Law Times

Law Times • may 12, 2014 Page 9 www.lawtimesnews.com Who's liable when lawyers fall victim to fraud? By marG. Bruineman For Law Times ife isn't as simple or straightforward as it once was. ieves no longer wear masks and brandish weapons. Instead, they sometimes masquerade as busi- nesspeople striking deals while trying to squeeze large sums of money from unwitting lawyers through their con games. "People don't have to rob banks anymore; they just do it with cheques," says Martin Scli- sizzi, a partner at Borden Ladner Gervais LLP. "With a gun, they get five years. With a pen, they get lots of money." Sclisizzi recently represented two lawyers who were the sub- ject of cheque frauds in which the perpetrators got away with more than $400,000. e crux of the case, Raza Kayani LLP v. e Toronto-Dominion Bank, is who should bear the financial conse- quences of a fraud perpetrated on lawyers. "What it does illustrate is the extent of fraud that is perpe- trated," says Sclisizzi, describing the situation as part of a series of frauds in which lawyers were victims. While the frauds target- ing lawyers may differ in style, he says the underlying approach is essentially the same. e case involved a fictitious Alberta financing company claiming to represent two clients who were making large purchas- es of inventory and instruments. In his argument to have the banks declared financially re- sponsible, Sclisizzi relied on the 1996 Supreme Court case of Boma Manufacturing Ltd. v. Ca- nadian Imperial Bank of Com- merce. It found the liability lies on the shoulders of the collect- ing bank during the conversion of a cheque whether or not the lawyer is negligent. In that case, the Supreme Court commented on the tort of conversion: "A bank converts an instrument, including a cheque, by deal- ing with it under the direction not authorized, by collecting it and making the proceeds avail- able to someone other than the person rightfully entitled to possession. It should be noted that the tort of conversion is one of strict liability." In her January decision, Jus- tice Susan Greer of the Ontario Superior Court of Justice agreed the tort of conversion had taken place and found the bank liable. e bank has since filed notice of appeal of the decision. All players who are poten- tially on the hook for a scam will examine the situation to deter- mine who may end up paying the thieves' tab. Lawyers, banks, and insurers look at the instru- ment used in the fraud to see if someone altered it or it was a fake; whether the bank ensured it was fine; whether other clients were victims of fraud; whether the money was held for an ap- propriate period of time; or if there were indications a fraud was about to occur. e lessons from the case in- clude keeping a wary eye out for red flags such as a rushed closing period. When an e-mail comes in seeking the lawyer's services for a breach of contract or fam- ily law case and it looks like the sender is offshore and there's a short closing period, the alarm bells should start sounding, ac- cording to Sclisizzi. "When you look at all of the fraud cases out there . . . it's al- ways a rush deal," he says. "Experience will show that the lion's share of these types of scams is pulled on either small firms or sole practitioners." Indeed, the problem of fraud continues to plague lawyers practising all areas of law. Small firms as well as lawyers working in intellectual property are spe- cific targets, says Dan Pinning- ton of LawPRO. Others vulnerable to fraudu- lent tactics include younger or newer lawyers who might be more naive and have a desire to help out as well as older lawyers who may not be as up to date on the red flags to watch out for. "Litigation, business, and fam- ily law lawyers are frequent targets of bad cheque scams involving debt collections, spousal support payments, and business loans," says Pinnington, vice president for claims prevention and stake- holder relations at LawPRO. "ese frauds are very so- phisticated. e matters will look legitimate, the fraudsters will be very convincing, and the client ID and other documents you get will look real. "Never underestimate the ef- forts that these fraudsters put in to make these deals look legiti- mate." Fraud has been an ongoing issue with losses in the millions of dollars. LawPRO issues notic- es and warnings to alert lawyers of the dangers and publishes a list of red flags they should watch for. It also publishes the names of confirmed fraudsters at avoidaclaim.com. Some of the red flags to watch out for in bad cheque scams in- clude the use of one or more e- mail addresses; a recently regis- tered domain name or web site; the cheque or dra arrives in a blank envelope without a cover letter; the involvement of a third party; and an e-mail note begin- ning with "Dear attorney." LT FOCUS CANADA & USA 1.800.265.8381 | EMAIL info@mckellar.com | www.mckellar.com McKellar introduced the concept of structured settlements in Canada in 1979. With almost 40 people at your disposal, we continue to set the standard today, providing safe, reliable, tax-free investment options for injured parties, while lowering claims costs. Billions of dollars invested, not a penny lost. The McKellar Structured Settlement ™ Untitled-1 1 14-03-24 7:06 PM L 'Experience will show that the lion's share of these types of scams is pulled on either small firms or sole practitioners,' says Martin Sclisizzi.

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