Monday, November 24, 2014

Proposed Changes to Attorney Disciplinary Rules Follow Recent Theft Reports

Several high profile incidents, such as those reported here in our Blog and here by the Philadelphia Inquirer, involving attorneys disciplined or convicted of theft of client funds, have triggered proposed changes in Pennsylvania's Rules of Professional Conduct for attorneys. The rule changes proposed by the Pennsylvania Supreme Court's Disciplinary Board include:

  • imposing restrictions on an attorney's brokering or offering of "investment products" connected to that lawyer's provision of legal services;
  • clarifying the type of financial records that attorneys would be required to maintain and report, regarding their handling of client funds and fiduciary accounts;
  • clarifying the obligation of attorneys to cooperate with investigations in a timely fashion;
  • clarifying the obligation of suspended, disbarred, or "inactive" attorneys to cease operations and to notify clients "promptly" of the change in their professional status. 

The Disciplinary Board called for comments on the proposed rule changes, noting that although individual claims against the Pennsylvania Lawyers Fund for Client Security are confidential, "Fund personnel can attest that from time to time, the  number of claims filed against a single attorney will be in double digits and the total compensable loss will amount to millions of dollars."  The comment window closed on November 3. 2014.

In recommending changes, the Disciplinary Board noted common threads running through many of the cases, including:

  • the client victim trusted his or her attorney, the attorney told the client that the client needed either to give the attorney the money outright or to establish a trust designed by the attorney to 'protect' the client's assets, the attorney then raided the client's funds or appointed himself or herself as trustee to convert the trusted funds, and no banks were used by the attorney to help safeguard the client funds; [or]
  • the attorney used forged documents to mislead a bank into believing that the client had authorized transfers of funds to the attorney.

In one of the cases reported in the media and still pending, defendant Wendy Weikal-Beauchat of Gettsyburg, PA., pled guilty in 2013 to federal charges of fraud by "providing clients with bogus Certificates of Deposit and IRS 1099 Interest Forms." She is scheduled to be sentenced in federal court on December 16.  Reports of the amounts involved in her theft, involving mostly older clients, have been as high as $6.3 million.

In January  of 2014, the Supreme Court amended its disciplinary enforcement rules to place a cap of $1 million on disbursements from the Client Security Fund as a result of any one covered attorney, although the Court also retained the discretion to exceed the maximum.  Active attorneys are now required to pay an additional $35 annual fee towards maintenance of the Pennsylvania Fund.

Crimes, Elder Abuse/Guardianship/Conservatorship, Estates and Trusts, Ethical Issues, Federal Cases, Federal Statutes/Regulations, State Cases, State Statutes/Regulations | Permalink

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