Difficult Times Sometimes Create Desperate People Who Do Desperate Things: Loss Prevention in Handling Client Escrow Funds

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Desperate people do desperate things. This basic maxim applies in spades to lawyers.

Recent press disclosures concerning high profile law firms and, in at least several instances, of seven and eight figure thefts from client escrow accounts compel us to write about a subject which lawyers and firms simply don’t like to focus upon: client escrow funds and the controls law firms need to have in place to make sure that a lawyer with a law firm, acting out of greed, need or other compulsion slips a couple of dollars out the door because the firm doesn’t have adequate controls in place, or is lax in enforcing existing controls. Laxity of controls can result in real financial pain and reputational disruption.

Regulatory bodies having jurisdiction over lawyer discipline have zero tolerance for any defalcation from client funds. Justice is swift and certain: suspension or disbarment.

Evidence of co-mingling of client funds or improperly releasing client escrow funds is simply not susceptible of any defense. So, too, should a law firm have stringent, non-waivable controls in place governing the handling of client funds.

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n these challenging economic climes, with a continued decline in the legal spend, some lawyers may be more tempted than ever to dip in to an escrow account to meet some perceived need. The time is ripe for every law firm to review its controls making such defalcations as impervious as possible to improprieties.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jerome Kowalski, Kowalski & Associates | Attorney Advertising

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