5 tips to help your business avoid a scam

by Mandy Hicks

By Brett Reynolds, Partner
English, Lucas, Priest and Owsley, LLP

Brett Reynolds
Brett Reynolds

Everyone has gotten scam calls and emails. The scammers are getting smarter and more sophisticated, and they’re now targeting law firms and other businesses with well-planned attempts to get money.
The scams have enough legitimacy that they sound like they could be real business transactions. In fact, our own firm was hit with an attempt a few weeks ago that we wanted to tell you about so you can see how these type of scams work, and how you can avoid getting taken.
I was contacted by a local real estate developer who owned several apartment complexes. A buyer in China wanted to buy the properties, and he needed someone to hold earnest money in escrow and assist with any legal details that might arise before he could come to the United States. I agreed to do so. This is fairly standard and something we’ve done in countless deals for clients previously. It didn’t raise any alarms for us that the buyer was overseas. This is quite common. Bowling Green is a fairly diverse city with lots of foreign nationals living and working in our community, and we’re better for it.

Check is in the mail

I began communicating regularly by email with the purchaser, who indicated he was in China. Someone on behalf of the purchaser sent our firm a check that was far larger than the amount required. While the check looked legitimate and was written on a large, reputable financial institution, the check came with no cover letter or instructions, which was suspicious, as was the extra amount over and above the money required.
Sending a check that is larger than required and then asking for some of the extra amount back is a very common scam. In this case, shortly after wiring us an excessive amount in relation to the closing, the scammer called me to say that he and his wife were divorcing and that we needed to wire a portion of the funds back (her portion – which he said was a little over $100,000).
The scammer was very insistent, but I asked for a copy of the purchaser’s identification, which is something we would require at closing anyway. The purchaser told me that since he was in the midst of a divorce, his wife had his passport so he was unable to provide it until I sent him her portion. I again insisted, and the purchaser became very angry and insisted this somehow unethical for me to ask for his identification documentsbut he said he would comply. He sent a passport page which contained information that seemed to match his name and information.
As photo identification can be stolen or could be forged, and our communications had only been by e-mail, I asked for the scammer to Skype or FaceTime me so that I could see his face in real time to confirm his identity. Instead, he called, and left me a voicemail message, again angry that I was not simply taking his word as truth and complaining that for me to ask him to provide such identification, given his stressful marital situation, was improper. He also had his “stock broker,” who provided more bogus wire instructions and who was equally insistent that the funds be wired immediately.
In addition, the scammer’s accent in his voice mail messages to me certainly did not sound to me Chinese, and it just raised more red flags that things weren’t adding up. I contacted the fraud department with the company that issued the check, and they confirmed that the check was forged.
I turned all of this information and evidence over to law enforcement, knowing full well that he was probably not ever going to be prosecuted.

Scams are common

As we began talking about this internally here at the firm, I realized this has become a very common experience. Buzz English, also a partner with our firm, said he raised this issue at a meeting of Kentucky attorneys and found that a lot of lawyers had a similar story. Buzz sits on the board of LMICK – Lawyers Mutual Insurance Company of Kentucky – and notes that if an attorney is scammed in a similar way, their losses will not be covered by insurance. This could be a very costly lesson.
Other scams hitting attorneys include an insurance person claiming to have a check ready for a client for disbursement of a settlement. The check is phony, but the law firm is asked to hold the money in escrow and send a set amount to the client. By the time the law firm finds out the check was phony, the money has been paid out to the client and is gone.
There are steps you can take to avoid being scammed.

  1. Call the person/organization that sent the check and confirm that it is valid.
  2. Ask for a copy of photo ID of the person who is emailing you. If they resist, that is a sign that something is wrong.
  3. Beware of emotional appeals. If the person is telling you a sob story about their family in what should be a routine business transaction, that may indicate something isn’t right.
  4. Insist that the person who is emailing you contact you by FaceTime or Skype to confirm identity. If the deal is a scam, chances are, they will not want to do this (as we discovered).
  5. If something seems off to you, listen to your instincts. In another deal we recently heard about, a real estate closing seemed legitimate all the way up until a local bank wanted a wire transfer for the money at the close of the deal instead of a check. This is highly unusual, and when the closing attorney contacted the bank to ask if they really wanted a wire instead of a check at the closing, the scam was discovered and stopped.

It’s critically important to have a conversation with your entire staff about the dangers of scams like this. Have a training session about what to look for and how to spot scams with your staff. A $100,000 hit from a scammer would be a huge loss for nearly any small business.

Be attentive and careful.