Bad Check Frauds: ‘Tis the Season to Be Wary
Don’t be the victim. Scammers have become more brazen in their attempts to lull unsuspecting lawyers into trusting them, and bad check frauds targeting lawyers are on the rise. But you don’t have to let it happen to you. Learn how to recognize a scam and avoid becoming the defrauded victim.
‘Tis the season to be wary. Be especially cautious and on the lookout for fraud these coming weeks. Christmas 2010 and New Year’s Day 2011 both fall on a Saturday, which means two-day bank holidays. U.S. banks observe the public holiday on the preceding Friday; in the U.K., banks observe the holiday on the following Monday. Crafty scammers may try to take advantage of this with an international transaction.
Check scams. At their simplest, all bad check frauds work the same way. The fraudsters retain you to act on a legitimate-looking matter that creates circumstances to dupe you into quickly disbursing funds on a bad check or a cashier’s check that you have deposited in your trust account. The fraudster gets the real money and you are left with a shortfall in your trust account.
Spotting a check scam is easier if you’re alert to the four elements common to the most recent scams.
- An apparently legitimate matter—business loan, spousal support, debt collection—is presented by a new “client.”
- The “client” is evasive when asked to send identity documentation and retainers.
- A bank or cashier’s check arrives, in satisfaction of the net transaction amount for “client” and legal fees for the attorney.
- The attorney gets immediate, urgent and repeated requests from the “client” to wire out the funds.
Red flags. Scammers will improvise, so trust your instincts. If a new matter seems suspicious, ask more questions. Watch for:
- High fees offered that are disproportionate to the work required.
- An easy collection job that is inconsistent with the need to hire a lawyer to do it.
- Significant overpayment of the initial retainer with a cashier’s check, followed by demand for a refund or a disbursement to a third party by wire transfer.
- An imminent bank holiday that will delay detection. This can be particularly tricky when involving international holidays. Keep on top of international bank holidays and make it part of your client matter screening checklist.
Beware of the fraudster in client clothes. Not all fraud attempts fit the stereotype. Scammers are sometimes successful by first establishing trust and credibility with a small matter, like filing business formation documents, before attempting the fraud transaction. While they most often communicate by e-mail, they will speak to you by phone and even make personal visits to your office. The scams may involve elaborate details and take place over a period of weeks or even months. You can find sample scams to watch for on LAWPRO’s “Avoid a Claim” blog (see the posts on the Melissa Anderson and Siam Rai frauds for amazing examples of conversations that occurred over three weeks via e-mail on two attempted frauds).
It smells suspicious, now what? Sticking to some basic practice management systems will help you avoid fraud attempts.
- Vet the prospective clients by verifying their identity. Keep in mind that all parties involved may be co-conspirators, so verify their contact information independently.
- Stick to a funds disbursal policy. Never disburse funds immediately. Check with your state bar or malpractice carrier.
- Ask your bank to assist you in confirming the legitimacy of cashier’s checks. (Ask your bank the right question: “Are the funds collected?” to determine whether the issuing check’s bank has released the money and that it is in your bank account.)
- Ask your bank to send the check for collection instead of for clearing. It’s worth the typical $25 fee.
Finally, educate yourself and everyone else in your firm about the possibility of scams, especially around bank holidays. And if you are scammed, report it to the Federal Trade Commission (email@example.com) and the U.S. Secret Service Field Office.
Be careful out there!
Sheila M. Blackford is an attorney and Practice Management Advisor for the Oregon State Bar Professional Liability Fund. She writes the Just Oregon Lawyers Blog.
- LAWPRO’s AvoidaClaim.com posts regularly on bad check fraud schemes, with plenty of examples.
- Jim Calloway reports on scams and schemes in his Law Practice Tips blog. Read his article in the ABA’s Law Practice magazine, “Preventing Check Fraud: Why ‘The Check is In the Mail’ Isn’t Always a Good Thing,” for sound advice as well.
Illustration © ImageZoo.com.