Tuesday, June 26, 2007

Inaccurate Self-Report

An attorney in South Carolina represented mortgagees in foreclosure cases. He discovered that funds from his escrow account had been misdirected by someone in his office. He sought and received advice on his ethical obligations from a professor and an attorney. He then hired a CPA firm to conduct an audit that confirmed the misapplication of the funds of one client, promptly reimbursed that client in an amount over $80,000 and self-reported the matter to disciplinary counsel.

Disciplinary counsel reviewed the records and found similar conduct with respect to a second client. The retainer arrangements did not permit the lawyer to retain proceeds from the foreclosures for fees or costs. This provision had been repeatedly violated. The underlying problem was found attributable to an experienced legal assistant, who "withheld and caused to be disbursed monies so withheld on her own initiative without instructions from [the lawyer]."

In imposing a  consent two-year suspension nunc pro tunc to a previously ordered interim suspension, the South Carolina Supreme Court noted that the self-report had been inaccurate in several respects. However, the inaccuracies were not apparent from the audit report that the lawyer had received and the legal assistant provided sworn testimony in support of the lawyer's position. The inaccuracies were not found to be intentional. The misconduct was found, among other things, to violate the duty to supervise non-lawyer employees and mishandling of entrusted funds. (Mike Frisch)


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