follow up via email with excuses as to why they were not available and push the matter along.

In conclusion, while the check scam is not new, with at least some success on the part of the fraudsters, it continues to be a risk for small and solo firms. Please be aware of the possibility that you could be targeted and avoid engaging with any new “client” who presents any similarities to the above scenario.