Robbin Hood

The Massachusetts Board of Bar Overseers has imposed a reprimand for trust account administration issues 

The respondents, partners in a law firm, failed on multiple occasions to comply with the record-keeping requirements for IOTLA accounts in Mass. R. Prof. C. 1.15(c) and 1.15(f)(1). The failures were protracted and recurring, with serious consequences. A hearing committee has recommended an admonition. Urging a public reprimand, bar counsel has appealed. While we adopt the hearing committee’s legal conclusions, we disagree with its recommendation that the matter be resolved by an admonition. We impose a public reprimand.

An unwanted intruder

The narrative jumps to October 2018, when a third party hacked four of the respondents’ IOLTA accounts. The initial breach, as well as a subsequent breach on November 14, 2018, were not detected until November 26, 2018. On that day, the hacker struck again. This time the firm’s business manager immediately learned of the theft and took steps to return the money to  Although the respondents assured bar counsel that the business manager would attend one of the office’s free trust accounting classes, she never did so. We are left in the dark as to the reasons bar counsel closed the file and took no further steps to ensure the respondents’ compliance with Rule 1.15(c) and (f). 3 the account from which it was stolen. On January 28, 2019, bar counsel received yet another notice of a dishonored check from the respondents’ bank. During the course of the ensuing investigation, bar counsel learned of the theft from the respondents’ IOLTA accounts. The respondents informed bar counsel that the actions of the third party had started around October 2018, requiring the firm to move money from one IOLTA account to another.

The fraud was perpetrated by a miscreant identified as “Robinhood,” who was able to move funds among the respondents’ accounts as well as withdraw money. One account lost $15,400 over two days in October 2018, which went unnoticed at the time. On November 26, 2018, Robinhood moved $12,000 (in two $6,000 installments from one IOLTA account to another). On that day, the business manager noticed one of the transfers and returned the funds to the proper account.2 Also on November 26th, the firm received a fraud alert from Citizens Bank. The business manager related to her bank contact that she had received a call earlier that day from a check-cashing store in Arizona, where a woman apparently was trying to cash a firm check in the amount of $10,000. The check purportedly had been drawn on an inactive account. On December 3, 2018, the respondents received information about another fraudulent check in the amount of $10,000. After investigating the fraud, on April 26 2019, bar counsel advised the respondents to immediately deposit business or personal funds to make up the shortfall of $15,400 in the IOLTA account from which money had been stolen. Not until May 20, 2019 did the respondents ask their bank to investigate the fraudulent activity on the account. The hearing committee found that between learning of the fraud (in October 2018) and May 2019, the respondents “did nothing proactive.” (Hearing Committee Report (“HCR”) ¶ 66). They did not file a police report. They did not notify their malpractice insurer. They “assumed” their bank would take care of the problem and would replenish the stolen funds. (Id). The hearing committee found no evidence that the respondents bore direct responsibility for the hacking of their accounts. (HCR ¶ 62). On the other hand, the committee “infer[ed] that the breach was at least enabled, or exacerbated, by their neglect. Had they been doing proper recordkeeping, the fraud itself, or its magnitude, would have been detected earlier.” (Id).

In addition to the breach described in the prior paragraph, bar counsel noticed during his 2019 investigation that the respondents’ bank accounts contained stale, outstanding checks, which had not been cashed or deposited for many years. One account had 243 uncleared checks in the approximate amount of $62,000; another had twenty-four uncleared checks. Another, inactive, account had a balance of $49,642.3 The hearing committee found that, “funds languished for many years in three of the respondents’ IOLTA accounts, and that they did not make a significant concerted attempt to distribute those funds until bar counsel ordered them to do so.” (HCR ¶ 40).

Sanction

Although we adopt all but one of the hearing committee’s findings of fact and all of its conclusions of law, we do not agree with the recommendation that the respondents receive an admonition. While no prior matter is directly on point, on the whole our public reprimands are much closer factually and legally than those that resulted in an admonition.

A dissent would impose the admonition recommended by the hearing committee. (Mike Frisch)