A string of recent email and media account scams[1] remind us that fraudsters are constantly looking for gullible victims, whether lawyers or clients, to scam in seemingly legitimate schemes. Folks in financial distress are excellent targets. Here are several examples to watch for and to caution clients against.
Client in Distress
My first employer, a federal judge, related to me the story of law firms in the early 1960s, which were all mostly open on Saturday mornings. As the scheme would work, an attractive young woman stopped by without an appointment. She had a local business’s check payable to her personally. She wanted desperately to retain the firm and pay a large retainer, but banks were not open on Saturdays, so she could not cash the check and pay the firm. She would ask whether the attorney could please take the check, which she would endorse, take out a large retainer, and give her the firm’s check for the difference. The next week when the bank returned her check for insufficient funds, the check and the client were long gone. Victim firms would then find out several other lawyers suffered the same fate that Saturday.
Check Scams
In a recurring theme, the “Nigerian check scam” involves some form of a check that a lender/client/joint venture wants to have cashed, and the funds split with the victim in a very lucrative transaction. The check may be payable to another, who endorses the check to the victim, or it may be payable to the victim. Ordinarily, the check is from a legitimate business or appears to be a cashier’s check. Inevitably, the victim writes checks to recipients who disappear and then is liable when the check does not clear. These scams even show up in bankruptcy cases.
For example, in a Florida case, a lawyer/business owner was drawn into a Nigerian check scam and eventually “repaid” himself via a check drawn on Avis Corp.[2]
The lawyer deposited the check, used a portion to pay himself sums his Nigerian contacts agreed he was owed, and transmitted the balance to accounts in Lebanon and Nigeria. Avis eventually appeared and proved the check had been altered and the payee name forged. The lawyer ended up in chapter 7, but avoided a nondischargeable debt judgment after the bankruptcy court found him gullible, but not fraudulent or willful and malicious.[3] As such findings are difficult to reverse on appeal, the lawyer was lucky to have found a sympathetic judge.
An Ohio real estate broker was less fortunate. He needed an investor, and after a series of meetings he received a $90,000 check from an investor written on British Petroleum check stock. After he deposited and withdrew some funds from the check, his account was frozen when the check bounced, and he eventually obtained a bankruptcy discharge in chapter 7.[4] Nonetheless, he continued to seek foreign investors and received and presented two more forged checks to banks, all without causing or suffering any damage.[5] A bank investigator warned him against the scam. A third transaction with the same fraudster was supposed to be a wire, but instead the broker’s bank received and deposited a U.S. Treasury Check. The broker took out funds, thinking he would get back at the fraudsters. Instead, the check was eventually returned as counterfeit, with the bank out over $60,000.[6] The broker was eventually convicted for two counts of bank fraud.[7] One of the two counts was based on the discharged debt.
In a third case, a bank with a pre-petition judgment lien obtained stay relief to enforce the judgment.[8] The debtor’s husband had been scammed with a check deposited into their joint account, then $350,000 was wired out to Lebanon (and never recovered). The innocent spouse had unsuccessfully opposed liability in state court, but could not use the stay in her chapter 11 case without the prospect of plan confirmation as a means of holding off the bank as a secured creditor.
A New Variation: Phony Sale
Recently, this author received an email asking for legal services in connection with the sale of heavy construction equipment. In a dialogue via email, the seller identified itself as an apparently legitimate European oil company, the buyer a real Nevada corporation, and the assets purchased out of a recent bankruptcy auction. The seller’s principal has the name of the principal of the European oil company. But there were then two warning signs. First, the seller wanted to have the law firm serve as escrow agent, depositing the buyer’s check and then promptly disbursing the proceeds to the seller minus a lucrative legal fee. Second, the same email sender sent the same original phishing email to both this lawyer’s personal and business email accounts after communicating about the potential sale. When the law firm declined to serve as escrow agent and split the buyer’s check, the purported seller disappeared. Other lawyers have reported the same scam.[9]
Conclusion
Advance fee and other variations of check fraud are old but continuously mined scams. Lawyers need to be vigilant and keep their clients advised of the risk potential when a seemingly fantastic opportunity comes calling.
[1] “The Facts About Fake Check Scams,” U.S. Postal Service, available at about.usps.com/postal-bulletin/2008/html/pb22225/html/kit_014.html (visited 11/1/16).
[2] In re Maxwell, 334 B.R. 736 (Bankr. M.D. Fla. 2005).
[3] Maxwell, 334 B.R. at 741-45.
[4] U.S. v. Ross, 502 F.3d 521 (6th Cir. 2007).
[5] Ross, 502 F.3d at 525-26.
[6] Id. at 526.
[7] U.S. v. Ross, 502 F.3d 521 (6th Cir. 2007).
[8] In re Milstein, 304 B.R. 208 (Bankr. E.D. Pa. 2004).
[9] “Equipment purchase scam using the names Imad Mohsen and Tulip Oil,” T. Lemieux, available at avoidaclaim.com/2016/equipment-purchase-scam-using-the-names-imad-mohsen-and-tulip-oil/ (visited 11/1/16).