SPECIAL ALERT – BEWARE OF NEW CHECK SCAM

I have just become aware of a new scam targeting attorneys, which would also be “effective” against any company issuing checks.  Please read the article below so that you do not become the next victim.

The scam is very simple and involves the use of the technology that allows for the deposit of checks remotely (by using a cell phone or check scanner). I will use a real estate closing as an example, but any situation in which a company or person issues checks for any reason has the potential for this abuse.

The attorney at a real estate closing writes a check to John Smith for $100,000 as a disbursement of a portion of the sale proceeds. The next day, John comes back to the attorney and explains that he needs to pay a debt but his creditor will not accept a second endorsed check. He hands the attorney the ORIGINAL check and asks for a replacement payable to Mary Jones. The attorney, having the original in hand, writes a new check and gives it to John. When the attorney’s bank account statement comes the next month, it shows that both checks were paid against the account.

How could this happen? The attorney has the original check in his hand. The answer: the original check was electronically presented for payment by the original payee just before he asked that it be replaced. Then the scammer deposited the second check into a different account.

How do you protect yourself? Besides the obvious solution of not issuing replacement checks, unless you are 10,000% certain that the person returning the check is completely and utterly trustworthy and honest, you should put a stop payment order on the original check and then wait at least 5 business days before issuing the replacement. This does not even give you complete protection, but I believe it would be difficult for the first presenter of the check to argue innocence if he or she somehow electronically presents a check five days after giving up physical possession.

There may be circumstances under which the risk of loss can be shifted to the bank; however, this is not a situation in which the same check is presented twice for payment. This is a situation in which the maker of the check is tricked into issuing two checks, hence the risk of exposure is likely to the person writing the checks.

If you have any questions regarding the information provided above, please contact our firm.