One of your ethical duties with respect to an Internet scam is to not fall for it, the Association of the Bar of the City of New York Committee on Professional Ethics has said in a new opinion.

Competent? Don’t fall for Nigerian check scam

The Committee considered the ethics rules that apply to a lawyer who suspects or discovers that the lawyer is the target of an Internet-based scam.  Rule 1.1 of the New York Rules of Professional Conduct requires a lawyer to provide competent legal representation to a client.

The Committee said that competence ‘includes a duty to exercise reasonable diligence in identifying and avoiding common Internet-based scams, particularly where those scams can harm other existing clients.”

As one basis for its conclusion, the Committee cited   a 2013 disciplinary case, in which the Iowa Supreme Court suspended a lawyer for one year for violating the duty of competence when he failed to conduct even a cursory Internet search, which would have revealed the existence of the Nigerian check scam that the lawyer fell for.  The scam resulted in a $200,000 loss to other clients of the lawyer.

Look out for red flags

You may think that you’d never fall for an Internet scam, but as the opinion points out, since 2009 e-mail scams have swindled lawyers out of an estimated $70 million, and the cons are often highly sophisticated, “involving parties that appear to be representing legitimate international corporations and using  high-quality counterfeit checks that can take a bank weeks to discover.”  Some of the red flags identified in the opinion:

  • you receive an e-mail from abroad requesting legal assistance, but the sender does not provide any referral source;
  • the e-mail sender suggests that you accept a contingency fee, even though that might not be customary or appropriate for the type of engagement;
  • the e-mail sender is quick to sign a retainer agreement, and assures you that the matter will resolve quickly;
  • the counter-party responds quickly, settling the dispute or closing the deal with little or no negotiation;
  • the e-mail sender insists that his or her funds be wired to a foreign bank account as soon as the check has “cleared,” claiming that an emergency requires immediate release of the funds;
  • the supposed closing payment or settlement check comes quickly, often from a bank outside your jurisdiction.

And if these red flags seem obvious to you, the scammers are also getting more sophisticated.  Some have established websites for phony companies with “staff” answering phone calls for the “principals.” Some use the identity of actual companies, so when an email inquiry is vetted it appears to be from a viable client

Ethical duties while investigating, and if scammed

When you receive an e-mail with red flags or that is in any way suspicious, just delete it; you do not have an ethical obligation to respond to an unsolicited e-mail inquiry from a prospective client, the Committee opined.

Deciding to investigate the validity of a potential new matter, however, binds you to duties that you owe to any legitimate prospective client — particularly the duty of confidentiality.  (See Model Rule 1.18.)  But that duty only extends to those genuinely seeking legal services.  If you conclude that the prospective client is attempting to defraud you, you may report the scheme to affected banks and law enforcement authorities without violating any duty of confidentiality, said the Committee.

If you fall victim to a scheme that results in loss to other clients, the duty of promptly informing clients of material developments requires immediate notification to those clients.  (See Model Rule 1.4(a).)

Be careful out there

As the Committee’s opinion points out, banks have sued lawyers for lost funds caused by counterfeit checks, and some insurers have refused to indemnify scammed lawyers.  To avoid being scammed, don’t be tempted into short-cutting your usual intake procedures — and if an engagement looks too good to be true, it most likely is.  (FYI, here is a link to the FBI’s site listing common Internet frauds.)