Law Times

Page 10 May 27, 2013 Law Times • FOCUS Lawyers a common target for fraud Trojans, bad cheques among scams aimed at legal professionals BY MARG. BRUINEMAN For Law Times L awyer Neil Smiley recalls it was in the heat of summer, just after a holiday weekend when most people might be focusing on other concerns, when he got an unusual call. His client had been assembling a large number of properties in southern Ontario. The call was from a hydro clerk who found a note related to one of the properties a bit unusual. It indicated the bill should go to another address. "It dawned on me something untoward was happening," says Smiley in recalling the situation. He was right. He credits the clerk for recognizing that things appeared somewhat different in this situation and following that up by picking up the phone just to check. It was 2003 and in the early days of a more sophisticated type of property fraud that in this case involved two fraudsters and some pretty official-looking fake documents and included connecting the names of actual lawyers, such as Smiley, to deals they had nothing to do with. "The sophistication of the fraudsters . . . would certainly grey every one of us," says Smiley. "Powers of attorney have become a catalyst for fraudulent activity." Lawyers are something of a magnet for a growing list of fraudulent activities, according to Dan Pinnington, vice president of claims prevention and stakeholder relations for LawPRO. In fact, the insurer saw an estimated $3.9 million in actual and reserved costs in connection with 83 fraud claims in Ontario in 2012. Pinnington says that's substantially less compared to 2008 and 2009 when those costs exceeded $12 million. Part of the difference Fraud involving lawyers has 'happened since time immemorial and it will continue to happen,' says David Debenham. relates to a change in the real estate market as it's easier to do frauds involving property flips when values are increasing quickly. Legal and title insurers are also more aware of the issue now and have become better at spotting it. But there were also some significant bad-cheque frauds in 2008 and 2009, particularly on business loans. And that level of sophistication, which shocked lawyers when it first surfaced in 2003, is a more common element of today's frauds that continue to exploit new avenues and often take advantage of emerging technology. Criminals go to where the money is, so trust accounts have become vulnerable. Just before Christmas, LawPRO reported on a six-figure scam that was new to Ontario. Officials believe it began with a Trojan banker virus that worked its way into a law firm's system either through an opened e-mail or a download. The perpetrators accessed the password to the trust account and were then able to go into it, monitor it, and wire money THE EVOLUTION OF VICTIM IMPACT STATEMENTS VICTIM IMPACT STATEMENTS: PAST, PRESENT AND A LOOK TO THE FUTURE Get a comprehensive look at victim impact statements, from their early history to their current role in the sentencing process. This book describes the various federal, provincial and territorial victim impact statement forms and discusses the services and compensation programs available to victims. The ability of victims to orally present their statements as well as the cross-examination they may face in the courtroom are also discussed. GET INSIGHT ON THE CRITICAL QUESTIONS ORDER # 985115-65203 $72 Shipping and handling are extra. Price subject to change without notice and subject to applicable taxes. AVAILABLE RISK-FREE FOR 30 DAYS Order online: www.carswell.com Call Toll-Free: 1-800-387-5164 In Toronto: 416-609-3800 Untitled-2 1 www.lawtimesnews.com 13-05-21 9:59 AM out of the country shortly after deposits were made. Litigation, business, and family law lawyers, as well as those working in real estate, are frequent targets of bad-cheque scams involving debt collection, spousal support payments, and business loans. Through its fraud fact sheet, LawPRO lists the possible red flags and suggests lawyers be wary and approach suspicious scenarios with caution. Some examples of red flags include clients who are new to the firm, are in a distant jurisdiction, and want the deal done around banking holidays. Other signs include a change in the payment amount without explanation, payments to an unrelated third party, and transfers of funds to an offshore bank account. At about the same time as the Trojan banker virus surfaced, another Toronto-area lawyer became the victim of a cheque scam. The lawyer deposited a cheque into a trust account and then wired money back to the client in another country. The deposited cheque ended up being a fake. LawPRO also warns against internal fraud. Two recent losses totalling $6 million, for example, involved long-serving and trusted law clerks. But there are also lots of unreported frauds involving lawyers, according to David Debenham of McMillan LLP in Ottawa. "It's happened since time immemorial and it will continue to happen," says Debenham, a member of the Canadian Bar Association's anticorruption team and author of The Law of Fraud and the Forensic Investigator. Sometimes attempts to prevent becoming a victim of fraud can serve as something of an invitation to criminals. Debenham points to the layers of computer and Internet security firms employ to protect themselves. But, he adds, a complicated eight-digit, case-sensitive password that includes numbers and letters can be difficult to memorize. The chances are the password is visible and easily accessible within a short distance from the user's desk. And there's always a back way in. Debenham likens it to having 20 locks on the front door that you couldn't be bothered with so you just go through the back door instead. "You have to have that balance between being a functional protection and your ability to use the system," says Debenham. Smiley, meanwhile, has approached the intervening decade since the fraud attempt cautiously. "Having observed first-hand the level of sophistication that the fraudsters are employing has definitely heightened my sensitivity to the issue and has changed the way I accept new retainers and react to certain real estate deal-related anomalies," he says. LT

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