Last week LAWPRO e-blasted 20,000 Ontario lawyers in private practice with a warning about a bad cheque fraud scam targeting lawyer trust accounts.
That e-mail blast prompted several Ontario lawyers to call us and we have gathered further information about these frauds. It now seems clear to us that there is an organized scheme underway to defraud Ontario lawyers in and around the Greater Toronto Area using matters involving small business equipment loans. These matters all share the same basic timeline and circumstances, and in some cases, the same purported individuals or entities (a lender from Halifax or Montreal). These are contrived matters that are solely intended to have you disburse good funds to the fraudster after depositing a bad cheque in your trust account – leaving you with a shortfall.
As of tonight I have not heard whether related or similar frauds are happening in other provinces. I have been in contact with my colleagues at other provincial law societies and insurers and will advise via a comment to this post if I hear of frauds happening in any other provinces.
In all cases, a previously unknown client retained the lawyer to do an incorporation three or four weeks ago. The client presented realistic looking photo ID (a newer Ontario driver licence). The lawyer completed the requested work and the client paid in full for the incorporation (usually with cash).
In the last week, the client returned to the firm asking the lawyer to act on an equipment purchase loan matter. Loan amounts are approximately $300,000 and the loan is to come from a Halifax or Montreal-based lender (there is someone answering the phone for the lender – we suspect the fraudster or an accomplice). The client is pushing to have the loan completed as quickly as possible. The loan proceeds are to go to a third-party corporation (not the client’s new corporation).
There are clear badges of fraud in the above scenario. The lawyers’ suspicions were also raised for one or more of the following reasons: the client and corporate addresses were the same; it is unusual for a brand new corporation with no apparent purpose to get such a large loan; the only security for the loan was a promissory note or GSA; the client had only a cell number or the home phone number given was not working, and the address on the driver’s licence is not a real one.
In the last four business days I have personally taken three of the calls from lawyers in the middle of a bad deal. All three say they were tipped off that something was amiss after reading our e-blast and/or one of our recent LAWPRO Magazine articles on fraud. What is amazing to me is that despite seeing some of the red flags for fraud, they still wanted to believe that the matter was a legitimate one and that the client was not a fraudster. I gather he is very convincing.
Please be wary if you are handling a matter that appears the same or is similar to the ones described above. Over the past year, almost 20 of these types of fraud schemes were reported to LAWPRO during the various holiday/long weekend times. Clearly there appears to be an organized fraud scheme targeting Ontario lawyers. We encourage lawyers and their staff to be extra careful in the next few weeks. Remember that these are very sophisticated frauds. The letters and other documents provided by the client and the certified cheques or money orders received from the lender will look legitimate – but turn out to be counterfeit. Once the lawyers had suspicions and dug deeper, cross-checks and searches on the names, addresses, serial numbers or other information in the documentation provided to the lawyer proved to be false.
Please read LAWPRO's new Fraud Fact Sheet to learn more about the red flags to look out for. You can also find further information on this type of fraud and how to avoid it on the practicePRO Fraud page (www.practicepro.ca/fraud) for information on fraud and how to avoid it.
Stay In The Loop – Please Whitelist Your Law Society And Insurer
One of the fraud victims I spoke to did not get our e-mail blast last week. We did send the blast to him and it appears that his spam filter caught it. Please make sure your law society and insurer have an accurate e-mail address for you, and make sure you whitelist their addresses so that important information and bulletins get through to you.
Dan writes: "What is amazing to me is that despite seeing some of the red flags for fraud, they still wanted to believe that the matter was a legitimate one and that the client was not a fraudster. I gather he is very convincing."
Uh, no. This is the standard mistake people make about fraud. The con criminal doesn't have to be very convincing, he or she just has to know how to present the trappings of a deal which convince you.
Once cognitive dissonance sets in, the victim will find it very hard to believe that they are a mark. This is why many of these transactions will go through despite red flag warnings.
Go back to these lawyers, with a skilled fraud interviewer, get their stories, sanitize them and publish the actual hooks or pitches that nearly worked. LawPro will do far more good than merely publicizing red flags – we need to know how the pitches worked, not when they failed.
You might also want to take a look at the AARP's Weapons of Fraud which contains a number of actual conversations with telemarketer criminals, and classifies the persuasion technique being used.