Be Aware of Counterfeit Check Fraud Scheme Targeting Law Firms

Law firms, particularly those handling debt collections work, should be aware of a growing counterfeit check fraud scheme that is increasingly targeting legal practices. The FBI has issued a warning about this sophisticated scam, which involves fraudsters posing as legitimate clients and deceiving law firms into processing fraudulent checks.

The scam is commonly used to exploit law firms that handle money transfers, such as those involved in real estate transactions, debt collections, or family law settlements. Although the specific details of each case may vary, the general mechanics of the scam remain the same, and law firms are often left facing significant financial losses.

How the Scheme Works:

1. A law firm is contacted by an individual or business claiming to be a creditor in need of debt collection services.
2. After agreeing to represent the creditor, the law firm sends a demand letter to the alleged debtor (who is often an accomplice of the fraudster).
3. The debtor responds by sending a cashier’s check that appears legitimate to the law firm.
4. The law firm deposits the check into its client trust account and then wires the funds (less any agreed-upon fees) to the creditor.
5. Later, the bank discovers that the cashier’s check is counterfeit, and the law firm’s trust account is charged back the amount of the check.
6. Since the wire transfer to the creditor has already been completed, the law firm suffers a financial loss.

Variations of the Scheme: While the structure of the scam typically follows this pattern, there are different variations. For example, the alleged debtor may be a family member involved in a personal debt collection through marriage, or a business accused of a workplace injury claim. Fraudsters often use the name of well-known companies or even fabricate entire businesses to make the scenario appear legitimate. In many cases, the checks are drawn from Canadian banks, which can slow down the verification process and increase the chances of the fraud going undetected.

How to Protect Your Firm:

• Hold Funds Until Cleared: Always implement a delay before transferring funds from your trust account. Make sure the check has fully cleared before any disbursements are made.
• Verify Transactions Carefully: Use two-step verification processes, such as phone calls, to confirm transaction details and verify the identity of the parties involved.
• Monitor Wire Transfers: If you suspect fraud after sending a wire transfer, contact your bank immediately. They may be able to reverse or freeze the funds before they are fully processed.
• Look for Red Flags: Be cautious of clients who pressure for quick action or provide urgent instructions. Fraudsters often try to create a sense of urgency to bypass normal verification procedures.

If you believe you have been a victim of this scheme, it’s important to report the incident to the FBI’s Internet Crime Complaint Center (IC3) at www.ic3.gov.

By staying vigilant and implementing careful financial procedures, law firms can better protect themselves from falling victim to this growing fraud trend.

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Sources: FBI, 2024

Please note: The content in this article comes from individual opinions and experiences. The content should not be taken as advice coming from City National Bank of Florida. City National Bank of Florida does not offer tax, legal or accounting advice

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