LAWYERS – DO NOT FALL VICTIM TO WIRE FRAUD!
LAWYERS – DO NOT FALL VICTIM TO WIRE FRAUD
Don’t fall victim to #wirefraud. We recently caught and avoided a problem but it was quite clever and you should be #careful. We learned a lot.
Wire transfers are dangerous! You probably did not know, but there seems to be no deadline for the sender of a wire to “recall” that wire = sucking the money out of your account without your advance knowledge, permission or approval. If you ask your banker, they will almost surely tell you otherwise. They are wrong. Your bank will tell you that the funds are available and you can disburse. Beware!
Separate and apart from the above, the #FBI has and uses a tool called a #FinancialFraudKillChain. This tool could help you if you wire money out based on incorrect or fraudulent instructions. If you notify the FBI within 72 hours, and get them to act (the sooner the better), they may be able to recover your money even if it was sent out of the Country. The same tool can also be used to suck money out of your account if you received money by wire.
The scheme we defeated had 2 parts. It is fairly complex, and that makes it dangerous and hard to detect.
Part 1 was what we often hear about. The fraudster hacks the email of a closing attorney, title company or the like, sends fraudulent wire instructions and induces the sender to wire money to wherever the fraudster directed it.
Part 2 of the scheme is less well publicized. Part 2 is how the fraudster launders the money and increases the likelihood of defeating any effort to recall the money. The fraudster hires a law firm to file suit on some unpaid debt. They will insist to pay at least part of the fee as a contingency or success fee – red flag. The fraudster likely pays you a retainer by wire – to get your trust account wiring instructions – red flag. The fraudster later uses your wiring instructions in part 1 and directs that lawyer or title company to wire the money to your trust account. The contact comes from an online referral service like FindLaw or the like or even through your firm web site. The Fraudster wants you to send the demand via email – red flag. The fraudster gives you the debtor’s email address – red flag, but that address turns out to be fraudulent. The debtor is likely an actual business that you can look up online, etc., but, of course, they are not going to get your demand and they have never heard of your “client,” because you are emailing your demand to a fraudulent email address. Then, just before you are about to file suit, you hear from your client who tells you the case settled and the debtor agreed to pay. The client asks you to prepare and send a settlement agreement and wiring instructions, and the debtor will wire settlement money into your trust account. The timing is important. The fraudster does not want you to file suit, because you will learn that the debtor does not owe your client any money. Too quickly, and too easily – red flag, you will get the signed agreement back from your client and notice to check your trust account for the settlement money by wire. The money will be there. Then, the purported client wants you to wire the money to their bank – likely out of the Country – more red flags.
Do not disburse the money. Even weeks later, do not disburse the money. If you are the litigation firm, you will eventually, in all likelihood, hear from the FBI, the title company whose wire was diverted and/or the title company’s bank. You may also hear from the intended recipient of the diverted money.
What did we do? All seemed pretty normal until the surprise settlement, executed agreement and wire into our trust account. At that point, we knew something was amiss. We alerted our bank and had them freeze our trust account. It turns out this was false comfort. We also alerted the Bar and they were extremely helpful. We contacted the bank who wired the money into our account. They were shockingly unresponsive. We contacted our purported client and instructed them that we suspected a problem and we were not disbursing the money. The purported client was surprisingly calm about our hold on the money. They played it pretty cool.
We held the money for just over 2 weeks waiting for something to happen. It did. We finally heard from the title company whose wire was diverted. We asked for documentation to confirm that they were legitimate and not part of the same scheme. It turned out that the title company was so completely duped that they sent the money twice based on two different fraudulent wiring instructions. The first recipient rejected the wire. The fraudster then sent the title company our wiring instructions with the name of bank involved in the refinance cut and pasted onto the instructions. The title company then wired the money to us. It took about 10 days for the title company to finally figure out they were fraud victims. They called our bank who put them in touch with us.
We updated the Bar and our bank and continued our investigation. We spoke to the FBI, the banks that were involved, the title company who sent the money, and also to the purported debtor in our case. We had no way to be 100% sure that our client was a fraudster. So, before sending what would otherwise be the client’s money to someone else, I wanted to make sure that: 1. The Title company and their client were really entitled to it; and 2. that the nominal debtor did not send the money, that that had conducted no business with our client, and that they had not received any demand from us. All turned out to be true, meaning that our purported client could not possibly establish any right to the money.
Here is the surprise twist ending. While we were securing the final piece of our investigation – confirmation from the debtor, the money disappeared from our trust account. The Title company was able to successfully recall the money – nearly 3 weeks after we received the money. As I said, above, a fraudster or even a fraud victim can possibly recover money they wired long after they wired it. If you have already disbursed the money, you could suffer an excruciating problem.
So, in the end, the title company recovered the money. The fraudster did not get the money. We suffered no loss. All ended as it should.
My hope in posting this is that I will help you to recognize and avoid a problem.
Our firm handles complex business litigation. Unlike many firms who do what we do, we are trial lawyers. We often partner with other firms to assist with litgation and/or trials in complex business litigation matters. Please let us know if we can help you. You can reach me at [email protected] or 404-891-1770.