Anonymous Admonishments In South Carolina
The South Carolina Supreme Court has found that an attorney had failed to supervise employees in connection with a part of a massive misappropriation but declined to publicly identify the admonished attorney.
The Atlanta Journal – Constitution reported on the convicted perpetrator of the crimes.
The arrangement
Morris Hardwick Schneider (MHS) was a multi-jurisdictional real estate closing and default services law firm based in Atlanta, Georgia. In 2014, Nathan Hardwick was MHS’s CEO and held a majority interest in the firm. Hardwick oversaw corporate accounting for MHS and financial and accounting matters for the closing side of the practice from his office in Atlanta. MHS had two other equity partners, Mark Wittstadt and Gerard Wittstadt, who were based in Maryland and headed the firm’s default services practice. None of MHS’s equity partners were licensed to practice law in South Carolina.
In 2014, Respondent served as the managing attorney for MHS’s Dunwoody, Georgia office but was also a non-equity partner in the firm and held the title of President of South Carolina Operations. In that role, Respondent provided oversight and assistance with business development, marketing, communications, hiring, and training in the South Carolina offices located in Columbia and Greenville. However, Respondent was not involved with or responsible for the day-to-day operations of either South Carolina office.
There were trust account shortages
In South Carolina, the misappropriations occurred primarily through online transfers between firm trust accounts. More than $9 million in transfers in and out of the South Carolina trust accounts occurred during 2014 alone. According to MHS’s internal records, the trust account against which insufficient funds items were presented was $448,170.36 short at the end of June 2014. On the same day, a second trust account was $320,668.10 short, and a third account was $140,060 short.
MHS’s title insurance company ultimately funded $29,530,391 to cover trust account shortfalls throughout the firm. ODC reports it is unaware of any South Carolina clients who were harmed by the misappropriation of funds from South Carolina trust accounts.
Here
In the instant matter, Respondent admits she failed to uphold her responsibilities as a partner in MHS. She failed to make reasonable efforts to ensure the firm’s attorneys and non-attorney staff complied with Rule 417, SCACR, with regard to South Carolina trust accounts. Numerous people who had access to the South Carolina trust accounts were neither licensed to practice law in South Carolina nor directly supervised by an attorney who was, including several attorneys licensed in other jurisdictions and non-attorney staff who worked in the firm’s accounting department in Atlanta. Respondent’s misconduct enabled those with impermissible and unfettered access to misappropriate almost $30 million. Further, the misappropriations were allowed to continue undetected because MHS’s nonattorney accounting staff were in charge of receiving the trust account bank statements and reconciling the accounts. Neither Respondent nor any other South Carolina licensed attorney reviewed the reports or supervised the reconciliation process as required by Rule 417, SCACR.
Notice to the Bar
We publish this admonishment in the “In re Anonymous Member of the Bar” format so as to remind and caution members of the Bar who hold partner positions of their duty to reasonably ensure their firms have measures in effect providing reasonable assurances that all attorneys in the firms conform to the Rules of Professional Conduct and that the conduct of nonattorney assistants is compatible with the attorneys’ own professional obligations. We further warn members of the Bar against allowing law firm leadership or staff located outside of South Carolina to have unfettered access and control over South Carolina client funds.
Another attorney was anonymously admonished for conduct with MHS
Respondent began working for MHS in 2004. Respondent—who was licensed to practice law in South Carolina and Georgia—worked from one of MHS’s Georgia offices and handled some South Carolina transactions. In 2013, Hardwick asked Respondent to open an MHS office in Columbia. MHS had an existing office in Greenville and previously had offices in other South Carolina cities. The Columbia office opened in early 2014. Respondent was the sole attorney in the Columbia office and held the title of “Senior Managing Attorney.” Respondent took marketing direction from a South Carolina licensed attorney who was a nonequity partner at MHS and held the title of “President of South Carolina Operations.” However, Respondent received no other formal supervision or training regarding trust accounting or other aspects of running the Columbia office.
Violations
Respondent admits numerous people forbidden by Rule 417 from having access to South Carolina trust accounts had such access. See Rule 2, Rule 417, SCACR. Respondent failed to ensure a South Carolina licensed attorney had access to the bank statements and reconciliation reports and, instead, improperly allowed MHS accounting staff in Atlanta to transfer funds between MHS’s accounts, including South Carolina trust accounts, without Respondent’s direct supervision as required by Rule 417. See Rules 1 and 2, Rule 417, SCACR. Respondent’s failure to exercise control over the South Carolina trust accounts placed South Carolina client funds at risk and allowed misappropriation of those funds. By failing to restrict access to the South Carolina trust accounts, directly supervise individuals who had access to the accounts, and ensure monthly reconciliations were not only performed, but also revealed no problems requiring her attention, Respondent violated Rule 417, SCACR. See id.
(Mike Frisch)