Dennis BeaverJuly 10, 2020 • By Dennis Beaver 

If you are a lawyer who handles real estate transactions, collection matters, contractual disputes, or divorce cases, today’s story could save you a huge amount of money, and an enormous amount of grief.

Recently a very interesting cashier’s check was delivered to my office via FedEx International Air Waybill.

It is payable to my law office in the amount of $382,261.76 and drawn on the Lindsay, Ontario, Canada, branch of Scotiabank, from “Battery Backup Power, Inc. Of Costa Mesa, California”

Odd. A California company using a Canadian bank? Hang on, as it gets even more interesting.

A memo is attached to the check, stating, “Reference your client Shun Hing Electronic Trading Co. Ltd. We have sent this payment owed to avoid litigation brought against us.”

Instructions accompanying the check state, “Please deposit into your trust account, deduct your customary collection fee, and immediately remit the balance to us.”

But there are two problems: First, none of the named companies have ever been my clients and, second, the cashier’s check is counterfeit.

So, why have I been sent this cashier’s check and how do I know that it is a fake? 

Had lawyers across in the United States and Canada asked these very same questions, they would have saved themselves millions, that’s right, millions of dollars over the past several years.

The Anatomy of Debt Collection Fraud

Overseas scammers follow a sophisticated script, outlined by Lawyers’ Professional Indemnity Company of Toronto, Canada. They catalog frauds against lawyers, and their website is well worth any lawyer’s time.

“A lawyer is contacted [via email] to help an overseas business collect a commercial debt from a purported borrower in the lawyer’s jurisdiction, or facilitate the purchase of a large piece of commercial equipment or some other financial transaction. The fraudster provides documentation about the loan, sale of equipment, or whatever else is involved in the transaction. A retainer agreement may be signed, but instead of paying the retainer fee. the lawyer is sent a fake cashier’s check and told:

(1) To deposit it into their trust account and, after attorney fees are deducted, to wire the balance to an overseas account. The lawyer promptly complies with the request, and sends the money.

(2) But as the check is counterfeit, the lawyer’s trust account is left with a shortfall. His/her bank, when discovering that the check bounced, insists on being repaid, which they have the right to do.  (And then, the lawyer normally freaks out!)

“In this type of scam, “Lawyer’s Professional Indemnity points out, “the fraudster will often use the details of a real company, including web address, names of real employees and the mailing address. However, the contact phone number and email, will be fake.”

How Banking Law Makes It Easy to Scam The Attorney

You have probably noticed a small sign posted near your bank’s teller windows that states, “Funds will be available the next banking day in most instances.”  This is a key element that enables the scammer to successfully pull off the fraud, as there is a difference between funds from a check being “available” and the check having “cleared.”

When a bank confirms that funds are available, it means that the bank is providing provisional credit so that the funds may be withdrawn.  However, if the issuing bank does not honor the check–or if it is counterfeit–your bank can still reverse the transaction. 

Therefore, do not disburse funds until the money has been irrevocably deposited into your trust account, regardless of the apparent validity of the check or the bank showing the funds as available.  Advise clients at the start of the representation that they will not receive any payment until the check has cleared and that this will take time. 

With overseas checks, it can take months before notice of a rejection is forwarded.

Red Flags

So, what are the signs that you have been targeted?

(1) Receipt of an unsolicited email from an overseas company you know nothing about;

(2) Fees offered are disproportionate to the work being performed;

(3) The matter involves a hassle-free collection job; there seems to be no need for attorney involvement or for funds to be routed through a trust account.

Does My Malpractice or Office Commercial Insurance Policy Protect me?

Lawyers who have been burned in these schemes across North America have made claims under their professional liability and office commercial insurance policies with mixed results. In general, mal-practice carriers will furiously defend against such claims. As limits of coverage are generally low under an office commercial policy, many carriers will pay their maximum.

So, when an out of the country “client” contacts you, prudence should call for great caution.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.