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Ethics


the name of the payee, and enters new information. In many cases, the business’ failure to examine its own bank statements containing the altered check and its failure to report it as a fraud promptly, results in the attorney/firm being held liable for some or all of the resulting losses.


Electronic Fraud While many of the fraudulent schemes requiring the


attorney’s active participation may be considered easier to identify and avoid, electronic bank fraud can often evade detection with greater ease. Tis is because there is no active participation required.


Perpetrators can merely hack and


attack our operating and/or IOLTA accounts via the Internet by initiating fraudulent Electronic Fund Transfers (EFTs) and Automated Clearing House transactions (ACHs). While sometimes the


perpetrator will push through one large


fraudulent transaction, often these Internet financial crimes occur by the perpetrator first making one or two attempts at small fraudulent transactions, usually under $100 and often under $20. If these small transactions go through uncontested, the perpetrator will then place an EFT or ACH request for a randomly selected large amount and however much is in the account that can cover the request will then go through with it. Once again, failure of the attorney to report the fraudulent activity in a timely fashion, as dictated by the bank, can result in the attorney being held responsible for some or all of the loss.


Attorney’s Liability For Fraudulent IOLTA Transactions


Most banks will cover personal account losses due to


fraud if the suspected fraudulent activity is reported to the bank within 30 days of its occurrence. Tis is a general policy/ guideline and while each bank is different, most provide some basic level of individual insurance/fraud protection.


Tis


individual protection typically provides for a reporting time frame that recognizes that it is unreasonable to expect an individual to review and balance their personal bank account more than once a month. In the business world, the time frame banks allow for


reporting this type of activity is significantly less than what is permitted for personal accounts. Once again, while each bank is different, many allow a business as little as 48 hours (from when the fraudulent transaction posts to the account) to report the electronic fraudulent activity (i.e. EFTs and ACH transactions). Tere are similar time restrictions on reporting fraudulent wires transactions (which can often be shorter than 48 hours) and on reporting fraudulent checks (which is typically greater than 48 hours.) Failure of the victimized business to report the suspected fraudulent activity to its bank, within the bank’s designated time frame, can result in the business being


Trial Reporter / Winter 2012 25


held liable for part or all of the loss. For any business, a significant monetary loss due to fraud


can be financially devastating. To an attorney, the consequences can be even more severe. Pursuant to the Maryland Rules of Professional Conduct (MRPC) 1.15 and Title 16 Chapter 600 of the Maryland rules, it is an attorney’s duty to ensure that the IOLTA account, where all client moneys are maintained, is protected and precisely managed. Such requirements include properly naming the IOLTA account (See Md Rule 16- 606) and properly documenting any and all IOLTA account transactions (Md Rule 16.606.1). In addition, Md Rule 16-610 states that the institution where the IOLTA account is located is required to report to Bar Counsel any and all dishonored instruments coming from the IOLTA account. Tis means that if funds are fraudulently withdrawn from the IOLTA account and said funds exceed the balance of the account, the bank must report the overdraft to the attorney and to Bar Counsel. If the attorney, or their office, has failed to report the suspected fraudulent activity to the firm’s bank (within the bank’s allotted time frame) then the attorney could be held liable for the monetary loss by the bank, by the firm, and by the firm’s clients. If the attorney can satisfy the missing amount, then they may be able to avoid a malpractice claim and/or


Continued on page 27


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