E-Mail Scams That Target Smaller Shops on the Rise

Nate Raymond

New York Law Journal

The e-mail that arrived in Robert Wakeman's inbox in February 2009 should have been good news: The CEO of a Taiwanese manufacturing company wanted to retain his Albany, N.Y.-based law firm to chase down delinquent accounts.

But a year later, Lombardi, Walsh, Wakeman, Harrison, Amodeo & Davenport is facing the consequences of taking on that client. The purported CEO, "Albert Chang," was actually a scam artist who tricked the firm into depositing a fake $384,700 check into its bank account and then wiring most of the sum overseas.

In May, Berkshire Bank sued the nine-lawyer firm seeking to recoup the funds. The firm negotiated a settlement in July, then sued its professional liability insurer American Guarantee and Liability Insurance Company in Albany Supreme Court seeking to recover the costs of the litigation.

Earlier this month, Acting Justice Thomas McNamara ruled that the law firm's malpractice insurance policy did not cover the cost of litigating, as the firm's relationship with Berkshire Bank was depositor and banker, not attorney and client.

McNamara said in Lombardi, Walsh, Wakeman, Harrison, Amodeo & Davenport, P.C. v. American Guarantee and Liability Insurance Company, 6380/2009, that the attorney-client relationship between Lombardi Walsh and Chang's company "merely furnished the circumstances under which the claim by Berkshire Bank arose," and was not based on any legal services by the law firm,

Dianne Bresee, Lombardi Walsh's lawyer at O'Connor, O'Connor, Bresee & First in Albany, did not respond to a request for comment. Kevin Cavaliere, a lawyer for American Guarantee at Steinberg & Cavaliere in White Plains, N.Y., declined to comment.

The experience of Lombardi Walsh presents a cautionary tale for other law firms.

Jason Boone, a research assistant at the non-profit National White Collar Crime Center, said the FBI has reported that since 2007 it has received hundreds of complaints resulting in millions of dollars in losses from similar counterfeit check scams targeting law firms.

The con artist typically sends an e-mail claiming to need help in a collections matter. Soon after signing the retainer agreement, a check arrives. The firm is instructed to deduct its retainer from the check and wire the rest to a foreign bank. By the time the victims realize the checks are fake, the funds have been wired abroad.

The FBI issued a warning in January about a "new twist" on the counterfeit check scam targeting divorce lawyers. Under that scenario, a purported ex-wife abroad needs help collecting a divorce settlement from her former spouse in the United States. Again, a large fake check arrives and the client asks that the amount, minus the retainer, be wired to his or her foreign bank.

Boone said such scams are not unlike other schemes tracked by his organization. The downturn in the economy has prompted a "rampant" increase in scams generally as con artists try to take advantage of people under financial pressure, Boone said. The law firms involved tend to be smaller, he added.

"With the law firms, it's a little surprising because you'd think people in that area would be a little more sophisticated," he said.

Patrick J. Comerford, a partner at Lynch Rowin in Manhattan, said his firm encountered a scam last year when a person claiming to be with a Chinese metals company contacted the firm on a collections matter.

The client, after agreeing to the firm's $25,000 retainer, sent an e-mail claiming the case was settling before Lynch Rowin had done any work.

Nevertheless, the supposed late-paying customer sent to Lynch Rowin a check for $540,730. The purported Chinese client told the firm to deposit the check in its escrow account, deduct the firm's $25,000 retainer, and wire the rest overseas. Comerford said his firm grew suspicious since the client would not just wire the retainer, and asked its bank to make sure the check was legitimate. It was not.

"It's something you can easily fall into," Comerford said.

DUE DILIGENCE

While Lynch Rowin escaped the six-figure hit, Lombardi Walsh was not as lucky: It deposited the check.

Wakeman declined to comment. But in an affidavit filed in the insurance litigation, Wakeman said Chang and his company, Asia Pacific Microsystems Inc., seemed "legitimate."

Chang contacted Wakeman in February 2009 through Avvo, the lawyer ratings website, and provided a Yahoo e-mail address, according to e-mails submitted as exhibits. After Wakeman responded, Chang followed up to say he "got your contact information from your local chamber of commerce."

"Mr. Chang's Chamber of Commerce reference made sense to me because I had been general counsel to the Albany-Colonie Chamber of Commerce," Wakeman said in his affidavit.

Wakeman said he had done his due diligence, running financials on the company and checking its website and phone number, and finding numerous articles on Lexis-Nexis. The supposed Chang had provided an address for a real website for Asia Pacific.

Boone said scam artists often use the names of real companies and executives.

Chang told Wakeman that Asia Pacific needed the firm's help to collect from five clients with an average amount of $350,000 delinquent. A few days later, Chang wrote to say that one of the delinquent customers had agreed to pay, and that the law firm could deduct its $10,000 retainer upon receiving the payment.

Two days later, a DHL package arrived with a $384,700 check, along with an invoice from Asia Pacific. Wakeman said he did not notice until later that the address on the back of the DHL package did not match the one on the invoice.

By then, Wakeman said he had deposited the check in an account he set up for the funds at Berkshire Bank and asked the bank to wire the funds once the check had cleared. Two days later the bank wired funds.

Berkshire Bank soon advised Lombardi Walsh that the check was counterfeit and demanded the firm repay the funds. Lombardi Walsh reported the incident to the FBI, Secret Service and New York State Police, according to Wakeman's affidavit.

The FBI on its website advises law firms to "conduct as much due diligence as possible before engaging in transactions with parties who are handling their business solely via e-mail, particularly those parties claiming to reside overseas."

Lawyers who have been affected by similar scams can file complaints with the FBI through the Internet Crime Complaint Center at www.ic3.gov/.