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Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

Lost in the Virtual World: Fending Off Online Buccaneers

Legal business increasingly comes in over the internet and amid the real opportunities are frequent scams that seek to separate the lawyer from his money. Distinguishing one inquiry from the other can sometimes be challenging.

Not long ago, a Dallas law firm received an email from the president of a fictitious company in Denmark seeking help in collecting a debt allegedly owed by a company in Houston. The Danish company signed a retainer agreement and provided documentation of the debt, and then reported that the Houston company had agreed to settle for $492,510. The Dallas law firm then received a check in that amount from the debtor, deducted its $20,000 fee, and wired the balance overseas to the client.  By the time the Dallas attorneys found out the settlement check was fake, the money was gone.1

Internet scams aimed at lawyers are becoming more and more sophisticated,and every now and then, one of them works.2 Since 2007, the FBI has received hundreds of complaints from law firms around the country claiming millions of dollars in losses in email scams.3 The scams touch both large and small law firms.  Bradley Arant, a 370-lawyer firm based in Tennessee, lost more than $400,000 to a phony client in one of these schemes.4

The scams take a variety of forms and are often difficult to distinguish from legitimate business inquiries.  Sometimes it seems fraud has become the “new norm” now that we are all electronically connected. But even if you take a less jaundiced view, heightened vigilance is in order.

The Debt Collection Scam

The typical internet scam directed at lawyers in Minnesota starts with an introduction and a request for help obtaining money owed, usually as the result of a business transaction gone bad or an uncollected divorce settlement.5 The party wishing to hire you either resides outside of the United States—those I’ve encountered have come from Asia and Canada—or happens to be traveling to a foreign country in the near future, and never quibbles over the amount of the fee you quote.  He or she requests a copy of your retainer agreement right off the bat, and goes so far as to sign and return it, though without the check.  Somewhere along the line, you’re informed that the potential defendant is inclined to settle, or has already paid a portion of the total, thereby creating the impression that further collection is plausible.

Soon, before you’ve had to do any legal work, you’re informed that—because the potential defendant now knows an attorney is on board—he’s decided to settle on the spot.  Without further ado, your potential client informs you that the settlement check will be sent directly to you and authorizes you to deduct your fee from it, with instructions to wire him the balance at an offshore location.

If the scam is successful, upon receiving the check you’ll wire the balance to your new client from your trust account three days after the funds are made available.  Because the scammer has changed the nine-digit routing number at the bottom of the settlement check, it goes to a different bank than the one named for clearance.  This delays processing enough that your wire transfer clears your trust account before the settlement check has been completely processed, and the scammer makes off like the bandit that he or she is.6

The Inflated Retainer Scam

Another variation on the theme involves inflated retainer checks.  Two law firms in Honolulu were scammed out of $500,000 when they received cashier’s checks for retainers far in excess of local standards.  When the firms informed their clients that they had overpaid, the clients requested wire transfer refunds to foreign accounts.  After the law firms wired the refunds, they learned that the retainer checks were counterfeit and thereby sustained losses in the amount of the refunded retainers.7 Two of six targeted firms fell for the scheme.  The scammers directed that wire transfers be sent to accounts in South Korea, Taiwan, and Canada.8 Variations on the fraud involve forged law firm trust account checks9 and fake referrals from real lawyers in other parts of the country: anything to achieve legitimacy.

The “Jimmy” Scam

Then, for the less sophisticated there’s this one, in which a man identifying himself as “Jimmy” has contacted at least two-dozen New York law firms claiming to have found on the subway a package of documents addressed to the target firm by another law firm.  Victims have paid up to $100 to cover round-trip cab fare and a finder’s fee for Jimmy, only to discover that the package contains multiple copies of a New York State Insurance Fund certificate of insurance.10 But Jimmy seems almost a romantic relic of a bygone era.  For the new internet scammers, the stakes are much higher and the inner workings of the fraud far more elaborate.

Where We’re Vulnerable

When I represent clients from outside of Minnesota who are involved in some type of commercial dispute, I rarely meet them in person at the outset.  Usually a telephone call initiates things, though more and more often business from out of state comes in over the internet.  During a short period last summer, I received five inquiries from prospective clients over the internet, two of which proved legitimate and three fraudulent.  Perhaps my experience can help other attorneys distinguish the “wheat” from the “chaff.”

Disconcertingly, the two legitimate inquiries I received—one from a computer chip manufacturer based in Taiwan and the other from a specialty advertising company in Canada—came from the same countries of origin as two of the scammers. I’m not sure why I decided to open the email from the Taiwan-based company’s lawyer, given my sense that it was a scam.  But even if you “junk” 90 percent of these emails, some of them are real, which presents something of a quandary for the practicing attorney.  The two “good” cases are distinguishable in that they were referred to me by solo or small firm attorneys, though at the time I had no particular assurance that either attorney was real.  Unfortunately it’s a fact of modern life that nothing out there (even another lawyer) is necessarily what it appears to be.

I used to think that, if the potential client company had a good website and came up frequently on Google, signed my retainer agreement and sent me supporting documentation, it was probably the real thing.  But experience suggests that none of these assumptions are very helpful when trying to determine if you’re dealing with a scammer.  In the end, the only thing that counts is having received a retainer fee from your new client in the same amount you agreed upon.

The Warehouse That Wasn’t

This case commenced with an email to me in early August from a woman identifying herself as Mrs. Lin Zheng, the vice president of Uni-Calsonic, Corp., which appears to be an actual company in Taiwan that makes auto parts.  Normally I would have deleted this one at the outset.  Nonetheless, either out of an excess of curiosity or because it was a slow day, I decided to Google Uni-Calsonic.  There were several entries for the company. Its website is relatively sophisticated, with pictured links to various products including automotive and motorcycle radiators, heater cores, and motor fan components.  Noting that the toll-free telephone number on the website was the same as that which Mrs. Zheng had listed in her email, I left a voice mail for Mrs. Zheng at that number, expressing interest in her company’s case and asking her to call me so we could discuss it further.  Because I had some doubts as to whether I’d actually left a message, given that the company’s greeting was in Thai, I also sent Mrs. Zheng an email.  To my surprise, I received a call from her the next day, along with a follow-up email explaining the facts of the case.

Mrs. Zheng told me that Uni-Calsonic had contracted with Matrix International Warehousing, Inc. in Rochester, Minnesota to store “3500 units of HydraulicVane motors spec 3600psi/4650 rpm, 10,000 units of German TUEV-approved flame monitoring systems, and 6200 units of 500kw ProSolar inverters with a total market value of $1.36M.”  She explained that a large number of the units, valued at $825,000, were defective as a result of “improper storage measures and techniques” at Matrix’s Minnesota warehouse, and that Matrix had previously entered a settlement agreement with Uni-Calsonic for the full amount of the damage.  Matrix also had a beautiful website which listed the company’s distribution centers around the country, including the one in Rochester.  I had no idea what HydraulicVane motors or ProSolar inverters were, nor for that matter, for what purpose one used flame-monitoring systems.  In other words, I had no idea what Mrs. Zheng was talking about, which somehow only made the case sound more authentic.

In response to my request, Mrs. Zheng promptly sent me a copy of the settlement agreement between Uni-Calsonic and Matrix, along with a ten-page warehouse services agreement between the two companies.  Feeling that I’d done about all the due diligence I could, I attached a copy of my retainer agreement and told Mrs. Zheng that if she wished to go forward she would need to sign the agreement and FedEx it back with a retainer check.

The signed retainer agreement came right back by email.  But rather than sending the retainer check, Ms. Zheng explained that, “since we’d be working together for a long time,” she’d entered my name into the company payroll system, and the check would be sent to me no later than August 28.  She also told me she’d started to receive emails and phone calls from Matrix and they were “begging her to drop the legal approach.”  In fact, Matrix was so worried about being sued that they would make payment in full no later than August 26.  Mrs. Zheng added that she’d instructed Matrix to make their payment to me directly so that “they will know not to defy this time” and authorized me to deduct my retainer and any ongoing fees from Matrix’s check.

With a sinking feeling, I wrote Mrs. Zheng and told her the retainer and future payments had to be made directly to me by Uni-Calsonic, and that I would not take any checks from Matrix.  Of course, I never heard from Mrs. Zheng again.  Frankly, even as I write this, a little part of me wants to believe in her.

To all outward appearances, Uni-Calsonic is a real company in Taiwan.  From what I can tell, Matrix is a fake, despite its website listing the Rochester location at the exact address used in the warehousing and settlement agreements sent to me by Mrs. Zheng.  There is even a warehouse at the given address in Rochester, just not one called Matrix.  Using a reverse address listing, I got the phone number of the real warehouse in Rochester.  When I spoke to the manager, who’d been there his entire career, he told me he never heard of an outfit called Matrix International Warehousing.

Finally, addicted to the hunt, I called the toll-free number for Matrix headquarters in Palmdale, California. A recorded voice answered as “Interstate Warehousing.”  I asked to speak with Daniel Peters, the Operations Manager listed on the Matrix website—the same Daniel Peters who’d signed the warehouse agreement and settlement agreement—and was put through.  The man who answered had a thick Asian accent, and said he was very familiar with Uni-Calsonic. When I mentioned that I was a lawyer in Minneapolis, he told me Mr. Peters was out at the moment.  I left a message for Mr. Peters, but Mr. Peters never called me back.

Lightfooted Lender

James Tideki of North Bay, Ontario first emailed me on August 8.  He’d lent his former business partner $285,000, payable over 24 months at 8.75 percent annual interest.  After paying the first $92,100, the former partner defaulted on the note.  Mr. Tideki wanted to know if such a case was within the scope of my practice.  I replied that it was, and gave him my number.  He wrote back the next day to say he hadn’t been able to get through to me on the phone and told me the number where I could reach him.  He also supplied me with a PDF copy of a “Loan Agreement Promissory Note” from a Duncan Ederson, dated April 15, 2008, along with Mr. Ederson’s business address in Minnesota: Stephas Roofing in Chatfield.  Mr. Tideki mentioned that he and Mr. Ederson had known each other for 12 years and had previously done business without any problems.  He also said that he expected this to be a “nonlitigation collection.”

When I Googled Stephas Roofing, it appeared at the address Mr. Tideki had given me.  Mr. Tideki’s voice mailbox was now full so I sent him an email explaining that if he wished to proceed, he’d need to Fed Ex me a check made out to my trust account, copies of all correspondence with Mr. Ederson, any other documents he felt might be pertinent, and a background summary.  I said I looked forward to working with him.  He responded by asking me to send my retainer agreement and asked for instructions about how to make a cashier’s check payable to my firm.

I attached the retainer agreement and told him a cashier’s check wouldn’t be necessary. Mr. Tideki sent back the retainer agreement signature page immediately, and again asked me for instructions so that he could send the cashier’s check after the weekend.  I responded once more that a personal or business check would be fine.

The following Monday Mr. Tideki wrote me the following email.

I hope you had a great weekend.  I just arrived in Tokyo, Japan and I will be here for 17 days or probably less if everything goes well.  I was informed by Mr. Ederson that he sent [you] a payment for $150,000 and I instructed that the retainer payment be sent to you too.  You should receive these payments this week and I want you to contact me as soon as you receive it [sic]. I have already informed him that this is less than I expected and I have lost patience at this point. He has indicated the balance will be paid in a [sic] two weeks upon receipt of the first payment by your firm.

I can still be reached at 1-647-710-0726 and I want to also take this opportunity to thank you for your assistance so far in this matter.

Please inform me as soon as you receive the payment.

Regards,

James Tideki

It was déjà vu all over again.  I wrote back and told Mr. Tideki that the retainer had to come from him and I would not be accepting any checks from Mr. Ederson.

Nonetheless, the next day I received two “Official Checks” dated August 13 and drawn on Branch Banking & Trust Company (BB&T)—issuing branch: Lake Norman-Northcross; purchaser: Duncan Ederson.  One check was for $150,000, the other was for $1,500.  Both were payable to my firm and signed by a woman at the bank named Susan Jacobs.  Yes, there is a BB&T and it has a branch in Lake Norman-Northcross.  I called BB&T and spoke to a bank officer in Huntersville, North Carolina. She immediately confirmed that the routing numbers were not the bank’s and that the Lake Norman-Northcross branch doesn’t have an employee named Susan Jacobs.  Oh yes, I also called Paul Stephas of Stephas Roofing in Chatfield.  He’d never heard of anyone named Duncan Ederson.

Unreal Realty Company

Feeling somewhat beleaguered, I received a new email on August 11, this one from a Sandra Adams of Adams Realty, Inc. in Collinsville, Virginia.  At the suggestion of C. Marie Eckert of Miller Nash LLP, a Seattle law firm, Ms. Adams was referring me a case on behalf of one of her clients who wanted to sue over the breach of a real estate loan.  Reflexively, I Googled Sandra Adams, Adams Realty, C. Marie Eckert, and Miller Nash LLP.  All of them were there on the WorldWide Web.  I replied to Ms. Adams, thanking her for the inquiry and asking her to call me. Then I tried to get in touch with C. Marie Eckert in Seattle.  A few hours later her secretary called back to say Ms. Eckert had never heard of Sandra Adams or Adams Realty.

The next day “Sandra Adams” replied to my email of the day before, telling me that she was out of the office on maternity leave until November 1, but that she’d forwarded my email to her client: Liu Jiakun of Jiakun Architects, Chengdu, Sichauan, 610041 China.  Soon after that I got an email from Mr. Liu.  He asked me to acknowledge his email so that he could send me the necessary information and implored me to: “Treat as urgent!”

By this time, even I had had enough.  Post-script: I finally did speak with a frustrated Sandra Adams, the real one.  She told me she’d had at least 500 calls from people inquiring about her “referral.”  But when she contacted the local police, they told her they couldn’t help because “she hadn’t bled.”  Ms. Adams was particularly vexed that whoever was using her identity had doctored her website to insert their own telephone number.

Conclusion

Realizing that Mrs. Zheng, Mr. Tideki, and Ms. Adams are crooks, all huddled in boiler rooms out there doing everything they can in an attempt to take your money, can be quite existentially depressing.  But it wasn’t the lost-opportunity cost of emailing potential clients who weren’t legitimate, or reading documents that were fake, or the bad feeling I got when I realized I was being played that troubled me.  I never actually came close to falling for the scams.  What really bothered me was that I still had trouble believing the Taiwan-based computer disc manufacturer and the specialty advertising guys in Ontario—my legitimate new clients—were real.  I couldn’t get it out of my mind that Ms. Zheng and Uni-Calsonic were also in Taiwan and that James Tideki was also from Ontario (at least I think they were)!  Even after I’d been paid and cashed retainer checks from my new clients, I went to sleep with one eye open.

When I went into the law, it was with almost an Atticus Finch ideal in mind—that of the principled lawyer whose calling it is to solve important problems for his clients.  But what does it mean to me, or any lawyer for that matter, to go to the office every day only to find one or more inquiries from people out there—real flesh and blood people—who will go to elaborate lengths for the sole purpose of robbing you?  What does it mean to any of us when fraud becomes the new norm?

Avoiding Internet Scams

It is clear from a review of the reported cases that scams like those described have successfully hit both large and small law firms.  Nonetheless, while it’s very hard to be sure whom you’re dealing with in the internet age, there are a couple of simple, longstanding rules to keep in mind when dealing with business litigation clients you meet over the internet:

  1. Don’t agree to have your retainer paid by a third-party debtor, especially when you don’t have to do any legal work to earn it.  Insist that your retainer come from your client.
  2. Don’t get into a situation where right from the outset you are disbursing funds from a stranger’s check.
  3. If it doesn’t smell right, it almost certainly isn’t.  A corollary of that time-honored rule is this one: if it seems too good to be true, it is.

While following these rules is no guarantee against being scammed, it may help you avoid some of the more egregious attempts to part you from your hard-earned money.

 John F. (Jeff) Alden (www.JFALawfirm.com) is a Minneapolis lawyer whose practice focuses on business and business litigation.

Notes

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