We seem to be living in “The Age of the Swindle.”
There is a new fraud circulating on the internet directed to lawyers.
We are all familiar with this unsolicited e-mail and its many variations:
I am the deposed Chancellor of the Exchequer of Togo Land, and I need your assistance to be transfer agent on $150,000,000 which is sitting in Barclays Bank in London. I cannot access the funds, and I need to hire a transfer agent. We shall gladly pay 10% if you . . .
Almost everyone knows that this is a con game. However, there is a new internet confidence game aimed at lawyers. The new fraud seeks to hire the lawyer to do what a good number of lawyers routinely do, i.e., collection on a debt.
Here is how it works. Lawyer receives the following e-mail:
Dear Lawyer Jones:
I am the president of Tongo Electric in Hong Kong, and I need to hire your esteemed firm to collect on unpaid invoices for wiring and coils that we sold to New Amsterdam Machine Works in Amsterdam, New York. We sold $860,000 of goods in February, 2008, and we have not been paid despite our best efforts and repeated calls. We understand that we need a lawyer in your jurisdiction to collect on these bills.
We urge that you attempt collection and negotiation before filing suit since we want to keep this customer.
If you are interested, please contact me by e-mail.
The lawyer gets interested. This appears to be a straight-foward collection case involving a serious amount. The lawyer checks, and there are websites for both Tongo and New Amsterdam. Tongo is a manufacturer of wire and coils, and New Amsterdam appears to be a legitimate company in upstate New York. The lawyer and Tongo exchange e-mails, and the parties agree to a contingency fee agreement.
The lawyer then contacts New Amsterdam whose contact information is provided by Tongo. New Amsterdam is amenable to making a good faith partial payment of $500,000. The lawyer is ectastic because he will make a good fee with very little work and without filing suit. The debtor says that the remaining $360,000 will be paid in two weeks after New Amersdam’s management can meet and find a way to scrape together the remaining funds.
Tongo is very happy with this result. It promises more work to the lawyer.
Immediate payment of $500,000 is made by New Amsterdam by Citibank cashier’s check made payable to “Tongo Electric and Donald Jones, as Attorney.” It is sent by overnight courier, and the lawyer swiftly deposits it into his client trust account at HSBC.
At the time that the payment is made Tongo Electric sends an e-mail to Lawyer Jones. Tongo states that it has been told by New Amsterdam that $500,000 has been paid. Tongo requests immediate payment after the lawyer deducts his fee. The bank wire transfer information is provided.
Lawyer Jones does one of the following:
- He immediately wires the net funds of $400,000 to Tongo after deducting his fee of $100,000. Lawyer Jones does not feel that he has to wait for the funds to clear his bank because he was presented a cashier’s check which his bank accepted.
- Lawyer Jones waits 3-4 days for the check to clear before wiring the net funds to Tongo. He confirms that the funds are available on day 4. He wires the funds to Tongo on day 6.
Under both scenarios the lawyer will lose the funds that he wired to Hong Kong.
The Citibank cashier’s check was counterfeit. It looked and felt like an official cashier’s check. It even fooled the bank officiers at HSBC. On day 10 the lawyer’s bank, HSBC, tells him that the $500,000 credit was reversed, the lawyer’s account is frozen, and many of the lawyer’s checks will bounce.
The lawyer protests to his bank that he was given a cashier’s check by a debtor in partial payment of his client’s debt. However, upon further investigation it is found that the lawyer was tricked. Tongo’s website is phony. There is no Tongo Electric. New Amsterdam is contacted. It is a real company in upstate New York, However, its owners say that they never heard of Tongo. The lawyer’s contact at New Amsterdam was a confederate of Tongo. The whole thing is something out of the movie, The Sting.
However, under scenario 2 where the funds did clear you may think that the lawyer was safe to pay the funds. The answer is a clear NO. This is so because Citibank has 30 days to return the check if it is a counterfeit or forgery. It is allowed to charge-back the funds, and the lawyer’s bank will debit the funds.
The lawyer would have lost the money in the nano-second of a wire transfer. If the lawyer had to sue Citibank and his bank he would be hard-pressed to explain that he was the victim. Indeed, in view of all of the facts and circumstances, the banks would prevail because the lawyer was negligent in checking the existence of the client, the debtor, the debt, etc.
Lawyers should be aware of this new fraud and take the following precautions:
- If you receive an unsolicited offer of employment from an unknown source, especially, Asia, verify the existence of the alleged client by multiple sources. Do not rely solely upon e-mail communciations.
- Verify the bona fide existence of the defendant.
- If you are hired in a collection matter which settles very quickly after your retention, be suspicious as to why it was not settled before you were hired.
- If you received either a certified check or cashier’s check in payment, go to the issuing bank to make sure that the check is genuine.
- If you have any suspicions about defendant’s check, then review the situation with your bank before you deposit the check.
- If you deposit the check, then hold-off payment for 30 days. Check and doublecheck the UCC on bank deposits.
The lesson: If something is too good to be true, then it is.