A Stetch In Time

The New York Appellate Division for the Second Judicial Department ordered a two-year suspension for an aggravated failure to supervise an attorney employee

At the disciplinary hearing, the respondent admitted that he was negligent in his supervision of Stetch, that there was a breakdown in internal controls, and that he should have been more attentive and should have done more in his supervision of Stetch. The issue in contention revolved around the existence of early warning signs, because had those early warning signs been heeded by the respondent, who was the sole owner and partner of the firm, the fraudulent and illegal conduct committed by Stetch could have been detected, prevented, or at least curtailed. In the Grievance Committee’s view, the warning signs, which took place over a span of 2½ years, were many, including, for instance, Stetch’s failure to provide the respondent with disbursement sheets for transactions that she handled or her provision of disbursement sheets that were incomplete; Stetch’s failure to provide client information in the memorandom section of checks, thereby preventing the respondent from performing a reconciliation of the firm’s escrow accounts; the issuance of checks containing forged signatures; and the issuance of checks with no signature that cleared. The respondent conceded that early warning signs existed and that they were not properly addressed. However, he claimed that he did take some action—for example, he hired an outside accountant—and did not ignore the warning signs completely. The respondent claimed that he would have had to conduct a forensic accounting, which he did not do, in order to have discovered the fraud.

There was mitigation but

Notwithstanding the above enumerated mitigating circumstances, we find that the respondent committed serious professional misconduct. In view of the multiplicity of warning signs, including one that even the respondent concedes was a sign that his employee was engaged in illegality (checks with forged signatures or no signature), repeated mistakes by Stetch, her ineptitude with record keeping, and her outright lies, the respondent’s failure to conduct a forensic accounting, which would have required him to examine the files, was patently unreasonable. The respondent, a certified public accountant with years of experience at a major accounting firm, was eminently skilled and trained to undertake such a review. Had he done so earlier, the respondent could have contained the damage, which was significant, approximately $2.3 million. To make matters worse, although the respondent fired Stetch in June 2010 upon learning that Stetch made disbursements that contradicted his instructions, he immediately rehired her on the belief that she could be of assistance. Soon thereafter, the respondent permanently fired Stetch, but only after she caused more damage. If the respondent’s failure to supervise, which is conceded, was negligent, his decision to rehire Stetch was simply reckless.

(Mike Frisch)