Wednesday, May 29, 2019

Trusted Employee Gets Three Attorneys Suspended

An attorney's failure to supervise a "dedicated and trusted" but thieving non-attorney employee who had raided the firm's escrow account led to his suspension for six months and until further order  by the New York Appellate Division for the Third Judicial Department

Here, at the time of the underlying events, the respondent and his partners were experienced practitioners, all of whom had a background in accounting. For approximately 10 years, they delegated the bank and bookkeeping responsibilities for the Firm to a nonlawyer employee, Cornegy. The respondent and his partners admitted that, for an extended period, they failed to properly supervise Cornegy and failed to provide proper oversight of the Firm’s escrow account, resulting in the misappropriation of client funds in excess of $202,000. While the respondent and his partners claim there were no early warning signs of the financial improprieties occurring in the escrow account, the record reveals otherwise. Indeed, the respondent testified that once they went online and looked at their accounts, they saw that, over a 3½ year period, Cornegy was transferring client funds between the Firm’s escrow, operating, and payroll accounts. Although the respondent and his partners were unaware that online access had been instituted for the Firm’s bank accounts, these questionable transfers were also listed on the monthly bank statements received by the Firm. It is also noted that online transfers were clearly designated as such on the bank statements. We find that had the Firm’s partners provided proper oversight, including a review of the Firm’s escrow account bank statements, the questionable transfers between the Firm’s escrow, operating, and payroll accounts, including those transfers which were made using online access, should have served as an early warning to the respondent and his partners to undertake greater scrutiny of the escrow account transactions. The failure to detect these early warning signs is directly attributable to the respondent’s and his partners’ failure to provide proper oversight of the escrow account.

In mitigation, we have considered, among other things, the respondent’s and his partner’s acceptance of responsibility and candor; the absence of venal intent; the Firm’s replenishment of the misappropriated client funds so that no client sustained a continued financial loss; the Firm’s cooperation with the petitioner’s investigation; the remedial actions taken to institute proper bank and bookkeeping practices to avoid a reoccurrence; the expressed remorse; the character evidence; and the respondent’s unblemished disciplinary record in more than 33 years of practice.

Remedial measures

After retaining legal counsel, the Firm retained an accounting firm to reconcile and reconstruct the escrow account for a five-year period. The respondent testified that the Firm also reviewed their bank accounts online, and discovered that Cornegy had been transferring money between the Firm’s escrow, operating, and payroll accounts, seemingly without “rhyme or reason,” for a period of at least 3½ years.

The Accounting Firm’s review determined that the escrow account balance remained deficient, notwithstanding the prior deposits made by the Firm in May 2013 ($5,145 and $100,000). On or about November 26, 2013, the Firm corrected the account deficiency by depositing an additional $102,530.43 into the escrow account. The respondent testified that, while reconciling the escrow account, the Accounting Firm had “a high level of confidence” that certain credit card charges, totaling approximately $42,500, could be tied to specific defalcations or improper spending by Cornegy

Why did they not call the cops?

The respondent testified that he and his partners had “a long discussion” about reporting Cornegy to law enforcement and wanted to do so, but they decided that “they could not let this get out in the public.” The respondent explained that as “fiduciaries, we pride ourselves in protecting our clients. We were victims, but we didn’t want it to get out there that we were foolish because that would hurt us.”

Two other partners received a like suspension linked here  and here. (Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2019/05/an-attorneys-failure-to-supervise-a-trusted-but-thieving-non-attorney-who-had-raided-the-firms-escrow-account-was-suspended-f.html

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