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Attorneys Beware: The Fake Creditor Scam

Gregory S. Shields, Esq. on 4/3/2013

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As a solo practitioner or small firm owner, few things are more exciting than obtaining a new client. What follows is a warning about how what seems like a great case may end up costing you everything in your bank account and then some. The scam goes like this:

You receive an unsolicited email from a creditor seeking legal assistance to collect on a debt. You respond to the phone number in the email and speak to the creditor. The creditor is a Michigan business that has run into trouble with a client in Pennsylvania. He has allowed the local debtor to continue its relationship but now the debt is out of control and something must be done. He informs you that he feels all that will be necessary is a demand letter from your office. Upon asking how he found you, he replies from the local bar association.

At this point, some due diligence on your part reveals that the creditor is a real Michigan company. Moreover, the judgment debtor is a genuine company, registered with the Commonwealth of Pennsylvania. The credit agreement and invoices provided from the client are signed by a man who is listed as an officer of the debtor company. Everything seems to check out ok. Unlike most clients, this gentleman does not seem to care a great deal whether you represent his business on an hourly or contingent rate, but ultimately you agree this will be a contingent matter. You draft a fee agreement for your new client. It is returned immediately. Upon receipt of the agreement, you draft a demand letter.

In response, and with record haste, comes a letter from the judgment debtor on company letterhead. Enclosed is a certified check with a hologram and watermark. It is drawn on a big bank and is in the amount of $198,750.00, 100% of the demand made out to your firm alone. Why couldn´t all your collection matters be this easy? You contact your client who is happy to have you deposit the check and then cut him the client´s share from your trust account. You laugh all the way to the bank, (literally perhaps), with visions of what all this wealth can bring you.

After about 24 hours, your trust account shows that the funds have cleared. You cut your client a check for his share and yourself a check for the remainder. Everything is right with the world. But then, five weeks later, you receive a phone call from your bank. The certified check was a fake and you, as the account holder, are responsible for the funds that are deposited into your account. Your "client" has long ago left for the Caribbean and you are now staring down some extraordinary financial and legal troubles.

Usually, fake creditors are obvious. Their email solicitations come from overseas with nonsensical details or are simply way too vague to be taken seriously. They are often no more credible than the ubiquitous Nigerian Prince who needs your help to move some money out of the country. Here we have real companies with the names of real individuals. There are working phone and fax numbers and the people speaking to you sound perfectly credible.

Luckily, there were three red flags when I was working my way through this matter. First, the creditor used two different email accounts. While they both contained some variation of his name and some numbers, they were not sent from the creditor company´s domain. Rather, they arrived from Hotmail or AOL accounts. This seemed a little odd. Second, the envelope containing the check from the "Pennsylvania debtor" was postmarked in Canada. This can be an easy thing to miss, however. Your attention is certain to be drawn more towards the six figure check in your hand than an empty envelope. Also, if an assistant opened the mail and threw out the envelope you would have no way of knowing. Last, the scammer got greedy and sent his certified check before my demand letter was mailed. There was basically no way that the debtor could have known that I represented the creditor.

The lesson is to be diligent in accepting new clients and beware of certified checks. If there is any doubt whatsoever, contact your local bank and ask them how long it would take to determine for certain that the check is legitimate. Use phone numbers found on company websites, not those provided in emails from the contact. If you run up against this scam, report it to the local authorities. Unfortunately, no one investigated my case but it doesn´t mean someone may not take it more seriously in the future. You may save the next attorney his livelihood!

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