LSA Advisory - May 2008

Fraud Alert - Bank Drafts and Counterfeit Certified Cheques By Mike Martin, Risk Assessment Officer, Law Society of Alberta
The Law Society of Alberta has become aware of a new series of frauds involving bank drafts and counterfeit certified cheques. While there are scams occurring all the time, new ones and variations of existing scams, this one involves what appear to be legitimate certified cheques/bank drafts. Sole practitioners and lawyers in small firms are often targeted. The deals look legitimate, and typically the client is in a hurry and is new to the firm. Typically, the fraud unfolds like this: The lawyer receives and deposits the certified cheque/bank draft that funds the transaction. He or she then draws certified cheques/bank draft as the borrower has directed. Several days later, the lawyer is advised that the certified cheque/bank draft from the lender is bogus and there is a shortfall in his or her trust account. Red Flags to Watch for: Certain indicators may stand out such as the:		client seeks counsel outside the area of the debtor's jurisdiction, sense of urgency on the part of the client, ease with which agreement of terms were met, and the certified cheque/bank draft made to the firm in trust How to Protect Yourself? If you are dealing with clients you do not know well, in order protect yourself and your trust account, contact your bank and ask them to: contact the bank issuing the certified cheque/bank draft to verify the authenticity of the certified cheque/bank draft, and confirm that the funds have been cleared. If you draw from your trust account without the certified cheque/bank draft being verified or cleared, your firm may be exposed to loss. For further information, I can be reached at (403) 229-4778.

New Requirements for "Negotiated Cheques" Under Rule 122(2)(i)
Rule 122(2)(i) of the Rules of the Law Society require firms to maintain bank source documents, which include negotiated cheques. This applies to both trust and general bank accounts. In the past the Law Society has taken the view that the rule requires the original negotiated cheque to be maintained. Recently the Canadian Payments Association (CPA) announced plans to change the cheque clearing system from a paper system to digital images. This means most banking institutions will no longer provide the original negotiated cheque to an account holder. Given this change in the banking industry, the Law Society acknowledges that a printout of a digital image of the negotiated cheque will satisfy		the requirements of Rule 122(2)(i), provided the following criteria are met: the digital image is printed and the paper copy is maintained with the bank source documents, both the front and back of the negotiated cheque is included in the printed copy of the digital image the printed copy of the digital image is easily legible, with a maximum of 8 images per page (4 cheques, front and back). Please check the image quality immediately and request replacement images as necessary. For more details, visit www.lawsociety.ab.ca.

Summary of Disciplinary Matters
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The committee expressed its concerns about why C. became involved in receiving or disbursing funds when C. was not providing any real or substantial legal services in connection with the matter. In its report, the committee noted that "lawyers should not allow their names to be used in circumstances where they have no real role in the provision of legal services, and where unrepresented individuals are involved."

"Trust accounts should not be used as deposit accounts for the aggregation and payment out of money from investors in circumstances where the lawyer had no real connection with the provision of legal services with respect to the investment," the committee reported. C. should have, the committee stated, "been alert to the fact that his client might be adopting this mechanism of collecting third party funds with the intention of providing the investor with illusory comfort that a lawyer was somehow involved in the transaction."

"The situation was replete with the possibility of mischief: a shrewd promoter client, a lawyer who had no real association with the underlying transaction, and unrepresented members of the public putting their savings at risk." "We trust that C.'s experience, both in being sued civilly and in having a disciplinary complaint launched against him," wrote the hearing committee, "will make (C.) more cautious in the future and more attentive to his role in acting for clients rather than merely lending his name and trust account to accommodate a client in matters unassociated with the provision of legal services."

Fraud Alert - Bank Drafts and Counterfeit Certified Cheques

By Mike Martin, Risk Assessment Officer, Law Society of Alberta

New Requirements for "Negotiated Cheques" Under Rule 122(2)(i)