protecting your firm and your clients from scams, fraud ... · protecting your firm and your...

Professional Liability Fund presents

Protecting Your Firm and Your Clients from Scams, Fraud, and Financial Loss

Thursday, May 16, 2013

.5 Ethics and 1.75 General or Practical Skills Credits

Oregon State Bar Center Columbia Rooms A & B

16037 SW Upper Boones Ferry Road Tigard, Oregon 97224

*Credit Calculation:One (1) MCLE credit may be claimed for each sixty (60) minutes of actual participation. Do not include registration, introductions, business meetings and programs less than 30 minutes. MCLE credits may not be claimed for any activity that has not been accredited by the MCLE Administrator. If the program has not been accredited by the MCLE Administrator, you must submit a Group CLE Activity Accreditation application (See MCLE Form 2.) Caveat: If the actual program length is less than the credit hours approved, Bar members are responsible for making the appropriate adjustments in their compliance reports. Adjustments must also be made for late arrival, early departure or other periods of absence or non-participation.

06/10:MCLE1

Name: Bar Number:

Sponsor of CLE Activity:

Title of CLE Activity:

Date: Location:

❑ Activity has been accredited bythe Oregon State Bar for the following credit:

____ General or Pract. Skills

____ Prof Resp-Ethics

____ Access to Justice

____ Child Abuse Rep.

____ Practical Skills

____ Pers. Management

Assistance

❑ Full Credit. I attended the entire program and the total of authorized credits are:

____ General






Assistance

❑ Partial Credit. I attended _________ hours of the program and am entitled to the following credits*:

____ General






Assistance

MCLE FORM 1: Recordkeeping Form (Do Not Return This Form to the Bar)

Instructions:Pursuant to MCLE Rule 7.2, every active member shall maintain records of participation in accredited CLE activities. You may wish to use this form to record your CLE activities, attaching it to a copy of the program brochure or other information regarding the CLE activity.

Do not return this form to the Oregon State Bar. This is to be retained in your own MCLE file.

About Our Speakers Patty Breese Vice President, Senior Business Relationship Manager Wells Fargo

Patty is a Vice President and Senior Relationship Manager with the Business Banking Group at Wells Fargo Bank. Based in Tigard, Oregon, Patty helps bank clients evaluate credit needs and financing options with long and short term structures to facilitate payments, capital expenditures and working capital requirements. Patty also helps clients with depository and treasury management needs. Patty has worked for Wells Fargo Bank for 30 years. Patty has worked in retail banking as well as private banking. Odell Bushnell Treasury Management Wells Fargo Since 2003, Odell has consulted with Business Banking clients on solutions and best practices for their long term success. He has more than 15 years of technical solutions experience, filling parallel roles in similar industries, including Web Development, Treasury Management and Merchant Services. Odell has a double major in Computer Science and Business Management from Southern Oregon University. He is a member of the Association for Financial Professionals and serves on the Wild Life Board of the Oregon Zoo Foundation. Jeff Crawford Director of Administration / Excess Program Oregon State Bar Professional Liability Fund Jeff Crawford graduated from Lewis & Clark Law School, Portland, Oregon (J.D. 1992) and was admitted to the Oregon State Bar (1992) and the Washington State Bar (1993). He received a B.A. in history from Reed College in Portland in 1987. He attended the University of Kent in Canterbury, England and graduate school at the University of Washington in Seattle. Prior to law school, Mr. Crawford worked in the area of law office management for firms in Portland and Seattle. As a law student he clerked for the U.S. Attorney's Office in Portland and edited the law journal, International Legal Perspectives. Before joining the Professional Liability Fund in 1994, Mr. Crawford had a general practice in Stevenson, Washington. During his career, Mr. Crawford has written, taught, and consulted widely on the subjects of legal malpractice, underwriting, ethics, practice management, and technology. He co-authored A Guide to Setting Up and Running Your Law Office (1994). He served on the Multnomah Bar Association's Board of Directors and was the Chair of Multnomah Bar’s Group Insurance Committee for many years (the primary medical insurance purchasing pool for Oregon attorneys).

Mr. Crawford came to the Professional Liability Fund as a Practice Management Advisor in 1994 and in 1996 he began working as Director of Administration and Underwriting for the Fund. In addition to managing the day-to-day operations of the Fund, he oversees the Fund's Excess Program. Amber A. Hollister Oregon State Bar Deputy General Counsel Amber Hollister is the Oregon State Bar’s deputy general counsel. In her role, she regularly provides prospective ethics guidance to lawyers and serves as in-house counsel for the Bar. Prior to working for the Oregon State Bar, Ms. Hollister served as deputy general counsel to Governor Ted Kulongoski, and worked at Perkins Coie LLP in Portland. She clerked for U.S. District Court Judge Robert H. Whaley. Ms. Hollister earned her B.A. in Political Science from Reed College and her J.D. from the University of Washington School of Law. Ms. Hollister currently serves on the Oregon Women Lawyers Board of Directors and the MBA Professionalism Committee. Beverly Michaelis Practice Management Advisor Oregon State Bar Professional Liability Fund Beverly Michaelis received a B.S. degree with High Honors from Portland State University in 1982 and a J.D. from the Northwestern School of Law at Lewis & Clark College in 1986. She is a member of the Oregon State Bar, Oregon Trial Lawyers Association, and American Bar Association with over 25 years’ experience in the legal field as a lawyer and legal assistant. Ms. Michaelis provides confidential practice management assistance to Oregon attorneys to reduce their risk of malpractice claims, enhance their enjoyment of practicing law, and improve their client relationships through clear communication and efficient delivery of legal services. Ms. Michaelis practiced with a personal injury firm in Portland and provided pro bono legal services through the Volunteer Lawyers Project for over 8 years, receiving an Outstanding Volunteer Award in 1991. Before joining the Professional Liability Fund as a Practice Management Advisor in May 1996, she was Placement Director and Associate Executive Director of the Multnomah Bar Association for 8 years. She is a frequent speaker on a variety of practice management, technology, and malpractice avoidance topics for law-related organizations, including the Professional Liability Fund, the Oregon State Bar, the Oregon Trial Lawyers Association, the American Bar Association, and the Legal Talk Network. She is a contributing author to The Ethical Oregon Lawyer, published by the Oregon State Bar and A Guide to Setting Up and Running Your Law Office, Planning Ahead: A Guide to Protecting Your Clients’ Interests in the Event of Your Disability or Death, and A Guide to Setting Up and Using Your Lawyer Trust Account, published by the Professional Liability Fund. She is also a regular contributor of articles to the Oregon State Bar Bulletin, In Brief, and other

publications. Ms. Michaelis blogs at Oregon Law Practice Management and you can follow her on Twitter for breaking legal news, practice management tips, and the latest developments in technology. Emilee S. Preble Excess Program Lead Underwriter / Staff Attorney Oregon State Bar Professional Liability Fund Emilee Preble graduated from Indiana University School of Law in Indianapolis, Indiana (J.D. 2009) and was admitted to the Oregon State Bar in 2010. She received her B.A. in Telecommunications from Butler University (Indianapolis, IN) in 2005. While at Butler, she studied abroad at the University of Stirling in Scotland (2003). She also spent the summer of 2007 studying Islamic Law and International Trade at the American University in Cairo, Egypt. Before attending law school Ms. Preble was a data analyst for the Butler University Office of Admission and the Marketing Assistant for Clowes Memorial Hall (a prominent performing arts venue in Indianapolis, IN). While a law student she worked as an independent research analyst on a nation-wide ERISA litigation database. Ms. Preble joined the PLF in 2011 as the Administrator of the Excess Program and a Staff Attorney. In addition to her work with the Excess Program she also coordinates CLE events for the Loss Prevention Department, answers general PLF coverage questions, and coordinates many technology related projects for the PLF. Melanie M. Stigen Market Support Consultant Wells Fargo Melanie has been a part of the Wells Fargo team since May of 1993. As a Market Support Consultant, she assists Business Banking partners in Oregon with day to day operations, regulatory compliance, procedure/policy inquiries and risk management. In addition, she is dedicated to providing training, guidance and audit consultations. Melanie earned her Associate of Arts degree from Linn Benton Community College. Outside of Wells Fargo she has participated in numerous volunteer activities. Currently she is the Captain for Relay For Life, Letter Carrier Drive and the Treasure for Parent Teachers Club.

Agenda 9:00-9:45 How to Detect and Prevent Money Scams – Practical Tips and

Ethical Responsibilities under ORPC 1.15, ORPC 1.6, and ORS 9.460(3)

Presenters: Beverly Michaelis, Practice Management Advisor, Professional Liability Fund Amber Hollister, Assistant General Counsel, Oregon State Bar 9:45-10:15 Fraud, Cyber Liability, and Data Breach – Are You Covered or Not?

A discussion of activities covered under the Professional Liability Fund Primary and Excess Claims Made Plans; coverage alternatives. Presenters: Jeff Crawford, Professional Liability Fund Director of Administration and Underwriting Emilee Preble, Professional Liability Fund Excess Program Administrator 10:15-10:30 Break

10:30-11:30 Fraud Prevention Services

Commercial account holder rights and responsibilities; using Positive Pay, Payee Positive Pay, and Reverse Positive Pay to verify account transactions; limiting or preventing access to your business and trust accounts by blocking or filtering ACH transactions; using stop payments and other corrective actions. Presenter: Patty Breese, Vice President/Senior Business Relationship Manager, Wells Fargo

Protecting Your Firm and Your Clients from Scams, Fraud, and Financial Loss

Table of Contents

How to Detect and Prevent Money Scams – Practical Tips and Ethical Responsibilities PowerPoint Slides .....................................................................................................1 Related Articles .........................................................................................................6 Fraud, Cyber Liability, and Data Breach – Are You Covered or Not? PowerPoint Slides ................................................................................................... 23

How to Detect and Prevent Money Scams:

Practical Tips and Ethical ResponsibilitiesEthical Responsibilities

Amber Hollister – Oregon State BarBeverly Michaelis – Professional Liability Fund

The Overseas E-mail Solicitation

The Out-of-State Lawyer

1

The Web Site Contact Form Tell-Tale Signs of a Scam

1. Not specifically addressed

2. Short on details

3. Outside your practice area

4. Sender unknown

Tell-Tale Signs of a Scam

5. Originates from free service

6. Documents too simple

7. Inconsistent information

8. Pirated graphics

You Might Fall for a Scam If …

“I found you in a legal directory”

“Lawyer referral gave me your name”

The parties are in Oregon

Your concerns are placated

The Client Impersonator The Scam Caller

I’m sorry but your bar card has expired and yourand your membership dues must be paid immediately.

2

DO NOT1. Accept excuses regarding e-mail

2. Believe in miracle debt payments

3 Wire proceeds3. Wire proceeds

Verify facts

Reserve the right to hold funds

Wait for funds to clear

DO

Wait for funds to clear

Understand banking practices

Check Web site analytics

Call the Bar or PLF

Protect your information

DO

Protect your information

Know how to spot counterfeit checks

o www.scamwarners.com

o http://lawyerscam.blogpost.com

DO MONITOR SCAM SITES

o www.oregonconsumer.gov

o http://www.doj.state.or.us/consumer/pdf/consumer_protection_brochure.pdf

YES Deposit to Account of Payee

Bank of OregonNOFor Deposit OnlyJane AttorneyAccount 233-56678

Avoiding Counterfeit Checks

Words and numbers match

Account number is not shiny

Signature not traced

Check is not altered in any way

3

5/10/2013

Ethics Q & ADisbursing Uncollected Funds

Duty to safeguard

Overdraft notification

Verifying the Story

Do I need client consent to disclose the facts?

Lost IOLTA Checks

1. Duty to safeguard client property

2. Who pays the fee?

Help! My new client wants to wire funds into my IOLTA account…

Receiving Wire Transfers

If Client Funds are Taken…

4

5/10/2013

Duty of Confidentiality

Lawyer-client relationship

Report to law enforcement

Federal Trade Commission www.ftc.gov

Internet Crime Complaint Center

Reporting Scams

Internet Crime Complaint Centerwww.ic3.gov

National Fraud Information Centerwww.fraud.org

5

PROFESSIONAL LIABILITY FUNDwww.osbplf.org

THIS ISSUEOctober 2012

M a l p ra c t i ce Pr e v e n t i o n E d u ca t i o n f o r O r e g o n L a w y e r s

DISCLAIMERIN BRIEF includes claim prevention information that helps you to minimize the likelihood of being sued for legal malpractice. The material presented does not establish, report, or create the standard of care for attorneys. The articles do not represent a complete analysis of the topics presented, and readers should conduct their own appropriate research.

Issue 112

Over the last few years, many lawyers have fallen victim to various financial scams. These scams generally involve the lawyer being given a check for a large amount of money, often without having to do a lot of legal work. Sometimes the transaction is rushed, has very unusual facts, or involves sending money to a foreign country – but not always.

In a recent, highly sophisticated scam, the scammer posed as a client claiming to be owed money for remodeling a local high-end home. The scammer sent the lawyer the contract for remodeling services and asked the lawyer to collect the debt from the homeowner. The scam-mer stole the identity of several people, and, as a result, the names and addresses he used were verifiable on the Internet. After a series of com-munications that seemed legitimate, the debtor (a co-conspirator) agreed to pay the debt and gave the lawyer a cashier’s check. When the lawyer contacted the scammer and advised that the payment had been made, the lawyer was in-structed to deposit the check, take the lawyer’s fee, and send the rest to the scammer. The law-yer was unaware that the cashier’s check was counterfeit. The scammer and co-conspirator were counting on the lawyer depositing the phony check and issuing a check from the law-yer’s trust account BEFORE the counterfeit check was discovered. This would allow the scammer to get money from the lawyer’s trust account (i.e., money belonging to the lawyer’s legitimate clients) without giving the lawyer any money at all.

There are many ways you can protect yourself against these extremely hazardous scams, includ-ing:

Check Scams Become Even More Sophisticated and Generally Have No PLF Coverage

● Scrutinizing the form of retainer and pay-ment;

● Screening clients and cases carefully; ● Verifying that the instrument you are giv-

en is legitimate;● Verifying that the issuing financial institu-

tion is legitimate;● Asking your bank specific questions about

whether the check has cleared and wheth-er the account has, in fact, been funded. This goes beyond whether the funds are “available.” (See resource articles listed in the sidebar);

● Asking your bank to investigate the au-thenticity of the check, if there is any question whether it might be counterfeit;

● Waiting for the funds to be honored and collected by the issuing bank. Wait at least ten days before authorizing any disbursement from a lawyer trust ac-count if: (1) the transaction is with a new client or one you are unsure about; (2) the amount of the check is large compared with the extent of legal ser-vices provided; (3) the check is from an unknown third party; or (4) any aspect of the transaction raises your suspicion;

● Reading the resources listed in the side-bar; and

● Calling the PLF to discuss the situation with one of the claims attorneys.

If you fall for a scam of this nature, beware that it is most likely not covered by your PLF plan. A good rule of thumb is: If it seems too good to be true, if it involves easily earned

6

Avoid Check Scams

– Read These Resources!“Check Scams Continue to Plague Lawyers,” Beverly Michaelis, http://oregonlawpracticemanagement.com, February 28, 2012

“Check Scams Becoming More Sophisticated,” Sheila Blackford, In Brief, November 2010

“Scammers Take Aim at Lawyers: How to Avoid Becoming the Next Victim,” Helen Hierschbiel, Oregon State Bar Bulletin, May 2010

“Check Scams Target Lawyers,” Kimi Nam, In Brief, November 2008

“Changes to PLF Claims Made Plan [New Exclusion for Check Scams],” Jeff Crawford, In Brief, December 2011

“Avoid a Claim” Blog, Dan Pinnington, http://avoidaclaim.com, practicePRO

money, and/or if anything about the situation seems odd – BEWARE and CAREFULLY investigate. Remember the definition of “What is a Covered Activity” under Section III of the PLF Coverage Plan excludes coverage for these administrative activities.

Our thanks to the PLF claims attorneys and the PLF practice management advisors for their assistance with this alert.

7

Don’t Get Scammed! Consider Fraud Prevention Services

If you are concerned about fraudulent activity on your IOLTA or business bank account, ask your bank about fraud prevention services like Positive Pay and Automated Clearing House (ACH) “block and filter” for automated transactions.

Do Checks Presented for Payment Match the Checks You Wrote? With Positive Pay, the bank customer transmits electronic files of the checks it issues to the bank. The bank then compares the checks presented for payment with the electronic file sent by the bank customer. If a check presented for payment does not match, the customer is notified immediately.

Has a Payee’s Name Been Altered? Payee Positive Pay provides additional protection by helping bank customers detect and prevent alteration of payee names on checks. The customer provides the bank with a list of approved payees. Deposited checks and checks presented at the teller line are compared and verified against the approved payee list. The customer is notified of any non-matching payee names. Reverse Positive Pay (RPP) is also available. With RPP, the bank generates an electronic file of all items paid on a daily basis. The customer receives the file and compares the paid items with the customer’s own records. In the event of a discrepancy, the customer can inform the bank in time to make a return decision, i.e., the customer can instruct the bank to dishonor the check.

Do You Want to Block or Control Automated Transactions Posted to Your Account? ACH block and filter services provide this protection. With “block and filter” the customer can:

Set criteria to authorize ACH debits or credits to the customer’s account Exclude specified ACH debits or credits Block all ACH debits Block all ACH credits Block both ACH debits and credits

Are Fraud Prevention Services Right for Your Law Firm? When assessing whether fraud prevention services make sense for your firm, consider the following:

Do you or a trusted, authorized staff person have the time to generate and reviewelectronic reports for potential non-matching transactions? (Unauthorized ACHtransactions must be challenged within 24 hours.)

Can your system generate the electronic files needed for transaction comparison? Ifnot, does your bank offer compatible software, and at what cost?

Are you willing to pay for fraud prevention services? Banks offering Positive Pay, PayeePositive Pay, Reverse Positive Pay, or equivalent services generally charge pertransaction or item presented.

At the very least, it is worth talking to your banker and reviewing the services your bank offers.

Beverly Michaelis Practice Management Advisor Posted www.osbplf.org > News - Feburary 2013

8

Oregon State Bar Bulletin — JUNE 2006 Bar Counsel

Waiting for 'Go' Dough: A primer on disbursing client funds By Sylvia Stevens One of the frustrating aspects of trying to offer assistance to lawyers about compliance with the Oregon Rules of Professional Conduct is, on occasion, not having an answer or even a suggestion about where the lawyer might look for an answer. A question that has put me in that situation a number of times over the years is "How soon can I disburse settlement funds to my client?" While Oregon RPC 1.15-1 exhorts us to safeguard client funds, it offers no instructions on how to actually do it, beyond the basics of segregation, notification, prompt delivery and accounting on request. Cash settlements are rare; most settlement funds arrive in a lawyer’s office in the form of a check or draft. As we all learned in law school, a check is only a "promise to pay." Until the payor’s funds have actually arrived at the payee’s bank (as "collected funds"), the settlement has not been paid. Accordingly, if a lawyer disburses the settlement funds too soon, the disbursement will overdraw the trust account or draw against the funds of some other client. Neither is a desirable outcome. Years ago when I was in private practice, my firm had a rigorously-adhered-to policy that no disbursement was made until at least 10 business days after the check was deposited. Presumably, that was the typical amount of time it would take for the deposit to become "collected funds" in the firm’s trust account. Based on purely anecdotal information, I believed that this was common practice in the legal community. Moreover, it made sense to me. As a result, I suggested to lawyers who asked how soon they could disburse funds that they should wait 10 business days unless they could get satisfactory assurances from their friendly banker that a shorter time was safe. Of course, in the real world (where, as I am constantly reminded, I don’t work), clients don’t want to wait 10 business days for their money. It has been a long time coming, they need the money and waiting just isn’t in their plans. Lawyers are caught between their duty of prompt delivery and their obligation to ensure that they don’t draw against uncollected funds or against the funds of other clients.1 This issue was highlighted recently in an unsatisfying discussion with a lawyer who wanted assurance that he could disburse his client’s funds immediately, and who suggested that the bar should craft a rule creating a "safe-harbor" for lawyers in this situation. I suggested that we already have a rule, Oregon RPC 1.15-1, and that lawyers have an obligation to familiarize themselves to some extent with banking law. Taking my own advice to heart, a few minutes of noodling on the Internet turned up "A Guide to Regulation CC Compliance" on the Federal Reserve’s website. Although designed to

9

help financial institutions comply their legal obligations, it is written in understandable language and is a good primer on "funds availability" rules.2 A caveat is in order here. I am not and never have been a bank lawyer, and I profess no expertise in what I am confident is a more complex area than the aforementioned guide suggests. My purpose here is only to share some very basic information. Certainly, there is more to this subject than what you will read here and this is not intended as and shouldn’t be taken as authority on the topic. If you have questions about any of this information, I recommend further research or inquiry of your local banker. Regulation CC sets out the maximum time3 a financial institution has for making funds available to customers, measured in "business days" after the "banking day" on which the deposit is made. Business days are Monday through Friday (excluding federal holidays); a banking day is any business day that the institution is open for substantially all of its activities. Note that Saturday is not a business day, even though it may be a banking day. The following deposits have "next-day availability," meaning that the funds must be available on the first business day following the banking day of deposit: 1. Cash deposited in person; 2. Electronic payments deposited into an account; 3. U.S. Treasury checks; 4. U.S. Postal Service money orders deposited into an account of the payee; 5. Federal Reserve Bank or Federal Home Loan Bank checks into an account of the payee; 6. State or local government checks deposited into an institution in the payor’s state; 7. Cashier’s, certified or teller’s check deposited into an account of the payee; 8. Checks drawn upon the same institution if the branches involved are in the same state or check-processing region. Next-day availability does not apply to ATM deposits of types 1, 4, 5, 6 or 7. Funds from those deposits must be available on the second business day if the ATM is owned by the depositor’s institution, otherwise by the fifth business day. For checks not listed above, the availability schedule is determined by whether the check is "local" or "nonlocal." A check is "local" if the paying institution and the depositor’s institution are in the same check-processing region; funds from local checks must be made available by the second business day following the banking day of deposit. If the paying institution and the depositor institution are not in the same check-processing region, the check is "nonlocal," and funds must be made available by the fifth business day.4 One other rule worth noting: the first $100 of any deposit not already subject to "next day availability" must be available by the first business day after deposit. In other words, if you deposit a nonlocal check, the first $100 of the funds must be available the next business day, but the remainder need not be made available until the fifth business day.

10

Notwithstanding the next-day, two-day and five-day availability rules, institutions may delay for "a reasonable period of time" the availability of funds from certain types of deposits. A reasonable period is generally one additional business day (making a total of two) for checks drawn on the same institution, five additional business days (total of seven) for local checks, and six additional business days (total of 11) for nonlocal checks. An institution may impose longer exception holds, but has the burden of proving that the longer periods are reasonable. Customers who make deposits in person must be notified at the time of deposit that the funds availability will be delayed; the notice must include an explanation for the delay and the date on which the funds will be available. If the deposit is not made in person, the notice and delay information must be mailed to the customer not later than the first business day after the banking day of the deposit. The delay provisions of Regulation CC do not apply to funds from cash or electronic deposits. An institution may delay the availability of those funds in the following cases: Large deposits (although the first $5,000 must be available according to the regular

availability policy of the institution). Redeposited checks (unless the check was returned for a missing endorsement or because

it was post-dated and the deficiencies have been corrected). Deposits to accounts that are repeatedly overdrawn (i.e., the account had a negative

balance on six banking days during the last six months or was overdrawn $5,000 or more on two banking days during the last six months).

Reasonable cause to doubt collectibility (i.e., post-dated checks, checks more than six months old).

Checks deposited during emergencies beyond the institution’s control (may be held until the normal check processing is resumed).

New customer accounts open less than 30 days (next-day availability applies only to cash, electronic deposits and the first $5,000 of any next-day item; the remaining amount of next-day items must be available by the ninth business day).

It is important to remember that funds availability rules and policies only govern when an institution must allow withdrawal of deposited funds. The availability of funds does not guarantee that the deposited item ultimately will be honored on presentment to the paying bank. The institution on which a check is drawn has 48 hours to dishonor any instrument presented for payment. If the depositor’s institution makes funds available before the payor institution has fully processed the check, there is yet a possibility that the check will be dishonored and the amounts charged back against the lawyer’s trust account. All of this may be a long way of saying that my old "10-day" rule wasn’t so outdated after all, especially with nonlocal checks or those that present other collectibility issues. Although the funds availability rules tell us the earliest date that funds can be withdrawn after deposit, they don’t provide any guarantee that the check will actually be honored. Moreover, the funds availability rules govern banks, not lawyers managing their trust accounts. The "prompt delivery" requirement in Oregon RPC 1.15-1(d) does not mean that funds must be delivered before the funds are, in fact, collected. Lawyers risk

11

violating the rule if funds are disbursed when they are available under Regulation CC but the check is subsequently dishonored. However, using the Regulation CC timelines will definitely reduce that risk. A banker colleague points out that the only way to be absolutely certain that a check is good is to confirm with the paying bank. She admits, however, that bankers consider such requests to be an administrative "nightmare" and will generally only do it only when they feel they are vulnerable to a loss, such as when dealing with flaky clients or suspicious activity. She recommends the 10-business day rule as a good general practice except for funds that are received by wire transfer. As with many disputes that arise between clients and lawyers, education and better communication may be the most important deterrent. Lawyers should inform clients early in the representation about the lawyer’s own funds availability rule so that when funds are received, the client will be aware of and understand the reason for the wait time. Understanding the applicable banking regulations, establishing one’s own policy and informing clients in advance are simple steps to assure compliance with our obligations as fiduciaries of our client’s funds. Endnotes 1. This may be a more acute problem in real estate transactions closed by lawyers, which is apparently a common practice in many jurisdictions including South Carolina, North Carolina, Georgia and Florida. Those jurisdictions have either adopted or are considering the adoption of "good funds" laws or rules of professional conduct which purport to limit disbursement to collected or credited funds. The laws and rules are riddled with exceptions, however, which seem to boil down to allowing disbursement when the lawyer has a reasonable belief that the check in question is virtually certain to be honored on presentment. 2. To read the real thing, see 12 USC §4001 to 4010 (the Expedited Funds Availability Act), 12 USC §5001 to 5018 (the Check 21 Act), and 12 CFR §229. 3. Financial institutions may made funds available sooner if they choose; Regulation CC also allows an institution to extend the time within established limits on a case-by-case basis. 4. There are exceptions to the two and five day availability rules and additional information can be found at section 229.12 of Regulation CC. REPRINTED WITH PERMISSION

12

Oregon State Bar Bulletin — MAY 2010

Bar Counsel Scammers Take Aim at Lawyers: How to Avoid Becoming the Next Victim

By Helen Hierschbiel

In today’s economy, the promise of lucrative, easy work is a powerful and enticing hook that can cause some lawyers to abandon their usual cautious skepticism and be drawn into what turns out to be nothing more than a con. Lawyers beware. Your clients are not the only ones who may be targeted by con artists. E-mail scams that target lawyers have been the topic of at least two OSB Bulletin articles in the last couple of years.1 So why are we writing about this topic again? First, the techniques being used to deprive lawyers of their hard-earned money have mutated and are in some cases becoming more difficult to identify. Second, the bar’s ethics hotline receives regular calls from lawyers who are unfamiliar with the scams. The nature of the scams typically involves depositing funds into a lawyer’s trust account, and a reminder of lawyer trust account obligations is always a good idea. Further, lawyers are often uncertain of whether they can report the scams to law enforcement without violating their obligation to maintain client confidentiality. Lawyers should know that they can — and should. Recent Trends The first scams we heard about went something like this: The lawyer receives an e-mail from a representative of a distant company looking for help collecting a debt owed by a customer located here in Oregon. The lawyer confirms that both companies exist and sends a retainer agreement, which the client signs and promptly returns. Then, either with or without the issuance of a demand letter, a cashier’s check for some six-figure amount shows up in the lawyer’s mailbox. The check is usually drawn on a large, well-known bank and looks like the real thing. So, the lawyer deposits the check into the trust account and, as directed, wires the funds, minus the lawyer’s fee, to the client. Problems arise, however, when lawyers do not wait until the check has fully cleared. Wanting to accommodate their long-standing good customers, banks may tell lawyers that the check has cleared. However, if this assurance comes within a day or two of deposit, it usually means only that the funds are available for use. It does not necessarily mean the check has completed the clearing process such that the lawyer’s trust account now has “collected funds.” Clearing the bank on which the check is drawn can take several additional business days and sometimes a couple of weeks depending on the nature of the check. Because fake checks may be printed under a name that does not match the nine-digit identification number for the bank, processing can be further delayed. Meanwhile, clients become impatient. Lawyers who succumb to their clients’ pleas for a quick transfer of money, however, become the scammers’ next victims.

13

A more recent twist on the above scenario is when the request for representation comes from someone posing as an out-of-state lawyer who represents a foreign corporation.2 Some scames have even reclaimed law firms’ defunct websites or created websites using existing lawyers’ names. By assuming the identity of lawyers’ out-of-state colleagues, scam artists hope to boost their credibility with their targeted victims.3 The fake check scam has also found its way into other areas of practice. Lawyers who practice family law and real estate law have more recently been the recipients of e-mail requests for representation that turn out to be fakes. For example, some e-mails request help in collecting a judgment from a “collaborative law agreement” for a divorce. The creditor spouse typically has relocated to or is visiting another country and is trying to collect a six-figure judgment from her debtor ex-husband in “your jurisdiction.” A lawyer in Washington recently fell victim to such a scam.4

The Oregon State Bar is aware of only one Oregon lawyer who lost money to one of these schemes. Members of some other state bars have not been so lucky. According to a July 2009 California Bar Journal article, California lawyers have lost from $75,000 to $2 million. A Texas lawyer was scammed out of $182,500, and has sued the bank alleging that it negligently misrepresented to him that the check had cleared.5 A lawyer in Georgia was sued by a bank for reimbursement of nearly $200,000 that the lawyer wired from a fraudulent check deposit to the scammer’s bank account in Korea.6 The victims are not always naïve newer lawyers, but often well-respected, experienced lawyers. Avoiding the Traps The first thing lawyers can do to avoid becoming a victim is be aware that scammers are targeting lawyers. Be particularly cautious when receiving unsolicited, unexplained e-mails from foreign countries. Remember that the scam artists are likely to use the names of actual companies, attorneys and banks. Thus, lawyers should independently verify the names and contact information provided to them and be wary of individuals who are reluctant to provide contact information other than an e-mail address or phone number. Lawyers might also check out websites that track Internet scams, such as http://www.scamwarners.com and http://lawyerscam.blogspot.com. Second, upon receipt of a check, consider whether it might be counterfeit. The Internet Crime Complaint Center recommends that lawyers inspect the check carefully to ensure:

The amount of the check matches in figures and words; The account number is not shiny in appearance; The drawer’s signature is not traced; Additions, deletions or other

alterations have not been made to the check. In addition, obtain the bank’s telephone number from an independent reliable source and contact the financial institution on which the check was drawn to ensure legitimacy.

14

http://www.scamwarners.com/

http://lawyerscam.blogspot.com/

Finally, lawyers should not disburse deposited funds until the bank on which the check is drawn clears the check. Financial institutions and lawyers are supposed to notify disciplinary counsel’s office of all trust account overdrafts. See RPC 1.15-2(i) and (l). The overdrafts are then subject to investigation. While we are not aware of any lawyers having been disciplined as a result of falling prey to one of these fake check e-mail scams, failure to properly safeguard client funds may implicate the rules of professional conduct. See RPC 1.15-1. If lawyers carefully follow both the letter and spirit of the trust account rules, they are less likely to become victims of the scams. One of the easiest things lawyers can do in this regard is to implement protocols for waiting a period of time before disbursing funds from trust accounts. See Stevens, “Waiting for ‘Go Dough,’” OSB Bulletin (June 2006). Understanding how exactly checks are processed and money is moved through financial institutions also goes a long way to avoiding fraud. See http://www.occ.treas.gov/ftp/bulletin/2007-2.html. What to Do Lawyers who have identified an e-mail or check as part of a scam often ask whether they may report the matter to law enforcement. The concern is that lawyers may owe a duty of confidentiality to these purported “clients.” However, the duty imposed by RPC 1.6 and ORS 9.460(3) applies only to actual or prospective clients. If the person contacting the lawyer has no real intention of creating a lawyer-client relationship, but is only interested in victimizing the lawyer, then the person is not an actual client and the duty of confidentiality does not apply. In the absence of such a duty, there would seem to be no reason why lawyers who are the targets of these scams could not cooperate with law enforcement authorities in sharing whatever information they have about the perpetrator of the fraudulent scheme. Before doing so, however, lawyers should take care to ensure that they are, in fact, dealing with a scam. Lawyers may report fake check scams and internet fraud to:

Federal Trade Commission http://www.ftc.gove Internet Crime Complaint Center http://www.ic3.gov National Fraud Information Center http://www.fraud.org

Endnotes 1 DuBoff and King, Legal Practice Tips: “Lawyers Beware,” OSB Bulletin (November 2008); Stevens, “Trust Account Lessons: Cautionary Notes,” OSB Bulletin (July 2008). 2 Curtis, “E-mail Scams Continue to Successfully Target Lawyers,” California Bar Journal (July 2009).

3 Scam artists have been known to assume attorney names to perpetrate fraud on non-lawyers as well. See, e.g. Blankenship, “Swindlers Pretending to be Lawyers Are Back,” The Florida Bar News (March 15, 2009). There is little that the bar can do in these cases of identity theft. While it is a good idea for lawyers to let the bar know that they have been the victim of identity theft, only law enforcement agencies can effectively pursue and punish the perpetrators. 4 Blankenship, “Swindlers Hit Lawyers With Sophisticated Schemes,” Florida Bar News (Dec. 15, 2009) 5 Jeffreys, “Lawyers Warned to Be Wary of Client E-Mail Scams,” http://www.law.com (Jan. 26, 2009). 6 Nolan, “E-Mail Scam Targets Lawyers, Hooks Victims,” Connecticut Law Tribune (Nov. 3, 2008). REPRINTED WITH PERMISSION

15

http://www.occ.treas.gov/ftp/bulletin/2007-2.html

http://www.ftc.gove/

http://www.ic3.gov/

http://www.fraud.org/

http://www.law.com/

Scam Alert: Counterfeit Check Scam Targeting Lawyers We have new reports this week that Oregon lawyers are being targeted by scammers. You can find details on the FBI’s website in a post entitled “U.S. Law Firms Continue to be the Target of Counterfeit Check Scheme.” The post also includes a link to a government site where you can report an attempted scam email. One of the easiest things lawyers can do to safeguard funds and ensure they do not become the victim of the check scams is to implement protocols for waiting a period of time before disbursing funds from trust accounts. Waiting 10 business days is still a good rule of thumb for most funds received. Understand that just because your bank makes funds available for withdrawal does not mean that your bank has actually collected the funds from the issuing bank. In other words, just because your bank allows you to make a withdrawal doesn't mean that they can't come back later and demand return of the funds because the check was dishonored by the issuing bank. To be certain about whether the funds have been collected, call the paying bank. Also, understanding how exactly checks are processed and money is moved through financial institutions goes a long way to avoiding fraud. See http://www.occ.treas.gov/ftp/bulletin/2007-2.html. From May 2010 Bar Counsel Column: Scammers Take Aim at Lawyers

The first thing lawyers can do to avoid becoming a victim is be aware that scammers are targeting lawyers. Be particularly cautious when receiving unsolicited, unexplained e-mails from foreign countries. Remember that the scam artists are likely to use the names of actual companies, attorneys and banks. Thus, lawyers should independently verify the names and contact information provided to them and be wary of individuals who are reluctant to provide contact information other than an e-mail address or phone number. Lawyers might also check out websites that track internet scams, such as www.scamwarners.com and http://lawyerscam.blogspot.com. Second, upon receipt of a check, consider whether it might be counterfeit. The Internet Crime Complaint Center recommends that lawyers inspect the check carefully to ensure:

• The amount of the check matches in figures and words • The account number is not shiny in appearance • The drawer's signature is not traced • Additions, deletions or other alterations have not been made to the check

In addition, obtain the bank's telephone number from an independent reliable source and contact the financial institution on which the check was drawn to ensure legitimacy. Finally, lawyers should not disburse deposited funds until the bank on which the check is drawn clears the check. From June 2010 Bar Bulletin: Scam Update:

Do not assume that an e-mail is legitimate business simply because the sender claims to have been referred to you by someone you know. (And if you receive questionable requests for

16

http://www.fbi.gov/scams-safety/e-scams/

http://www.fbi.gov/scams-safety/e-scams/

http://www.occ.treas.gov/ftp/bulletin/2007-2.html

referrals, don't sic these scammers on your colleagues.) Instead, if it smells fishy, inquire further. In addition to the resources cited in the May article, local bar associations and other professional organization list serves (e.g. OTLA, OWLS) may be helpful in determining whether a particular e-mail is likely to be a fraud. Lawyers might also check with the Oregon Department of Justice Financial Fraud Division to determine whether the e-mail they received mirrors scams reported by others. Because these matters typically involve activity outside of Oregon's jurisdiction, DOJ refers them to the Secret Service. The Portland Secret Service office can be reached by calling 503-326-2162. Source: http://www.osbar.org/barnews/scamalert.html REPRINTED WITH PERMISSION

17

http://www.osbar.org/barnews/scamalert.html

PROFESSIONAL LIABILITY FUNDwww.osbplf.org

THIS ISSUEJanuary 2013

M a l p ra c t i ce Pr e v e n t i o n E d u ca t i o n f o r O r e g o n L a w y e r s

DISCLAIMERIN BRIEF includes claim prevention information that helps you to minimize the likelihood of being sued for legal malpractice. The material presented does not establish, report, or create the standard of care for attorneys. The articles do not represent a complete analysis of the topics presented, and readers should conduct their own appropriate research.

Issue 120

Oregon lawyers are reporting new, more aggressive twists to the ongoing check scam epidemic. Here are the latest variations:

Phake Phone Calls and Phake Money

Taking a cue from overseas e -mail scam-mers, local thieves have called lawyers’ offices posing as potential clients or perhaps bar staff. While the story may vary, the goal is always the same: con the lawyer out of money. The “client” or “opposing party” presents a counterfeit check or money order. Once you deposit the funds, the “client” begins leaning on you to wire proceeds. NEVER WIRE MONEY under these circumstanc-es. Follow the advice of the FTC (www.ftc.gov/b c p / e d u / m i c r o s i t e s / m o n e y m a t t e r s / scam-watch-wiring-money.shtml). Wiring money is like handing someone cash.

How can you spot a phake client caller? Take the time to probe potential new clients. Be wary of inconsistencies and the failure to provide specifics. Consider verify-ing the client’s story, at least in part. I know this involves precious time, but you may thank yourself later. Databases like Accurint (www.accurint.com) and Merlin Information Services (www.merlindata.com) help detect fraud and verify identities.

Be wary of giving personal informa-tion over the phone to “bar staff”. Bar associations do not normally call members to collect dues over the phone, but several scam-mers have tried this tack:

● Caller poses as an investigator with the state bar and threatens to arrest his victim if she does not immediately pay $250 toward an over-

due loan.

● Caller telephones law firm saying she is “from the bar association” and the attorney’s bar card is expiring or membership dues must be paid immediately.

Remember, you can always take down in-formation, hang up, then initiate your own call to the bar association (or any other business a suspicious caller purports to represent).

Phake Letters and Phake Money

The only difference between an e-mail scam and a scam by mail is the method used to contact the lawyer/potential fraud victim. Watch out for this type of scenario:

A “client” out of the area writes a letter ask-ing for help collecting a debt from an Oregon-based company. The debtor company is real. The “client” may even represent that he or she was referred to you by a legitimate referral source. You bite and send out a retainer agreement sight unseen. Soon you receive a check from the al-leged debtor. Your “client” instructs you to de-posit the check and to wire the funds, minus all fees, to an overseas bank account. Weeks later you learn the check is counterfeit.

Phaking Your Trust AccountsLawyers have long been worried about ex-

posing or providing their IOLTA routing and bank account numbers to untrusted, unknown individuals. Here is a scenario recently report-ed to us:

Lawyer meets with new “client” who pres-

Scam Update: New Ways They Can Get Your Money

18

ents a retainer check. Lawyer waits for check to clear before beginning work on the “client’s” case, but soon after presen-tation, “client’s” check bounces. Lawyer thinks: no harm was done since I did no work on the matter. The following month, lawyer discovers fake checks written on his trust account and cashed out of state. Lawyer surmises the scammer was his new “client” whose retainer check bounced the month before.

What went wrong. When the lawyer deposited the “client’s” retainer, he used an endorsement stamp with the name of his bank and his IOLTA account number. Using this information, the scammer created counterfeit checks. (Check images from banks are easy to find on the Internet, as are bank routing numbers. The scammer acquired the name of the bank and the lawyer’s account number from the endorse-ment stamp on the reverse side of his NSF check.)

What you should do now. The lawyer who reported this scam recommends the following:

● Stop using your endorsement stamp if it contains your account number.

● Order a new endorsement stamp that reads simply “DEPOSIT TO ACCOUNT OF PAYEE.” If you endorse checks by hand, follow the same advice.

● Know your rights (or lack thereof). The lawyer who fell victim to this scam succeeded in getting his bank to re-verse the charges, but only because his account agreement was ambiguous. Subsequently, he received a change in terms informing him that the bank is not responsible for fraudulent check charges drawn on commercial accounts. (However, fraudulent electronic charges are covered by federal law and can be objected to by commercial account holders.)

● Consider alternative payment methods. The lawyer who was scammed no longer issues trust account checks to unknown or untrusted individuals or entities. He has chosen to use electronic bank payments to send retainer refunds or settlement checks. [Author’s note: If you decide to issue a refund via electronic payment under the circumstances de-scribed, the proceeds must be drawn from the lawyer trust account. Do not transfer funds belonging to a client from your trust account into your general account in order to issue a refund. Funds belonging to a client must be held in trust and distributed from the trust account. Similarly, settlement proceeds belong in the lawyer trust account. Settlements gen-erally arrive in the form of a check or draft made payable to lawyer and client. Because the check or draft belongs in part to the client, the funds are properly deposited into the trust account and then distributed. Do not transfer the client’s share of the settlement from your trust account into your gen-eral account to issue a settlement distribution to the client.] If you are not comfortable using BillPay and are leery about

issuing a check on your IOLTA account, purchase a cashier’s check payable to the client. Simply write a check from the trust account payable to your bank for the net amount due the client. Cover the cost of obtaining the cashier’s check with proceeds from your general account. Because the check the client receives is drawn on the bank, not on your IOLTA ac-count, no identifying information is provided. (This may be a better alternative than BillPay, since not all individuals or en-tities can receive electronic payments. If the bank must issue a check through BillPay, it likely will contain your IOLTA account number.)

● Be especially wary of cashier’s checks drawn on banks from outside the United States. Some banks recommend that businesses reject such checks and require instead that over-seas clients or payors wire funds.

BeverlyMichaelis

PlFPracticeManageMentadvisor

Avoid Check Scams

– Read These Resources!“Check Scams Become Even More Sophisticated and Generally Have No PLF Coverage”, In Brief, October 2012

“Check Scams Continue to Plague Lawyers,” Beverly Michaelis, http://oregonlawpracticemanagement.com, February 28, 2012

“Changes to PLF Claims Made Plan [New Exclusion for Check Scams],” Jeff Crawford, In Brief, December 2011

“Check Scams Becoming More Sophisticated,” Sheila Blackford, In Brief, November 2010

“Scammers Take Aim at Lawyers: How to Avoid Becoming the Next Victim,” Helen Hierschbiel, Oregon State Bar Bulletin, May 2010 (www.osbar.org)

“Check Scams Target Lawyers,” Kimi Nam, In Brief, November 2008

“Avoid a Claim” Blog, Dan Pinnington, http://avoidaclaim.com, practicePRO

In Brief articles are available at www.osbplf.org.

19

Oregon State Bar Bulletin — JULY 2008

Bar Counsel

Trust Account Lessons Cautionary Notes

By Sylvia Stevens The Florida Supreme Court recently issued an opinion that makes two important points about lawyer trust accounts. The first point is that lawyer trust accounts enjoy no special status with regard to garnishment law. Funds in a lawyer trust account are, by definition, client funds and are subject to claims of the client’s creditors.1 At issue in Arnold, Matheny and Egan, PA v. First American Holdings, Inc., 2008 LEXIS 755 (May 1, 2008) was whether a law firm had a duty to stop payment on a trust check that had been written but not presented to its bank prior to the firm’s receipt of a writ of garnishment. The facts were simple. On June 21, 2002, a law firm received settlement proceeds and deposited the funds into its trust account. On the same day, the firm issued and hand-delivered to its client a check for the client’s share of the proceeds. On June 25, a creditor of the client (the bank) served a writ of garnishment on the law firm, which responded that it held no funds of the client/debtor. Upon discovering that the trust check had not been presented to the law firm’s bank for payment until June 28, the creditor bank filed an action seeking to hold the law firm responsible for the funds represented by the trust check issued to the client. After thoroughly examining the statutory garnishment scheme and applicable provisions of the Uniform Commercial Code, the court concluded that funds remain in the possession and control of the issuer of a check until the check has been presented to the issuer’s bank for payment, and therefore, a garnishee has a statutory duty to stop payment on a check that has not yet been presented for payment.2 The court found no basis in law for — and thus rejected the law firm’s arguments that — lawyer trust accounts should not be subject to the stop payment obligation and that lawyer trust account checks are analogous to certified or cashiers’ checks. The court also considered Florida’s equivalent to RPC 1.15, which requires lawyers to protect funds subject to non-frivolous third party claims from wrongful interference by the client: "[t]he special relationship between an attorney and his or her client is an insufficient basis upon which to circumvent the requirements of the garnishment statute." The court held that the law firm, as any garnishee, had a duty to inquire of its bank within a reasonable time after being served with the writ of garnishment to determine whether the check had been presented for payment and, if not, issue a stop payment order. The Florida decision is a valuable reminder that money in a trust account remains within the lawyer’s "possession and control" for garnishment purposes notwithstanding the issuance of a check that has not yet been presented for payment. While we have no Oregon authority precisely on this point, the Florida opinion sounds a cautionary note.

20

The Florida case is also an important reminder on another, related, point: a check is not "payment" until it has been presented and honored. A check is merely a promise to pay upon presentment at the bank on which it was drawn. Why is this important, outside the garnishment context? As discussed in a prior article, a lawyer who deposits a check into trust on behalf of Client A and disburses to Client A (or to others at Client A’s instructions) before the funds are "collected," (i.e., before the drawee bank has paid the check and the funds have been actually received by the lawyer’s bank) risks misusing another client’s funds or overdrawing the account. The importance of the distinction between a check and collected funds was demonstrated recently when two local lawyers were targeted in separate Internet check fraud scams in the same week. In one case, the lawyer’s familiarity with the law of negotiable instruments, coupled with some natural skepticism and prudent trust account practice, prevented him from being a victim of the scam. The other lawyer wasn’t so lucky. What our lawyers experienced was a new variant on what is known as the "Nigerian letter scam," in which the victim is contacted by e-mail and asked to advance funds in exchange for the opportunity to share in a large fortune that will be secured with the advanced funds. In the fake check scam, the victim is asked to assist with a funds transfer by depositing a check into her own bank account, retaining some for herself as compensation for her help, then transferring the remainder to another account by wire or otherwise. Unfortunately, the original check turns out to be fake and the victim is responsible for reimbursing her bank for the uncollected funds that were distributed. In one of the cases mentioned above, the lawyer received an e-mail that purported to be from an employee (Sally) of a Chinese toy manufacturer, requesting legal representation to collect a commercial debt owed by a local toy distributor. The lawyer determined from the Internet that there was a Chinese company of that name and that it had an employee named Sally. He also confirmed that the named debtor was an actual local business. E-mails were exchanged to confirm the engagement, including the execution of a fee agreement. Shortly after, Sally told the lawyer to hold off taking any action, as the debtor had agreed to make payment and would be forwarding a large cashiers’ check to the lawyer. Sally instructed the lawyer that he should deposit the check upon receipt, pay himself the agreed fee, then immediately wire the balance to a bank account in Korea. The lawyer deposited the check into his trust account, but in accordance with his firm’s standard procedures, he waited to disburse any funds until his bank confirmed the check had cleared. He also asked his bank to investigate the legitimacy of the check. Initially, all reports indicated that the check was genuine. Within a few days, however, the lawyer was informed by his bank that the check was a forgery, albeit a very good one. Because the lawyer hadn’t disbursed any of the funds from the phony check, no funds of the lawyer or his clients were put at risk. The other lawyer was taken in by a very similar scam. In that case, however, the lawyer instructed his bank to wire the net funds (after deducting his fee) right away, without waiting to ensure he had collected funds. It is not clear whether he believed a cashiers’

21

check was the equivalent of cash or whether he was under the impression that the bank would not wire from uncollected funds. It also appears he had no standard protocol for waiting a set period of time before disbursing funds from trust. (For more on this point, see "Waiting for ‘Go Dough’," OSB Bulletin, June 2006 here). When his bank discovered that the cashiers’ check was fake, the lawyer’s trust account was debited and the lawyer had to cover the shortfall. The lawyer was unable to recall the wired funds, which had already been deposited in the designated sender’s account; it also appears that none of the intermediary banks have any liability for accepting the fake check. When I related these check fraud tales to colleagues, the most frequent response was that lawyers should know better. But the reality is that we don’t. It doesn’t help that scammers rely on the fundamental honesty and good faith of their victims; lawyers may be particularly vulnerable because we are trained to help. One hopes that lawyers aren’t a new target group for scam artists, but in the event we are, the National Consumers’ League3 offers some helpful tips for avoiding fake check scams: There are many variations of the fake check scam. Fake check scammers hunt for victims. They often claim to be in another country. They tell you to wire money to them after you’ve deposited the check. The checks are fake but they look real. You don’t have to wait long to use the money, but that doesn’t mean the check is good. You are responsible for the checks you deposit. There is no legitimate reason for someone who is

giving you money to ask you to wire money back. Don’t deposit it — report it! Knowledge is power, so being aware of the existence, nature and incidence of fake check scams should make us all more alert. It is also important that lawyers, who hold funds of clients and others as fiduciary trustees, understand the laws and regulations that pertain to those responsibilities. Your banker is a good source of information and guidance on the intricacies of checks and banking processes; if you don’t have a personal relationship with a banker, establish one. Finally, lawyers should have an unconditional rule that no disbursements are made from trust until the deposited check has cleared the banking process and the funds are collected. Endnotes: 1. The garnished lawyer may have possessory lien or setoff rights that take priority over other creditor claims. See e.g., ORS 18.615 and 87.430. Nothing in this article is intended to suggest otherwise. 2. This case is obviously based on Florida statutory law; however, the opinion cites Pacific First Federal Savings & Loan Ass’n. v. Flathead Properties, Inc., 47 OrApp 407, 614 P2d 1210 (1980) for the same proposition. In the Oregon case, the court didn’t decide the specific issue, but noted that where a check was issued but not paid before a notice of garnishment was served, the garnishee held money belonging to the debtor. 3. For more information, go to http://www.nclnet.org/fraud. REPRINTED WITH PERMISSION

22

http://www.osbar.org/publications/bulletin/06jun/toc.html

Fraud, Cyber Liability, & Data Breach Are you Covered or Not?

Professional Liability Fund

Breach – Are you Covered or Not?

Presented by: Jeff Crawford & Emilee PrebleProfessional Liability Fund

PLF COVERAGE GENERALLY


• $300,000 FOR INDEMNITY plus a $50,000 CLAIMS EXPENSE.

• Coverage is MANDATORY for any attorney who is a member of the Oregon State Bar, is in the private practice of law, and whose principal office is in Oregon –more than 50% of their time is spent in Oregon

• PLF Excess Coverage offers limits from $700,000 to $9.7 Million

Coverage – What, Who, and Where


Basic Coverage Grant

“Rendering services in your capacity as an attorney in private practice”

Common law concept –

Can claimant state a claim of lawyer professional liability? Or, is cause of action recognized by the courts?

Defense of claims

DOES AN EXCLUSION APPLY?

22 PLAN EXCLUSIONS

The General Categories are:


The General Categories are:• Intentional or Fraudulent Acts, • Business Relationships, • Claims for Fees, • Family Relationships, • Non-legal Torts, PI • Voluntarily Accepting Liability; and• Confidential Data

EXCLUSION 22

[Confidential or Private Data Exclusion]

This Plan does not apply to any CLAIM arising out of or


This Plan does not apply to any CLAIM arising out of or related to the loss, compromise or breach of or access to

confidential or private information or data. If the PLF agrees to defend a SUIT that includes a CLAIM that falls within this exclusion, the PLF will not pay any CLAIMS

EXPENSE relating to such CLAIM.

QUESTIONS TO ASSESS YOUR CYBER LIABILITY RISK?


• Has your firm’s network every been hacked?

• Has anyone in your firm every lost a laptop, BlackBerry, iPhone Android or flash drive?iPhone, Android, or flash drive?

• Did that device contain client-specific and confidential information?

• Was the device password protected?

• Was the data encrypted?

• Has anyone in your firm accessed the firm’s network or transferred sensitive data from an unsecured Wi-Fi connection?

Questions from “Data Loss – And Why It Matters,” New York Law Journal, Mar 4, 2013

23

WHY ARE LAW FIRMS VULNERABLE?


• Law firms are custodians of large amounts of client confidential data– SSN

– Health records/HIPPA

– Contact information

– Billing information

“Hackers see attorneys as a back door to the valuable data of their corporate clients.”

“Cyber Liability: (How Well) Are you Covered – And Why Does it Matter?” Anthony E. Davis

TYPES OF LIABILITY CREATED


• FIRST PARTY – Those who suffer the data breach itself

– Cost to notify those affected by the breach

– Public relations expense

– Legal review, forensics, good faith advertising and credit monitoring

SERVICES TO FIRST PARTIES


• Mitigation of Loss

– Risk management of client data

– Access to information on how to keep data safe, secure

Training and Education– Training and Education

• Post Breach Services

– Damage assessment and crisis management

– Data breach forensic services

– Insured notification assistance

– Media relations and call center support

TYPES OF LIABILITY CREATED


• THIRD PARTY – The party whose data was lost and now needs repair or redressp

– Defense Liability

– Data breach related civil awards, settlements, and judgments

– Defamation

• INDEPENDENT FROM PRIMARY PROGRAM AND TOTALLY SELF-SUPPORTING

• Largest Excess carrier in Oregon

• Covers over 710 firms / 2300 attorneys

• Limits from $700,000 to $9,700,000

• Dropdown – no gap between Primary and Excess

• Options for out-of-state offices and attorneys

• Cyber Liability Endorsement added in 2013

• Cyber Liability & Data Breach Endorsement

Limits• 1-10 attorneys in firm: $100,000

• 11+ attorneys in firm: $250,000

• Higher limits available on a separate underwritten basis (including supplemental application)

Covers• First and Third Party Losses discussed earlier

24

• PLF Primary limits have renewed at $300,000 for 15 years

WHY EXCESS IS A GOOD IDEA

• For most practices – this is not adequate coverage

• Excess rates are reasonably priced

The PLF recommends you have some form of excess coverage for your firm.

WHAT SHOULD YOU DO?


• Make realistic assessments of the risks your firm creates – your client base, practice areas,

ftechnology used, geographic footprint, etc.

• Assess what insurance coverage would respond best to a breach at your firm

QUESTIONS?


25

1

Fraud Prevention ServicesPatty Breese Melanie StigenOdell Bushnell

OSB Center – Columbia Rooms

May 16, 2013


Fraud Prevention Framework

Internal Paper

© 2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC1

Electronic External

I am here to debate UCC, banking and/or other financial policies?

1. True2. False

“Chance favors the prepared mind…”

Louis Pasteur

Agenda

Latest fraud trends Check fraud ACH fraud Card Fraud Online fraud

© 2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC

Online fraud Internal Controls

3

Latest fraud trends


Cybercrime continues its evolution

Losses significant$477 million in losses since 2005 from online fraud

FDIC, at the RSA Security Conference, February 2012

Phishing and malware attacks continue to explode– 1 in 358.1 emails – global phishing rate


– 1 in 274 emails – global malware rateSymantec.cloud, Symantec Intelligence Report, February 2012

Banking portals a top targetTop requests to phishing kit writers:– Login pages of U.S. based banks – Dedicated login pages for business clientele

RSA, The Year in Phishing Report, January 2012

5

2

Types of fraud

87%of affected organizations report that checks were targeted

29%


29%of those affected report that corporate/commercial purchasing cards were targeted

$20,300typical loss due to payments fraudSource, 2013 AFP Payments Fraud and Control Survey

6

100%Payment Forms Targeted

Payment fraud trends Three quarters of organizations experienced attempted or

actual payments fraud in 20121

Among organizations that did suffer a financial loss resulting from payments fraud in 2012, the typical loss was $20,3001

0%

25%

50%

75%

Check ACH Commercial Card

Wire

201020112012

1. 2013 AFP Payments Fraud and Control Study

Sources of Payment FraudOutside individualOrganized crime ringInternal partyThird-party or outsourcerAccount takeoverOth

Payment fraud trends

0.8

0.18 0.1 0.03 0.05 0.05 0.01 0.01

OtherLost or stolen laptopCompromised mobile device


0 25

0.5

0.75

Axis Title

2012

Types of attempted or actual check fraud events

0

0.25

Counterfeit checks (other than payroll)

with your organization’s MICR line data

Payee namealteration onchecks issued

Counterfeit checks with you name

drawn on fake or another company’s

account information

Dollar amountalteration onchecks issued

Loss, theft orcounterfeit inemployee pay

checks


Laws and regulations governing online fraud

Regulation E– Federal law protects consumers from unauthorized

electronic funds transfers (EFT)– Protections do not apply to wire transfers or EFTs from

business accounts


Uniform Commercial Code Article 4A– Governs funds transfers from a business account

(ACH and wire) and wire transfers from a business or consumer account

– Defines “ordinary care” and “commercially reasonable standards”

– Requires notifying bank of unauthorized transactions within a “reasonable time”

Commercial Account Agreements

The Wells Fargo Commercial Account Agreement requires customers to report unauthorized transactions within 30 days of the date the Bank mails the statement that describes the unauthorized transaction


3

Check Fraud mitigation

Move your accounts to Wells F


Fargo

12

Check Fraud mitigation

Payroll– ACH Direct Deposit– PayCard

Vendor payments– ACH

Perfect Receivables®


– Perfect Receivables®

Business and travel expenses– Commercial card

Positive pay / Reverse Positive Pay Payment Authorization Stale Date

13

Positive Pay / Reverse Positive Pay

14

Positive Pay / Reverse Positive Pay

15

Payment Authorization Service

1. Largest Check Cashed2. Largest Over the Counter

Withdrawal3. Largest check presented4. Business or Consumer checks

ACH fraud


4

Block ACH debits on all accounts

Block all ACH debits except on a singleaccount set up with ACH debit filter/ACH…

Reconcile accounts daily

2012

Control procedures used to protect against ACH fraud

0.00% 25.00% 50.00% 75.00% 100.00%

Other

Create separate account for electronicdebits initiated by the third party (e.g.,…

Debit block on all consumer items withdebit filter on commercial ACH debits

o d b o a a ou

2012


ACH services

Perfect Receivables®

ACH Debit Block

ACH Fraud Filter


ACH Fraud Filter– Review service– Stop service

19

ACH Filters


Card fraud


Tools of the tradeATM Skimming

Phishing

22 © 2010 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Hacking Skimming

klm9

Card technology

Visa and MasterCard liability shift 2015 Chip and pin cards Card readers to your table More secure (n +1)


5

How you can help

Respond quickly to our communications Program design

– MCC templates– Single transaction limits – Appropriate credit limits


Appropriate credit limits– International capability for cardholders who really need it

Cardholder education – Ensure that your cardholders are aware of our fraud

strategies– Responsibility to safeguard their accounts – Decline procedures – call us anytime, day or night

Balancing risk with cardholder experience 24

Online fraud


Types of fraud – Online payments fraud

Subject: Notification for Customer of e-mail address change

E-MAIL CHANGE NOTIFICATION

Dear Customer! Thank you for banking online at wellsfargo.com. Our records


indicate that you recently added or made a change to one of your email address(es). This notification is to confirm that you initiated this change. If you feel you have received this email in error and did not add or change your email address(es), please click here.

Sincerely, Online Banking Team

g1

Mobile challenges

The same risks in online space extend to mobile and mobile bring some new risks too– Mobile leverages the same breadth of existing risk controls that have

withstood the test of time and customized them for mobile

– We continue to monitor this space for evolving risks in preparation to react quickly when new threats appear


Mobile brings even more unique challenges– Rapidly changing technology landscape and customer behaviors

– Lack of industry best-practices or available vendor solutions

– Emerging risks not clearly known or defined

27

Common fraudster techniques

Social engineering– Manipulating people into performing actions or divulging

confidential information by impersonating a trustworthy entity in an electronic communication

Malware– MALicious softWARE installed on a computer without a


MALicious softWARE installed on a computer without a user’s consent

– Records keystrokes and screen shots, redirects the browser, displays fake web pages and/or allows fraudsters to impersonate the customer in online transactions

Combination of social engineering and malware– Social Engineering is used in order to trick a user in order

to infect them with malware

28

STOP!

Succumbing to social engineering is one of our weakest links

When receiving an unsolicited communication (email, text, phone call) you should stop and ask yourself:


– Did I initiate the communication?– Is the request of an urgent nature?– Is the request for sensitive or confidential information?

29

6

Wells Fargo will never ask for confidential information through email confidential information through email, phone, or text messages


Prevention

Educate employees, raise awareness Institute dual control for executing all payment

transactions and self administration Use a dedicated computer to conduct online banking

activity


Update antivirus programs Protect your network Institute transaction and daily limits Audit your users frequently

31

Internal Controls


How do we reduce opportunity?

© 2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC33© 2010 Wells Fargo Bank, N.A. All

rights reserved Member FDIC

How do we reduce opportunity?

Opportunity



RationalizationPressure

How to manage fraud – Internal Controls

Know your employees Verify references Check criminal background Check accounting records closely for several months

Know your vendors



Know your vendors Protect your access credentials Build / Maintain your own strategy

7

Additional resources

Please visit our website for further information on how to protect your company:

wellsfargo com/fightfraudwellsfargo.com/fightfraud
