The “Trust Account Trap” – How to Flag Law Firm Trust Account Scams

One recent phenomenon plaguing the legal field in recent years is the “attorney trust-account scam,” or what I call the “Trust Account Trap.”   The scam operates in many shapes and forms, but the underlying mechanics of the scam are the same.  

The scam essentially works this way:   The scammer emails the law firm requesting representation to help collect a debt, usually a large one.  Once retained, and without putting forth much effort, the law firm receives payment from the supposed debtor.  Thinking the firm just made some easy money, the firm deposits the check, deducts its contingency fee, and wires the rest of the payment to the scammer.  A few weeks later, the bank contacts the firm informing it the check was fraudulent and the firm is liable for the money it wired to the scammer.  This scam, as well as other variations, have grown more and more sophisticated.  

I was recently contacted by a potential overseas client seeking representation in a collection matter involving a debt of $600,000.  It did not take long for me to determine this potential client was trying to scam me, and thankfully we avoided the scam, but I want to let you know what I found so we can prevent this scammer and others like him from ripping off any fellow lawyers.

 

Once I received the email from the scammer, the first red flag was that the company was based in Taiwan, and when I searched the representative’s name, there was no association between his name and the company.  However, the company had a website and was mentioned on many third party websites as a legitimate company.  I ended up concluding the company was legitimate, I just didn’t believe I was being contacted by one of its representatives.

The second red flag was that the email address was a Gmail account – not an account associated with the company.  Because I was still curious, I responded to the email, requesting a phone consultation, knowing that if this person was indeed a scammer, he wouldn’t agree to talk to me.  When he did respond (via email that is), he stated that due to time differences, he couldn’t conveniently schedule a phone call.  At this point, I knew this was a scam and ceased contact. The scammer emailed me one or two more times, desperate to hire us, even further proving to me it was a scam.  I still didn’t answer.  

About two weeks later I checked my mail and noticed a letter, addressed to me, from the supposed debtor of this scammer.  Let me remind me you that we never agreed to represent this scammer.  I opened up the letter and found a check for $475,000.00 addressed to our firm.  Accompanying the check was a letter which stated that the debtor was paying the firm because the debtor heard we represented the scammer.  I put the check on my desk and sat amazed at the persistence of this scammer.  Then, the very next day, I received an email from the scammer saying, “We informed the debtor that you represent us and so they should have issued payment to you. Please send us the payment.”

I continued to ignore the scammer, who sent one or two additional emails, until one day I received a call from an unknown number.  I answered and sure enough it was the scammer on the other end.  Curious enough, the scammer didn’t sound Taiwanese and was calling at what would be 3:45 a.m. Taiwan time.  I told him we never agreed to represent him and that we would simply destroy the check.  He didn’t argue, merely said “okay,” and then hung up the phone.

Luckily, our firm did not fall into the trust account trap and other law firms can avoid becoming victims if they trust their gut and look out for the red flags.  They are becoming tougher and tougher to spot because the scammers are becoming more sophisticated, but if you pay attention you can still spot a scammer.  To recap, here are some of the red flags:

  1. The potential client is from overseas.  Although many firms deal with legitimate international clients, many firms do not, and if you are randomly contacted by an international client, beware.  Particularly look out for contacts from obscure countries.

  2. The email is from a Gmail account.  Anyone can create a Gmail account, using any made-up name, from any internet café or public library in the world.  If they truly are the vice president of their company, why don’t they use their company’s domain?

  3. They refuse to speak over the phone.  The scammers refuse to speak over the phone because they know they can very easily be subject to cross examination and buckle under questioning. In my case, the scammer called out of desperation and only revealed more attributes that allowed me to decisively conclude it was a scam.

  4. The representation involves you paying money out of your trust account.  These clients never ask you to engage in hourly representation because it would be hard to conceive and execute a scam in that manner.  They really don’t expect you to do any work because that takes time and they just want to steal your money.  

  5. The money is too good to be true.  Trust your gut.  If someone is trying to pay you $200,000 to do zero work, there is something wrong.  It is also unethical to accept such a contingency for simply writing a letter or doing zero work at all, so you shouldn’t be attempting to create a big payout for yourself anyway.

Don’t fall victim to the scam just because the potential client has a website.  These scammers will even place their “business” information on third party websites.  This day in age, anyone can create a website and make it look half-way decent.  Trust your gut and ask a few questions.  It’s not worth losing your firm hundreds of thousands of dollars.