LAWPRO continues to get daily calls and emails from lawyers that are being targeted by fraudsters attempting bad cheque frauds. Lawyers must not let their guard down.
Special caution is warranted as we approach the holidays. In the past, fraudsters have been more active in the days just before long weekends and other holidays. Presumably this is to take advantage of circumstances when lawyers and law firm staff will be busy or more distracted with other things.
At their simplest, these bad cheque frauds all work the same way. The fraudsters retain you to act on an otherwise legitimate-looking legal matter that creates circumstances to dupe you into quickly disbursing funds on a bad cheque or bank draft that you deposited into your trust account. The fraudster gets real money and you are left with a shortfall in your trust account.
The types of frauds LAWPRO is seeing
LAWPRO most commonly sees bad cheque frauds on these types of legal matters (in all these cases the person making the payment is the fraudster or someone that is in cahoots with the fraudster):
- A payment from an ex-spouse on a spousal support collection, often further to the terms of a collaborative family law agreement (currently the most common);
- A payment from the debtor on a business debt collection (currently the second most common);
- A loan advance from a sham lender on a business loan or inventory purchase loan; and
- A bad cheque given by the purchaser as a deposit on a real estate deal that ends up being aborted, triggering a request to pay the deposit back to the purchaser or to a third party.
Recently we have also seen two instances where it appears the fraudsters were both pretending to be a client and were also impersonating a real lawyer purportedly acting on the other side of a matter. On one of these matters it appears the fraudster was attempting to execute a financing of some type that was really a front for a fraud involving a bad cheque. The fraudster was dealing with one lawyer as a client, but was also impersonating a large firm lawyer who was allegedly involved in the transaction. The lawyer being impersonated was being blamed for a delay in the forwarding of funds and the completion of the transaction. The fraudster was pushing very hard to have it completed. The fraud was discovered when the lawyer the fraudster was dealing with called the lawyer that was being impersonated directly in response to an extremely demanding and somewhat impolite email. At that point the fraudster disappeared.
Some of the fraud attempts LAWPRO is seeing are very obvious due to poor spelling, bad grammar and/or completely untenable fact circumstances (e.g., multi-million dollar lottery wins or inheritances). However, some of the frauds we are seeing are extremely sophisticated and look like completely legitimate legal matters. The more sophisticated frauds have temporarily fooled new and experienced lawyers into working through file opening and initial stages of the matter before they recognized or determined they were the target of a fraud. Some lawyers are being successful duped by these frauds.
You can’t be complacent. The fraudsters go to great lengths to create scenarios that otherwise appear to be legitimate legal matters. They are prepared to engage in extensive and ongoing communications over weeks and even months, usually by email, but also by phone, and on occasion, even in person. See the AvoidAClaim posts on the Melissa Andersen and Siam Rai frauds for amazing examples of back-and-forth conversations that occurred over 3 weeks via email on two attempted frauds. Remember that caller ID information can be easily spoofed and telephone calls can be made at little or no cost across the Internet to landlines with tools like Skype.
What frauds look like
To help Ontario lawyers recognize attempted frauds, LAWPRO is posting examples of the initial contact messages and back-and-forth communications on the AvoidAClaim.com blog. As noted in more detail below, there are also images of the fake supporting documentation the fraudsters are supplying, including identification, bad cheques and bank drafts, and fabricated collaborative family law agreements and divorce decrees.
The initial contact is frequently by email, but may also be a typed or handwritten note delivered by regular mail. It can be a short message of only a few sentences with virtually no details about the matter or a detailed message with extensive background information. Initial contact messages are usually generically addressed (e.g., “Dear attorney” or “Attention counsel”) as they are sent to large numbers of people via BCC, but they can be personlized and include a lawyer’s first and/or last names.
To make an initial contact appear more legitimate, an occasion the fraudsters will send an initial message and follow it up with a “Did you get my message 2 days ago and when will you reply” message. Sometimes there is just a “did you get my message 2 days ago and when will you reply?” message.
We are seeing instances where the fraudsters are intentionally taking steps to appear to be coming from a trusted referral source you know personally. Most frequently this is another local lawyer or real estate agent. We have seen instances where the fraudsters have signed listing agreements or agreements of purchase and sale with a real estate agent before asking the agent to provide names of recommended local lawyers. The fraudsters then will explicitly mention the referral source in the initial contact with the lawyer. Some initial contact messages claim to have found contact information on bar association or other website listing.
The fraudsters will provide very legitimate-looking fake identification, including foreign passports, U.S. state or foreign country issued birth certificates or drivers’ licences. Here are copies of some of the fade ID provided to Ontario lawyers on fraud attempts (click to enlarge):
On several occasions we have seen notarized documents from a non-existent lawyer at a real U.K. firm verifying identity information. An example of one of these documents appears here (click to enlarge):
The fake cheques and bank drafts are of very high quality – even bank staff have been fooled by some of them. They are printed on high quality paper and can have watermarks, embossing and holographs. Images of some of some of the fake cheques and bank drafts we have seen appear here (click to enlarge):
There are clearly multiple people involved in some of these frauds, including people overseas that have real bank accounts for receiving wired funds. Some of the fake cheques appear to be sent from within Ontario or elsewhere in Canada. If you receive a cheque on one of these matters, remember to check the courier slip or envelope that the cheque arrives at your office in. It will often be from an address that doesn’t make sense given the people involved in the matter (e.g., the ex-spouse making the payment is allegedly in Toronto and the cheque came from Alberta) or an address that may not even exist. You can verify or cross-check addresses with Google Maps.
Red flags that can indicate a fraud
Red flags that you should watch out for include:
- Generically addressed emails (e.g., “Dear attorney” or “Attention counsel);
- Generically addressed emails that are BCC’d to you and sent to undisclosed recipients;
- Emails where the sender’s email address and the displayed name for that address are different;
- Emails that request a reply be sent to a person or email address that is different from the sender’s name or email address;
- Use of the word “attorney” in the subject line or body of the message;
- Emails that give a referral source that wouldn’t have your name (e.g., a website that does not list you or a bar association that you are not a member of);
- Individuals using a personal email account from AOL, MSN, Gmail or similar free email service that contact you to do work on behalf of a major corporation or business (they may use the name of a real person that does actually work for that corporation – crosscheck name and contact info on websites or by phone);
- Clients who insist that email is the only way to communicate due to time zone differences;
- Clients who renege or delay on promised payment of a retainer (when the bad cheque payment from the ex-spouse or loan advance arrives they will ask you to take payment from it);
- Clients who without question or hesitation are willing to pay hourly rates, flat fees or contingency fees that are far higher than normal;
- Clients who insist on or who are not worried about shortcuts being taken;
- One or more delays in the promised payment or advance of funds (this is usually an attempt to create a sense of urgency to quickly disburse the funds when they finally do arrive);
- Debtors that seem over-anxious or who unexpectedly pay outstanding debts;
- The cheque or bank draft arrives from an address that doesn’t make sense, is in an envelope with a handwritten address and/or is without a covering letter;
- The payment or loan advance is not in the form you expected or requested (i.e. it is not a bank draft or it is not certified) and/or it is for an amount that is different than expected;
- The payor on the cheque or bank draft you receive doesn’t make sense given the type of payment (e.g., a payment of spousal support arrears by a cheque from corporation, charity or travel agency);
- Unexpected changed circumstances that give rise to reasons the client wants to wire funds off-shore to third party on urgent basis for reason not related to the legal matter you are handling (e.g., to pay medical expenses or buy furniture);
Check for the red flags listed above if you have any suspicions that the matter you are handling is a fraud. While there can be good explanations for some matters to have one or two of the above red flags, you should be extra cautious and careful on any matter that has any of the above red flags. Question your client if things don’t add up or don’t make sense – even the smallest things. Make sure the answers to any questions you ask address satisfactorily address any concerns that you have. Lastly, if you aren’t 100 per cent comfortable that a transaction or matter you are handling is legitimate, terminate the retainer. Don’t let the demands of an insistent client push you into something you are uncomfortable doing.
Most importantly, remember that a wire transfer via Large Value Transaction System (LVTS) is the only way to gets funds irrevocably into your account. Most other deposits to your account can be pulled back, days or even weeks later, including certified cheques and bank drafts. Notes that U.S. cheques and cashiers’ cheques (the U.S. equivalent of bank drafts) can take three or more weeks to clear.
Requirements for LAWPRO’s enhanced fraud coverage
LAWPRO’s enhanced coverage for counterfeit certified cheques and bank drafts came into force as of January 1, 2010. Provided certain requirements are met, some overdraft protection will effectively be provided to lawyers in relation to their trust accounts where liability for the overdraft results from the handling of a counterfeit certified cheque or counterfeit bank draft in the capacity of a practising lawyer. This enhancement to the protection already provided under your insurance program comes at no additional cost to you.
The enhanced protection for counterfeit certified cheques and counterfeit bank drafts is subject to the following conditions and limitations:
- You must have waited at least eight business days following deposit of the instrument into your trust account before disbursing funds as instructed; or you must have received confirmation from either your financial institution or the drawee financial institution that the drawee financial institution has verified the validity of the instrument. As well, this confirmation must be documented in writing (whether by you or the financial institution) before payment instructions are given.
- The drawee financial institution indicated on the counterfeit certified cheque or counterfeit bank draft must be a Canadian financial institution, and the instrument must have been inspected and deposited by you, or a partner or employee of yours.
The LAWPRO website has a series of FAQs that address the most common questions that arise with respect to the enhanced protection provided under the 2010 LAWPRO primary insurance program regarding counterfeit certified cheques and counterfeit bank drafts.
How to handle a real or suspected fraud
If you have been targeted by one of these bad cheque frauds, please forward any of the emails you have received to firstname.lastname@example.org.
Call LAWPRO at 1-800-410-1013 (416-598-5899) if you suspect you are acting on a matter that appears like it might be a fraud. We will talk you through the common fraud scenarios we are seeing and help you spot red flags that may indicate you are being duped. This will help you ask appropriate questions of your client to determine if the matter is legitimate or not. In the event the matter you are acting is a fraud and there is a potential claim, we will work with you to prevent the fraud and minimize potential claims costs.
If you have been successfully duped, please immediately notify LAWPRO as there may be a claim against you. Instructions on how to report a claim are here.
Further fraud prevention information and resources are available on the practicePRO Fraud page (www.practicepro.ca/fraud), including the Fraud Fact Sheet, a handy reference for lawyers and law firm staff that describes the common frauds and the red flags that can help identify them.
For more immediate updates on fraud and claims prevention, subscribe to the email or RSS feed updates from LAWPRO’s AvoidAClaim blog.