Sophisticated Scammers Target Attorneys: How to Avoid the Retainer Fee Scam

Joe Flueckiger

VP Bank Security and Fraud Investigations
First Republic Bank

December 2, 2015

You’ve likely received – and disregarded – a poorly worded email from a so-called international prince, who needs just a small deposit to help him claim his rightful inheritance. Of course, you’ll be handsomely rewarded for your efforts.

However, not all email hoaxes are as obvious, particularly those that come from what appear to be a bona-fide new client contact. In fact, today’s new sophisticated email scams have swindled U.S. attorneys out of an estimated $70 million since 2009.

The most common hoax targeting attorneys today is known as the Retainer Fee Scam. Even if you’re confident that you won’t fall victim to the scam, it’s worth educating yourself and your support staff so you can recognize the most common warning signs.

What is the Retainer Fee Scam?

Here’s how it typically works. A new would-be client contacts an attorney office via email asking for representation. The client completes and returns the retainer agreement, along with a legitimate-looking cashier’s check.

Soon after, the supposed client notifies the attorney that the matter has been resolved and asks the attorney to deduct their legal fee from the retainer and wire the remainder to the clients financial institution. Upon further review, the original cashier’s check turns out to be fraudulent, and the attorney is left responsible for the wired funds.

What are the Warning Signs?

Timing is often what makes the scam successful. Fraudsters ask for the funds after they become available from the attorney’s bank, but before they’ve been collected or verified. Warning signs include:

  • A new, unknown potential client contacts an office via email or letter, and not by phone or in person.
  • A cashier’s check appears to be drawn from an international bank, often from Canada or Japan. The check could be received in a larger-than-expected amount.
  • An attorney is asked to return the funds from their own account, usually through an IOLTA/IOLA/IOTA.

How can you Avoid Falling Victim?

As scam artists become more sophisticated, they become more difficult to identify. Some best practices to guard against such fraud include:

  • Vet all new clients, particularly those who make contact via email or letter. Ask how they found your office, why they chose to work with you, and if they came through a referral. If something doesn’t seem right, it could be a red flag.
  • Research new clients and their email addresses, before taking them on. A counterfeit name may yield few or no Google hits, but some email addresses used in this scheme have actually appeared in internet searches. A little up-front research can make a big difference later down the line.
  • Verify the validity of all cashier’s checks before drawing on the funds. Funds are often “available” within a few days, although they’re not “collected” (meaning the actual check has been paid) for up to a week. You can ask your bank’s Fraud Department to verify the validity of the cashier’s check before any funds are wired out.

For those who have fallen victim, there is very little recourse, particularly because fraudsters are usually located overseas. The best course of action is to be aware of the potential, to train your staff to recognize red flags, and to perform due diligence on prospective new clients and outstanding payments.

All information in this article is from sources deemed to be reliable.

© First Republic Bank, 2015