Accounting Best Practices for Lawyers: Lessons

In this edition of Accounting Best Practices for Lawyers, we examine a recent embezzlement case out of Portland involving an attorney’s escrow theft.

Former Portland Attorney Sentenced to More Than Eight Years in Federal Prison for Embezzling Client Funds

On January 9, 2023, a former Portland attorney was sentenced to 101 months in federal prison and ordered to pay more than $4.5 million in restitution to her victims for defrauding more than one hundred clients out of millions of dollars in insurance proceeds. The attorney used the money to fund a lavish lifestyle, including big game hunting trips to Africa and home renovations, instead of paying for health care for her clients’ injuries and ailments. FBI and other law enforcement agencies have emphasized the importance of transparency in accounting practices for attorneys, and the severe consequences that come with betraying the trust of clients.

Among other things:

According to court documents, between April 2011 and May 2019, [the attorney] used manipulation and deceit to systematically defraud at least 135 clients out of more than $3.8 million in insurance proceeds she held in trust on their behalf. To accomplish her scheme, [the attorney] stole her clients’ identities, forged insurance checks made payable to them, deposited client funds into her personal bank accounts, and continually lulled clients into a false sense of hope that they would receive compensation for their injuries. Many of [the attorney’s] victims were particularly vulnerable to her criminal behavior after sustaining serious brain and bodily injuries and never received the insurance payouts they were owed.
January 9, 2023 DOJ Press Release

This case serves as a reminder for lawyers to prioritize their clients’ best interests and maintain transparency in their accounting practices. Of course, a crucial part of our legal system depends on lawyers to keep clients’ trust and not abuse the trust placed in them by the public. This case in particular highlights the importance of proper handling of clients’ funds and the need for transparency in accounting practices to avoid any fraudulent activities.

What Should Clients Do To Avoid Becoming Victims Of Fraud?

Clients can take several steps to prevent becoming a victim of this type of fraud:

Research the attorney: Before hiring an attorney, it is important to do your research and ensure they have a good reputation and are in good standing with the state bar association.
Understand the process: Clients should have a clear understanding of the process of their case and the attorney’s role in handling their funds.
Keep records: Clients should keep records of all communication and transactions with their attorney, including copies of any checks or payments made to the attorney.
Monitor funds: Clients should regularly check their bank statements and monitor the attorney’s trust account to ensure that the funds are being used appropriately.
Ask Questions: Clients should not hesitate to ask their attorney questions about the handling of their funds and seek clarification if they have any concerns.
Report suspicious activity: If a client suspects any fraudulent activity, they should report it to the state bar association and the authorities immediately.

It is also important to be aware that there are protections that exist to help clients who have been victims of attorney theft. Clients can file a claim with the Lawyers’ Fund for Client Protection, which is a fund established in many states to reimburse clients who have been harmed by attorney theft. They can also file a complaint with the appropriate attorney grievance committee which investigates complaints of attorney misconduct.

Accounting Best Practices: Be Proactive About Managing Your Escrow And Operating Accounts

Escrow violations are the most frequent ground for attorney discipline in New York. An attorney can be disciplined for failing to spot misappropriations from their escrow accounts even where the account was managed by another law firm partner. A bounced check will automatically trigger a report to the Attorney Grievance Committee and, in almost every instance, will lead to an audit covering the preceding six months of records. Likewise, courts have imposed discipline even where no client is harmed when an attorney commingles personal funds with business funds. We can help you avoid these issues by working closely with you to create a plan for the correct type of supervision, and actively monitor your books to protect you from theft.

Please note that the information provided on this website is for general informational purposes only and is not intended as legal or tax advice. The information is subject to change, and it is important to consult a specialist before making any decisions. Law Ledgers provides accounting services to New York lawyers and law firms, including escrow protection, tax advice and bookkeeping administration. Contact us today for personalized support.