Friday, November 18, 2022

Red Flags

The British Columbia Law Society Tribunal Hearing Division accepted an agreed four-month suspension for an attorney's misuse of his trust account

The Respondent...was a new lawyer who disbursed over $2.1 million dollars through his trust account in circumstances where he did not make appropriate inquiries about the source or use of the funds, and provided little or no legal work on the transactions. He was also involved in three transactions where he failed to adhere to his professional duties to unrepresented persons.

The Respondent admits that his actions constitute professional misconduct. He and the Law Society jointly submit that a four-month suspension and $3,500 in costs is the appropriate disciplinary action.

Among the agreed facts

The Law Society emphasizes that these facts are made more concerning by a number of “red flags” that should have caused the Respondent to make further inquiries about the source and use of the money flowing through his trust account:

(a)        MP’s involvement in the unregulated area of cryptocurrency should have been a warning sign to the Respondent to be vigilant.

(b)        In July 2016, MP paid a $10,000 bonus to the Respondent. The Respondent had not requested this bonus, and it appears to have been unrelated to any significant result achieved or work done by the Respondent. The bonus payment amounted to an extra two full months of fees under the $5,000 per month flat-fee retainer agreement.

(c)        In the spring of 2017, $390,000 was received into trust from two numbered companies. The Respondent was not provided with instructions from those companies, did not verify the source of the funds, and was not aware of any tangible relationship between MP and the numbered companies.

(d)        The $390,000 was notionally for the purchase of an interest in a foreign bank, but it was instead paid out to investment firms, with the Respondent providing no associated legal work.

(e)        In late 2016, MP gave the Respondent inconsistent instructions about MP’s relationship with a one of his associated corporations.

(f)         On July 20, 2017, MP provided the following instructions: “All $324,549.57 currently in trust is for the purpose of the [corporation] deal.” Yet as the retainer progressed, these funds were not used for their initially stated purpose.

(g)        The July 2017 $200,000 cash transaction involving MP and AC, where the cash was counted with a money spinner.

(h)        The Respondent received an email from a Canadian bank that MP had been refused an account because he did not have a social insurance number, and because a credit bureau report indicated potential fraud.

(i)         MP left instructions in September 2017 about what to do with funds held in trust in the event that the Respondent could not contact MP.

(j)         In mid-November 2017, the Respondent, in issuing a demand letter in respect of allegedly defamatory statements about MP, learned of further claims that MP had engaged in unscrupulous activity.

On July 19, 2017, three months into his representation of MP, the Respondent reviewed Law Society of BC v. Gurney2017 LSBC 15, where a hearing panel found it was professional misconduct for a lawyer to allow $26 million dollars in overseas funds to pass through the lawyer’s trust account when there were many red flags that raised “a reasonable suspicion that the transactions may involve illegality” (at para. 84). The panel in Gurney also confirmed that “lawyers have a number of duties to fulfill before allowing their trust accounts to be used”

The Tribunal Hearing Division

The nature of this misconduct involved millions of dollars being irresponsibly passed through the Respondent’s trust account. As stated, the Law Society withdrew the Money Laundering allegations that the Respondent knew or ought to have known the funds disbursed from his trust account could assist or encourage in dishonesty, crime or fraud. However, as set out in Gurney, a lawyer’s duties regarding the use of their trust account involves a positive duty to ensure they are engaged in legal work on the transactions, they satisfy themselves on an objective basis that the transactions are legitimate, and that they investigate if they become suspicious of a transaction. To that end, we find that the nature and gravity of the conduct admitted in the Funds Verification allegations is nonetheless very serious.

(Mike Frisch)

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