New twists on old scams can result in big losses.

An attorney was contacted by a potential client. The client, a foreign company with global sales, was looking for an attorney to handle collection of a large receivable in the United States. After telephone communications regarding the terms of the potential engagement, the company retained the attorney and his firm. Information was provided to the attorney regarding the debtor and the debt, which was in the high six-figure range. The attorney promptly started efforts to collect the money owed to his new client. Although the debtor wasn’t able to pay the entire debt the attorney was successful in negotiating a satisfactory settlement resulting in payment of just under $500,000 on his client’s behalf. 

As agreed to by all parties, the debtor made payment to the attorney in the form a Cashier’s Check which the attorney deposited into his firm’s trust account. After waiting for the funds to become “available” the attorney, as instructed by his client, withheld his fees and costs from the settlement and wired the remaining funds to his client’s bank account overseas. The attorney considered this a successful conclusion to what he hoped would be an ongoing client relationship.

Unfortunately, a few days later the bank notified the attorney that the Cashier’s Check was returned unpaid as a forgery. When the bank attempted to “reverse” the wire transfer to the client account no funds were available in the account. The attorney’s telephone calls to the client went unanswered and no information regarding the client company could be identified. This new twist on the advance-fee/overpayment scam left the attorney’s firm on the hook for the entire amount of the bogus settlement, close to $500,000.

Lawyers and law firms are the latest targets of scammers using variations of the overpayment or advance-fee fraud. Recent variations have targeted the hospitality (hotel, events and restaurant) and vehicle (auto and truck dealers) industry as well as individuals. A typical scam in the hospitality industry begins with the target receiving a large booking ostensibly for a wedding, family reunion or other event. Shortly after receiving full payment via a Cashier’s Check the customer calls and reports that something tragic and gripping has happened (death in the family, etc.) which requires either cancelling or significantly scaling back the size of the event. Since full payment has been received the customer requests that the overpayment be returned, usually by wire or Western Union Money Transfer. Of course, the prepayment is eventually returned and the victim is out the amount of the refund. Vehicle dealerships can be targeted through an long-distance offer to purchase a vehicle. The purchaser may forward a payment that is too large (explained as being from an inheritance or gift) or a payment that includes shipping or other charges. In any event, since payment is made via a “secure method” such as Cashier’s Check, the seller is directed to wire the overpayment or expense portion. Of course the check is ultimately returned and the victim is left liable for the cash amount transferred by wire.

Some key items to remember to avoid becoming a victim of this type of fraud include:

• Cashier’s checks are not a “guaranteed” method of payment;
• Checks of any type drawn on an institution outside the U.S. can take a week or longer to be returned for any reason – non-sufficient funds, forgery, fictitious account, etc.;
• Beware of any transaction where you’re requested to wire funds shortly after receiving proceeds via a check;
• Beware of transactions where the entire relationship is conducted by phone or e-mail without any face-to-face contact;
• Beware of relationships where the communications are consistently filled with bad spelling, punctuation or grammar; and
• Beware of transactions where there’s an increased sense of urgency – particularly in the payment or refunding of money.

In today’s business environment there can be legitimate relationships which include some or all of these elements. Remaining vigilant and aware, particularly in new relationships, and understanding the risks can protect you and your organization from significant losses.

If you have questions about this or other fraud related concerns contact Wipfli's Marc Courey or Mike Yankunas.

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