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Lawyers Warned to Be Wary of "Client" E-Mail Scams By Brenda Sapino Jeffreys Houston lawyer Richard T. Howell Jr., whose firm was scammed out of $182,500 by a client who contacted and hired him through e-mail, says he is talking publicly about the situation so he can prevent other Texas lawyers from making the same mistakes. "I'm a capital 'D' Dumbass," says Howell, who has practiced law for 23 years and is a partner in Buckley, White, Castaneda & Howell. In October 2008, Howell became the victim of a sophisticated, international version of a classic check-fraud scam, say two Texas consumer law attorneys, as well as Dan Parsons, president of the Better Business Bureau of Greater Houston and South Texas. "What has happened to him is a typical form of check fraud," says Richard Tomlinson, of the Law Office of Richard Tomlinson in Houston. Because he is responsible, Howell says, he did not ask his partners to help him cover the loss, which stemmed from collections work Howell did for a client who said he was a businessman in Japan. To reimburse his firm, Howell says, he had to borrow money on a home equity loan. In December 2008, Howell's firm sued Citibank in state court in Houston, alleging the New York bank was negligent and engaged in negligent misrepresentation when it represented to Howell that a $367,000 check -- that was supposed to be a payment to Howell's client from a customer -- had cleared when, in fact, it was a bogus check. In an answer filed in December 2008 in Buckley, White, Castaneda & Howell v. Citibank, Citibank denies the allegations and seeks a take-nothing judgment. "We are not liable for those funds," says Citibank's attorney, Yasmin Atasi, a shareholder in Winstead in Houston. She says she cannot comment further because the litigation is pending. The suit is set for trial in July in 61st District Judge Al Bennett's court in Houston. Howell says that with a 33.3 percent fee, the prospect of collecting $3.6 million in unpaid invoices for the client was a big lure. "To me, it sounded like it could be a potentially lucrative client from Japan," Howell says. But Howell has little hope he will ever recover the money from his former client. Tom Kelley, a spokesman for the Texas office of the attorney general, says the U.S. Secret Service typically handles investigations into crimes like the e-mail scam that Howell describes. Howell says he called the Secret Service and the Houston Police Department, but he did not file complaints with either agency. He says the HPD declined to investigate because it involved multiple jurisdictions, and the Secret Service was not interested in investigating his firm's loss, because the amount was too small. However, Cynthia Marble, assistant special agent in charge of the Houston field office of the Secret Service, says there's no threshold amount that would lead her agency to investigate a loss like Buckley White's. "It's more the dynamics of the case and not so much the amount," she says. Marble say s the field office has no complaint on file from Howell's firm so it is not investigating the firm's loss. The investigations are difficult, she says. "Most of these cases are scams that originate overseas, and once it [money] leaves here and goes to some unknown entity overseas, it's difficult to track," she says. Howell says he did file a complaint with the U.S. Postal Service Office of the Inspector General, but the agency hasn't reported any progress in the investigation to him. To somewhat mitigate his embarrassment, Howell says, he has spoken to another Texas lawyer who also was the victim of similar check fraud, to the tune of $300,000. (Howell declines to identify the other lawyer.) That just proves to Howell that e-mail swindlers are preying on lawyers and running a very sophisticated scam. "It was moving fast with me. I thought I was covering any base," Howell says. Parsons, the Better Business Bureau official, says what Howell describes is a version of a check-fraud scheme known as the "Nigerian Scam," which the urban myth-busting Web site snopes.com says often involves a putative wealthy foreigner who needs help from the victim in moving money from one place to another. Snopes.com says the scam lures in victims by presenting an opportunity to get something for nothing. "They have evolved with that to so many new layers, so many new variations," Parsons says. "The fact that money is being shipped around internationally, it has the smell of it [the Nigerian scam]. Good luck at getting it back," Parsons says, noting that the U.S. government isn't much help. Craig Butterworth, a communications specialist for the Va.-based National White Collar Crime Center, says the scam Howell's firm describes in its petition sounds like a variety of a "confidence fraud" in which a scammer gains the confidence of a victim, and then takes the victim's money. "The law firm essentially fell for it -- took the bait, for lack of a better term. They gained their [the firm's] confidence. It's not all that different from the Nigerian Letter Fraud, because the circumstances are 'we did this for you, and you do this for us,'" he says. According to the 2007 Internet Crime Report, the Internet Crime Complaint Center (IC3) received 206,884 complaints of crimes perpetrated over the Internet during 2007, with more than 90,000 of them referred to law enforcement agencies and amounting to nearly $240 million in reported losses. The IC3 received a total of 12,918 complaints in Texas in 2007, according to the most recent statistics from IC3. IC3 is a joint operation between Butterworth's group and the Federal Bureau of Investigation. Citibank Sued In its petition in Buckley, White, Castaneda & Howell v. Citibank, Buckley White alleges that it was retained by a Japanese company to collect $3.6 million from four of the company's customers in the United States. The firm alleges the Japanese company signed a contingent-fee agreement and advised the firm that one of its customers had agreed to make a partial payment of the amount outstanding. On Oct. 7, 2008, the firm alleges, it received a "Citibank Official Check" for $367,000, and the firm deposited it into its Interest on Lawyers Trust Account at Sterling Bank in Houston. A Buckley, White, Castaneda & Howell "employee telephoned Citibank and verified that check number 310096829 in the amount of $367,500 was paid. The firm relied upon this unconditional representation in allowing a wire transfer of $182,500 to a supplier of [the Japanese company] in Hong Kong," the firm alleges in the petition. On Oct. 10, despite Citibank's "unconditional representation," Sterling Bank informed the firm that the check had been returned as "counterfeit," the firm alleges in the petition. The firm alleges Sterling Bank drained the firm's IOLTA account -- taking more than $100,000 -- and took $77,000 from the firm's operating account to cover the wire transfer. Howell says Sterling Bank tried to cancel the wire transfer, but it was too late. Citing privacy rules, Graham Painter, a spokesman for Sterling Bank, declines comment. Howell says he e-mailed the client but got no reply. The firm seeks $182,500 in actual damages for Citibank's alleged negligence and negligent misrepresentation, and it also seeks a minimum of $367,000 in punitive damages. Howell says he was first contacted by the Japanese client on Oct. 3 to do collections work, and it was only one week later that he learned that the check was fraudulent. After the bank called him to inform him that the check was a duplicate and not good, Howell told his partners, "I've had a loss," Howell recalls. "They were surprised." Howell says he told his partners that he would cover the loss, because it was his responsibility. "I said that, and I did that," he says. Collection Work Howell says he thought he was running the right traps before accepting the client, by checking out the Web sites of the U.S. companies from which his prospective client wanted him to collect, by confirming that the client had a Web site, and by checking with Citibank on the legitimacy of the $367,500 check before wiring out the funds. Most of his communication with the Japanese company executive was through e-mail, but the client did telephone him a couple times. Howell says he never called the client. Nothing raised a red flag in his mind, until it was too late. "I talked to my bank, and they said if it's been paid, you are good. That's all you need is a verification," Howell says. Even the e-mail approach wasn't unusual. Howell does commercial litigation, but he also does collections. He says he gets referrals from other lawyers through e-mail and receives e-mail contacts from a link through the firm's Web site. While he usually meets his clients in person before they sign retainer agreements, that's not always the case, particularly when the client is from outside Texas. Howell says he's more cautious today, but he might have prevented the loss by insisting on meeting with the client, face-to-face, before agreeing to take the work. That's wise, Parsons says. "It goes back to verifying the credibility of the client. That's the problem in the cyber-world. I'm not faulting the attorney. It's something they are experienced at doing, but their guard went down," he says. "Do more due diligence." Richard Alderman, a professor at the University of Houston Law Center who teaches consumer law, says, speaking generally, that everyone, including lawyers, should be wary about getting involved in anything that sounds too good to be true. "The second thing is to understand that when you deal with checks, that until they are finally paid and you can get some guarantee or some statement to that effect, you don't have anything," Alderman says. Tomlinson, a former Texas assistant attorney general in the consumer protection division, cautions lawyers to be careful when doing business with overseas clients, because checks can take weeks to clear. "The safe thing is to wait until the check is totally cleared. That doesn't mean he [Howell] doesn't have the right to rely on what the bank said," Tomlinson says. Tomlinson and Alderman each say Howell's firm may have a claim against Citibank. Painter, the executive vice president for corporate communications for Houston-based Sterling Bank, says check-fraud scams are "more common than people might believe" and lawyers may be targets because they try to accommodate clients. Speaking generally about check-fraud scams, Painter says IOLTA accounts are a target, because scammers know firms use them to accept money for their clients and "checks going in are made out to all kind of parties." "This certainly isn't the first time that those kinds of accounts are under attack," Painter says. "Every kind of business is under attack by fraud these days, so it's not at all limited to lawyers and law firms. They are just in there with everybody else." His advice to lawyers? He says it's probably safest to refrain from getting involved in the client's business. He says, "If the money goes in through the client, it should probably go out through the client." Pros and Cons: Ponzi Scheme Targets Law Firms By Zack Needles PHILADELPHIA - The Legal Intelligencer has received word that scam artists attempting to dupe firms into wiring money in exchange for fake cashier’s checks have targeted a number of local law firms. Assistant U.S. Attorney Peter Schenck said he has received a number of reports from Pennsylvania firms that have encountered different variations of the Ponzi scheme. Basically, the scam works like this: A con artist, posing as a representative from a legitimate overseas — usually Far Eastern — company, contacts a U.S. firm by e-mail and requests its services in collecting money from a delinquent customer in either the U.S. or Canada. Soon after the firm agrees to take the company on as a client, a representative from the company e-mails the firm to say that when it notified the deadbeat customer that a law firm had been retained to collect the debt, the customer agreed to pay at least some of the money owed. But then things really get fishy. The company sends the firm a cashier’s check for the amount the debtor paid them — say, $200,000 — with instructions to place the money in an escrow account, deduct the necessary legal fees and wire the balance back to the company. The firm complies but finds out soon after that the cashier’s check is counterfeit. Now the firm’s out hundreds of thousands of dollars, and the client is suddenly unreachable. According to the Broward Daily Business Review, Atlanta securities lawyer Gregory Bartko fell victim to a similar scheme earlier this year and became a defendant in a federal suit filed by Wachovia seeking nearly $200,000 it wired to what Bartko thought was a Korean client collecting a debt from a customer. If any Pennsylvania firms have encountered a scam like this and would like to discuss the experience with The Legal, please contact staff reporter Zack
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A Feast
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