Fraud continues to be a significant and costly problem for LAWPRO. Frauds of various types continue to target lawyers in many areas of practice and fraudsters occasionally successfully dupe lawyers and law office staff.
Don’t be complacent and think you will never be fooled. These frauds are getting ever more sophisticated. The matters will look legitimate, the fraudsters will be very convincing and the client ID and other documents you receive will look real. There are often two or more people collaborating to make the scenario even more convincing and we have seen fake law firm websites created to make these frauds look even more legitimate.
See below for a more detailed discussion of the most commonly occurring frauds we are seeing, bad cheque frauds and real estate fraud.
Are you acting on a matter you suspect might be a fraud?
If you are a LAWPRO insured, please call LAWPRO at 1-800-410-1013 (416-598-5899) if you are acting on a matter that you suspect might be a fraud. Working within confidentiality obligations imposed by the Rules of Professional Conduct, one of our Fraud Team members 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 on 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 provide notice of a claim are here.
If you have been targeted by a fraud, please forward any of the emails you have received to [email protected]
Bad cheque frauds
Bad cheque frauds continue to target lawyers in many areas of practice, and a handful of lawyers fall for them each year. In essence, these frauds are simple. A new client will contact you, usually by email, seeking legal assistance on a debt collection, business loan, IP licensing dispute, purchase transaction or spousal support collection. These frauds all create a scenario that will involve you receiving a cheque that you are to deposit into your trust account, and thereafter disbursing the funds from that deposit to the client or a third party. There are often two or more people collaborating to make the matter even more convincing (e.g., the creditor and the debtor, the lender and the borrower, both ex-spouses, etc.).
While fake, the cheque you receive will be very convincing. It will have watermarks and other security features as it will be printed on real cheque stock. We have seen these cheques fools firm staff, as well as bank tellers and even branch managers. However, upon discovering these frauds, banks generally reverse the credit that was given on the deposit of the fake cheque. Because the lawyer already disbursed funds in reliance on the fake cheque, this reversal removes trust funds belonging to other clients and/or leaves the lawyer’s trust account with a negative balance. This leaves you with a potential claim. Never disperse funds without assurances that the funds are actually in your account.
Follow the instructions above if you have been duped or if you suspect the matter you are handling is a bad cheque fraud.
Real estate fraud
LAWPRO commonly sees two types of real estate fraud: identity theft fraud and flip (value) fraud.
Identity theft fraud
In this type of fraud the fraudster client will use fake ID to assume the identity of an existing property owner (or by filing Form 1 to become director/officer of corporate owner). The client will then sell or mortgage the property, or will discharge a mortgage already on title and then get a new mortgage from another lender. When the transaction closes, you pay proceeds to client who makes a few mortgage payments, then disappears with the funds. The lender will then sue you for the value of mortgage.
Flip (value) fraud
This type of fraud happens on a purchase or refinance deal. The client will say she or he is a real estate agent or in the business of buying and selling. The client promises high fees or lots of business for quick turnaround on deals. (Short turnarounds mean proper searches aren’t conducted.)
Once the transaction closes, the client will flips the property to accomplice (e.g., appraiser and/or mortgage broker) for a much higher value. A lender issues a mortgage on the inflated property value. The client will use the mortgage proceeds to pay the initial purchase price, and splits the excess funds with the accomplices. The client makes a few payments, and then disappears with funds. The lender will then sue you for the excess/inflated value of mortgage.
See our Fraud Fact Sheet for a list of the red flags that can appear on a fraudulent real estate deal. One of our claims professionals would be pleased to talk you through assessing and dealing with a matter that is potentially a fraud.
Follow the instructions above if you suspect there is a fraudulent aspect of the real estate matter you are handling.
The risk management lessons
Please don’t be complacent about these frauds. They are evolving and getting ever more sophisticated. Be vigilant! The supporting documents from the fraudsters – and the stories behind them – can be incredibly convincing.
If a file you are handling seems like easy money, or otherwise too good to be true, think critically: Are there any details of the transaction that give you pause? Make sure you understand and are comfortable with all aspects of the transaction. Dig deeper and ask questions about anything you don’t understand. See our Fraud Fact Sheet for a list of the red flags that can indicate that an otherwise legitimate-looking matter is a fraud.
One of our claims professionals would be pleased to talk you through assessing and dealing with a matter that is potentially a fraud. Never disperse funds without assurances that the funds are actually in your account.
Visit the AvoidAClaim.com blog and compare the potential client’s and other party’s name and story to those confirmed frauds reported to us. Follow the above instructions if you have been duped or suspect the matter you are handling is a fraud.
Click here for a full chronological list of all fraud articles and resources LAWPRO has published.