Digital Wallet A Bit Light

The Georgia Supreme Court has disbarred an attorney who has sought to resign from the Bar while facing that sanction

McDonald filed general exceptions to the Review Board’s Report and Recommendation, arguing that disbarment is not the appropriate discipline. She also filed a document styled as a “Petition for Voluntary Retirement,” in which she requests that she be “transferred to retired status” in lieu of being disbarred. The Bar responded to both filings. After consideration of the entire record in this matter, we dismiss McDonald’s petition for voluntary discipline and order that she be disbarred for her violations of the Georgia Rules of Professional Conduct.

Facts

Although the record in this case is large and comprehensive, the general facts are that McDonald, a solo practitioner who joined the State Bar of Georgia in 1985, did business both as the McDonald Law Group, LLC and Law Offices of Diana McDonald, LLC. She maintained IOLTA accounts at Wells Fargo Bank in the name of both businesses.

In the course of her practice, McDonald provided legal advice to a client who purported to conduct deals wherein the client was to provide goods or services to third parties in exchange for payment. As early as 2017, McDonald agreed to act and did act as an escrow agent for several of those deals. Despite the facts that none of the client’s deals seemed to close smoothly and that the third parties in most, if not all, of those deals complained to McDonald about not receiving the promised goods or services, McDonald again agreed in early 2019 to act as the escrow agent in a deal wherein her client and his associate promised to sell 1,000 Bitcoin to a third party through intermediary companies.

On January 3, 2019, the third party in this deal transferred $4,000,000 into one of McDonald’s IOLTA accounts with the understanding that it would be held in escrow and not released until the promised Bitcoin was confirmed to be in the third party’s “digital wallet”—an event which all parties expected to occur quickly, but which all parties now agree never happened. Several days later, after no Bitcoin was delivered, the third party, through its attorney, reached out via email to McDonald, demanding return of its funds.

In responding to the third party over the next several days, McDonald first encouraged it to provide her client with additional time to deliver the Bitcoin, assuring the third party that her past experiences with her client gave her faith that her client would deliver, but that, if he did not do so, she would commence the process of transferring the third party’s escrowed funds back to it on January 8, 2019.

Then, on January 9, 2019, after the third party again demanded return of its $4,000,000, McDonald informed the third party that she had received confirmation from her client that the Bitcoin would be delivered “before the end of business today”; represented that, “[a]s a gesture of good faith and recognition for the delay,” she had negotiated with her client to deliver 2,000 Bitcoin, instead of the 1,000 for which the third party had paid; and assured the third party that its funds were “safe and protected.” In midJanuary, the State Bar became involved at the third party’s request in trying to obtain assurances from McDonald that she still had the $4,000,000 in her IOLTA account. McDonald advised the Bar that her client represented to her that he had sent the Bitcoin, and that he needed time to investigate why the Bitcoin had not shown up in the third party’s digital wallet. She assured the Bar that the matter would be resolved by the end of the business day on January 15 and that “the funds [we]re safe.” The Bar responded to McDonald informing her that it was relieved to hear that “the money was still safely in [her] trust account,” and reminding her of her fiduciary duties under Rule 1.15 (I)

The third party pursued a bar complaint and civil suit

Unsatisfied with the return of only half of its money, the third party filed a federal lawsuit against McDonald, her business entities, and various other parties on March 1, 2019, seeking an immediate temporary restraining order, injunctive and equitable relief, and compensatory and punitive damages. In connection with this lawsuit, McDonald provided sworn testimony in which she admitted that $440,000 of the third party’s money had already been transferred to her operating accounts and to her personal accounts (and that of her sister), and explained her position that, even though her client never provided, and the third party never received, any Bitcoin, she was entitled to those funds and more, as fees for her services to her client. She also took the position that she did not need the third party’s permission to distribute its funds to herself or any other entity, because she was doing so at her client’s direction and for his benefit. Further, McDonald told the federal court that she intended to keep the fees if the court allowed her to do so.

But when the federal court determined that McDonald still had $310,000 left in two of her Wells Fargo IOLTA accounts, the court directed her to transfer that amount back to the third party (which she did), and the court issued an order restraining any future transfer or spending of any money that was part of the third party’s $4,000,000. Later, it became clear that McDonald was continuing to use the third party’s money to operate her business, so the federal court ordered McDonald to deposit all monies in any of her accounts that could be traced back to the third party’s $4,000,000 into the registry of the court. As a result, $104,200 was put into the court’s registry and eventually returned to the third party. So, in the end, the third party only recovered $2,414,200 of its $4,000,000 from McDonald, with the remaining $1,585,800 having been retained by McDonald and her family ($335,800) or paid out to various third parties seemingly unrelated to this Bitcoin transaction ($1,250,000).

It appears that more than $400,000 of the third party’s money was used to repay amounts McDonald owed to individuals or entities who had previously deposited money into her IOLTA account to be held in escrow in connection with her client’s earlier “deals,” but whose funds had been distributed from her escrow account (in violation of escrow agreements) despite the fact that the earlier “deals” had never closed.

Sanction

McDonald’s admitted lies (or misrepresentations) to the Bar and to the third party about the status of the third party’s funds in her trust account together with her conversion of a large portion of those funds (i.e., the violations of Rules 8.4 and 4.1) alone support disbarment. Moreover, when those actions are combined with McDonald’s continuing refusal to see or acknowledge the pivotal role she played in the misdeeds apparently being perpetrated by her client and the fact that she has not made the third party whole, we cannot fathom a punishment less than disbarment. On top of those violations, McDonald also blatantly violated Rules 1.15 (I) and (II) in her handling of the money that was entrusted to her and deposited into her IOLTA account. McDonald’s complete disregard for her role as a fiduciary in this transaction (and apparently other transactions) is staggering and would support disbarment on its own as well.

Details on related litigation from the Robbins firm web page

A federal judge has frozen multiple trust accounts of Georgia attorney Diana McDonald and ordered her to turn over a slew of financial records and communications.

A federal judge in Atlanta has issued a temporary restraining order against a Gwinnett County attorney and the bank where she housed her law firm trust accounts in what appears to be an international fraud case involving bitcoin sales.

Judge Mike Brown of the U.S. District Court for the Northern District of Georgia issued the March 8 order after GSR Markets Limited—an international trader in digital assets—sued after it wired over $4 million to Suwanee attorney Diana McDonald to buy bitcoin it never received, according to court documents.

Brown said in his order that McDonald shifted GSR’s escrowed funds into other accounts, including her own operating accounts for the payment of “alleged fees.”

“It is apparent that defendant McDonald has dissipated funds and is unlikely to have sufficient funds to satisfy a subsequent judgment absent this relief,” Brown wrote.

GSR, based in Hong Kong, also sued Wells Fargo—where McDonald banked, and Florida-based Valkyrie Group and Valkyrie principals Hugh and Brandon Austin, who acted as sellers of the bitcoin their firm was to purchase from another company. That company is identified in court records as Alivic Corp. The purchase agreement listed McDonald as the closing attorney for the deal.

McDonald is a sole practitioner in Suwanee—a town of less than 20,000 people 23 miles northeast of Atlanta. McDonald advertises online as handling wrongful death and personal injury cases, wrongful detention shoplifting cases, bankruptcy reorganizations, probate cases, as well as business acquisitions, escrow services and corporate and contract law.

Brown’s order froze McDonald’s multiple firm fiduciary trust, or IOLTA, accounts and directed McDonald to immediately pay GSR Markets $310,000, which is all that remains of more than $1.6 million GSR is still owed for the never completed bitcoin sale. GSR has been able to recoup only $2 million of its $4 million initial deposit from McDonald after repeatedly emailing and calling the lawyer, according to a complaint and motion for a restraining order filed March 1. The complaint alleges that McDonald kept or disbursed the remainder of GSR’s escrowed funds.

The suit also claims that Wells Fargo “failed to take even basic steps to protect GSR Markets’ money. When alerted to the disappearance of GSR’s funds, “Wells Fargo, rather than investigate or show any concern as to the missing funds, vouched for McDonald, which only led to more delays and allowed the money trail to go cold,” the suit said.

In his March 8 order, Brown directed Wells Fargo to “take reasonably necessary and appropriate action” to ensure that the $310,000 McDonald was ordered to give GSR will clear.

Brown also barred McDonald from stopping the payments. Should McDonald fail to deliver the funds, Brown directed Wells Fargo to wire the money from her IOLTA accounts to GSR’s Atlanta law firm. GSR is represented by Richard Robbins, Vincent Russo and Heather Huggins Sharp of The Robbins Firm.

Brown also barred McDonald from disbursing any money “in any way related” to nearly $1.7 million that she will still owe GSR in the event her client—Alivic Corporation of Australia and the supposed source for the bitcoin at issue—wired her additional funds. And he barred McDonald “from spending, using, or disbursing any of the GSR escrowed funds.”

Brown also ordered the attorney to surrender financial records, emails and other communications related to GSR’s wire transfer. He also ordered McDonald to surrender bank statements for all of her operating and IOLTA accounts. Brown noted that, in addition to the Wells Fargo accounts, McDonald had three additional IOLTA accounts at two other banks.

McDonald’s counsel, James Ward Howard in DeKalb County, acknowledged Tuesday that, while there appears to be “a fraudulent scheme” at play, he insisted McDonald “ is as much a victim as anyone else.”

Wells Fargo counsel Brent Hitson at Burr & Forman in Birmingham, Alabama, referred requests for comment to a bank spokeswoman who said, “We do not believe the claims in the complaint have merit and will vigorously defend the suit.”

No attorney has entered an appearance for Valkyrie or the Austins.

Robbins labeled the disappearance of more than $1.6 million as “clearly just a fraud.”

“In the crypto age, it’s easy to do. The money is so vast,” he said.  The failed bitcoin transaction was initiated after GSR “was approached by a broker based in Malta, who allegedly had a huge seller based in Australia, who had teamed up with a broker in Florida,” Robbins said. “That’s not unusual in the crypto world, where brokers, seller and buyers are often based overseas.”

GSR’s initial $4 million bitcoin purchase was intended as an initial investment in what eventually would be $70 million, he said.

Robbins said that, before transferring $4 million to McDonald, GSR “did call and confirm the escrow account at Wells Fargo.” He said GSR also “was led to believe she had done other transactions in the past.  My clients assumed, if an attorney trust account was involved, the money was safe.”

Based on assurances that the bitcoin would be transferred on receipt of the funds, GSR also shorted the based on a $3,635 purchase price, the suit alleged. When the transfer never took place, GSR was out an additional $380,000, which it is also seeking to recoup, according to the complaint.

Howard said that McDonald “has no agreement” with GSR and was “unaware” that she was listed as closing attorney in the bitcoin sale agreement between GSR, the Valkyrie Group and brokerage OTC Desks LTD in Malta, neither of whom she represents.

He acknowledged that McDonald represents Alivic, which is not a defendant in the GSR suit,  and carries out that firm’s instructions. “Alivic appeared to be legitimate,” Howard said.

“Once it became apparent the whole deal was falling apart, she got permission [from Alivic] to return $2 million” to GSR, he added.

“It appears there is some type of fraudulent scheme,” Howard said. He said he is concerned that McDonald “may have been used by another party to facilitate the scheme without her knowledge or understanding.”

Howard wouldn’t address why McDonald accepted the funds or what happened to the balance of the money if she was unaware of the agreement. “The only thing I can say is she abided by her client’s instructions,” Howard said. He said he has not been in touch with Alivic or anyone else, besides McDonald, who is representing the firm. “I do not know how to get in touch,” he said.

Robbins said that McDonald testified she transferred some of the GSR escrowed funds to her accounts. “We all know what an escrow account is,” Robbins said. “We put money in escrow. The deal closes; she has everybody’s authority to release the funds. This is not complex.”

But McDonald appeared to believe that, even if the deal didn’t close, “Whatever the seller [Alivic] tells me I can do with the [escrowed] money, I can do.”

(Mike Frisch)