Bishop Rooks Pawn

An attorney with 46 years of experience deposited two checks and disbursed the funds only to have the deposited checks bounce.

In late 2022, Mr. Hertzberger was retained to act for a vendor in an equipment sale transaction. In the course of his retainer, he deposited two cheques into his mixed trust account totalling $485,312.40. As instructed, he disbursed $479,312.40 from his trust account to third parties. He paid himself $5,209.92 for fees and disbursements.

The cheques that Mr. Hertzberger had deposited were uncertified. The cheques were returned. The payments to third parties were not recovered. Mr. Hertzberger returned the $5,209.92 that was paid to him to his trust account.

The parties agree that there was a fraud. The Law Society’s position is that Mr. Hertzberger may have knowingly facilitated the fraud. Mr. Hertzberger’s position is that he was a victim of the fraud. He acknowledges that he misconducted himself by failing to be on guard against becoming the tool or dupe of the fraudster. But he denies having any actual or constructive knowledge of the fraud when the trust payments were paid.

The fraud

In November 2022, Mr. Hertzberger entered into a retainer agreement with a person who called himself Harvey Bowers on behalf of Harvey Bowers Surgical, located in Rochester, Minnesota. The retainer agreement does not recite the subject matter of the retainer, although Mr. Hertzberger says that Mr. Bowers explained by email that he required a lawyer to assist him in drafting an agreement for the sale of medical equipment. Mr. Hertzberger did not comply with the client identification requirements set out in By-Law 7.1. Mr. Hertzberger did not speak with his client. His communications in this matter were by email.

Mr. Hertzberger received a term sheet on November 8, 2022 from his client, to which he responded with a number of questions. The purchase price for the equipment was shown to be US$1,250,000. The vendor was Harvey Bowers Surgical. The purchaser was a hospital located in Ontario. Mr. Hertzberger provided advice by way of mark-ups of four drafts of the equipment sale agreement.

On December 1, 2022, Mr. Hertzberger received a copy of a letter of intent purportedly signed on behalf of the purchaser hospital. In his written representations, Mr. Hertzberger said that on December 9, 2022, he received “a Letter of Intent from an individual named Bishop Sarkozy, representing himself as the broker for [purchaser]”. In his evidence, Mr. Hertzberger testified that Bishop Sarkozy was the CFO of the vendor. Mr. Hertzberger did not appear to have a clear memory on this and some other matters.

By December 9, 2022, Mr. Hertzberger had received an uncertified cheque from Mr. Sarkozy in the amount of $197,656.20 which was deposited into his trust account. The cheque was drawn on the account of a company located in Saskatchewan, not the purchaser hospital. Mr. Hertzberger had been given to understand that a third-party inspection was part of the sale transaction and that these monies were for the inspection. Mr. Hertzberger did not certify this cheque or otherwise take steps to determine that it was genuine.

But the lawyer was the “bishop’s” pawn

  It seems reasonably obvious that this was a scam whereby client monies in a mixed trust account were stolen by a fraudster by making it appear that money was deposited into trust when it was not. In its Fraudwatch Factsheets, LawPRO’s Practice Pro calls these “Bad Cheque Scams”, which it describes as follows:

Fraudsters retain the firm on a contrived legal matter so they can run a counterfeit cheque or bank draft through the firm trust account and walk away with real money. The fraudster will provide real looking ID and documents. When the bad cheque or draft bounces, there will be a shortfall in the trust account.

The Ontario Law Society Tribunal Hearing Division placed restrictions on the operation of his escrow account.

While we see Mr. Hertzberger as a victim of fraud on the evidence before us, he was no mere innocent victim. To use the language of the commentary to Rule 3.2-7 and as admitted, he failed to be on guard against becoming the tool or dupe of the fraudster. Specifically, he failed to comply with By-Law 7.1 client identification and verification rules. More generally, he failed to undertake any due diligence with respect to the third-party payors or payees of trust money. It is arguable that Mr. Hertzberger failed to seriously consider the substance of the transaction and his role in it. He deposited uncertified cheques into trust without taking steps to determine their authenticity or whether the cheques were supported by funds on deposit. He did not attempt to certify the cheques before depositing them. It is of further concern that Mr. Hertzberger was not monitoring his trust account, as a result of which he did not promptly know that trust deposit cheques had bounced. This is of particular concern in the context of Mr. Hertzberger’s books and records having been recently compromised by a cyberattack.

As to the current situation, the evidence as to which clients have suffered losses was unclear, as was how the losses are being dealt with. It does not appear that Mr. Hertzberger, as trustee, has made good the losses in his client trust account.

The Law Society sought an interim suspension