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In its 20th annual report, the New York Lawyers’ Fund for Client Protection says the overwhelming majority of honest attorneys are continuing to cover for the misdeeds of a relative handful of crooks. And while the number of attorneys continues to grow, the number of claims is considerably below the mid-1990s peak. Timothy J. O’Sullivan, executive director, credited a handful of reforms — especially the dishonored check notice rule and continuing legal education requirements — for the downward trend in claims. After climbing steadily throughout the 1990s to a peak of 625 in 1997, the number of claims dropped to 187 last year, a statistically insignificant increase from the 160 recorded in 2001. “This year and every year it is a very small percentage … of lawyers that are causing the problems,” O’Sullivan said. “In 20 years, there have been only 711 lawyers responsible for the payouts. It is a very small percentage of the membership of the New York bar. Certainly, the vast majority of New York’s lawyers are honest and conscientious with their clients and their clients’ funds.” The agency, founded 20 years ago, uses a portion of the biennial attorney registration fee — not tax dollars or Interest on Lawyers Accounts (IOLA) funds — to reimburse clients who were financially cheated by their attorneys. It is entitled to $60 of each $300 fee, but usually receives $100 from the Legislature. The fund can reimburse up to $300,000 of a loss. Last year, 98 percent of the clients were fully reimbursed. On average, since 1982, 91 percent of the eligible claimants were made whole. Over the last 20 years, the fund has reimbursed $97.3 million to 5,428 law clients. But the losses were attributed to only 711 lawyers. There are approximately 197,000 lawyers registered with the Office of Court Administration. Offenders tend to have multiple victims and their crimes tend to impose a heavy cost on attorneys. Last year was typical, when 58 percent of the reimbursements resulted from thefts by two lawyers: Mitchell A. Rothken of the 1st Department and Frank P. Gangemi of the 2nd Department. Rothken, a Manhattan real estate lawyer, cheated clients out of more than $2 million to support his stripper girlfriend. Gangemi of Brooklyn stole more than $1.3 million from 20 clients. Both are in prison. Typically, real estate escrow abuses account for a large percentage of claims and losses, and that was particularly true last year. Largely because of Rothken’s thefts, approximately half of the claims and payouts involved real estate escrows. Another big loss area involved investments, which accounted for 19 percent of the claimed losses, or $7.4 million, last year. “Investment losses are claims where a client grants a loan to a lawyer or invests money with a lawyer,” O’Sullivan said. “Unfortunately, the jurisdiction of our fund is limited by statute to losses that occur within an attorney client relationship.” O’Sullivan said the fund’s involvement in an investment loss results most often when a personal injury attorney wins a large verdict or judgment and offers to invest the award on behalf of the client. REFORMS URGED The Board of Trustees, chaired by Eleanor Breitel Alter, a partner at Kasowitz, Benson, Torres & Friedman in Manhattan, is urging a number of new reforms they believe will cut down on losses. For instance, the trustees note that under current court rules there is no provision for the transfer of escrow funds when an attorney is disbarred or suspended. Additionally, they propose altering court rules to give the Appellate Divisions discretion to restrain or freeze escrow accounts of attorneys considered a public threat. That initiative would dovetail with the rule allowing for an interim suspension following a judicial determination that a lawyer has committed professional misconduct and is an immediate threat to the public interest. O’Sullivan said the trustees also are recommending changes that would require out-of-state attorneys practicing in New York to contribute to the disciplinary system and the Lawyers’ Fund. He said that recommendation arose in the context of multijurisdictional practice. “Consideration should be given to how multijurisdictional practice will impact on client protection,” he said. “If the concept is to open New York’s borders to out-of-state lawyers coming here to practice, we should consider what happens if one of those lawyers is dishonest and steals client funds. Our regulations cover losses caused by someone admitted to practice in New York.” O’Sullivan said it is unclear whether an attorney admitted pro hac vice is covered. New York Chief Judge Judith S. Kaye, an original trustee of the fund when it was initiated and before her appointment to the state’s Court of Appeals, said in a foreword that the organization can take credit for “remarkable service both to the public and to the legal profession in restoring losses — tangible and intangible — caused by lawyer dishonesty.” The report also found: � The number of claims peaked in 1997 at 1,218. Last year, there were 499 claims filed, or 49 fewer than 2001. � More clients sought reimbursement of legal fees than anything else. About 43 percent of the claims involved fees. � Unearned legal fees constitute the largest number of approved awards. � The largest proportion of awards arise out of the 2nd Department. Since 1982, the 2nd Department has accounted for 3,213 awards, compared with 1,145 in the 1st Department, 596 in the 4th, and 474 in the 3rd. � Middle-aged, male solo practitioners are the most likely to engage in misconduct resulting in an award from the fund. � A large percentage of the awards involve attorneys with alcohol or substance abuse problems.

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