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A word to the wise

News

Cite as: December 2009 83(12) LIJ, p.26


Practitioners should not let their guard down when it comes to financial dealings.

Small firm principal Peter Speakman has a cautionary tale for other practitioners.

On 3 September this year he received a well-written emailed letter from a man, purporting to be the owner and legal representative of a large Chinese textile business, asking for help in recovering debts owed by Australian companies.

Several emails were exchanged between the “client” and the cautious principal of Glen Iris firm Peter Speakman & Co.

The client and debtor companies named were legitimate and easily verified. Mr Speakman was asked to perform a conflict check to ensure he had no dealings with the South Australian clothing manufacturer named as the debtor.

Mr Speakman gave the all clear and the “client” emailed scanned PDF copies of a retainer agreement, disclosure statement setting out the estimate of costs, and a professionally-drafted invoice between the company and debtor.

“They said they saw us advertised in an online [legal] directory and I went along with their game, thinking that it was probably a scam, with the slight chance it wasn’t. You just try to use common sense,” Mr Speakman said.

“It is very dangerous and quite sophisticated, in the sense that the firm existed in China and the debtor existed in Adelaide.”

And that is the ruse.

The scammers exploit the good reputations of established businesses and the ease of online communication and have also been known to employ fake secretaries to answer any calls lawyers may make to phone numbers provided.

The new “client” asks the lawyer to help collect the money in a bid to avoid litigation, but before the lawyer and debtor make contact the “client” tells the lawyer that an arrangement with the debtor has been reached and that the lawyer can expect a cheque from the debtor.

In Mr Speakman’s case the amount was $362,400.

The “client” then pressures the law firm to electronically forward the money, minus their fee, in the hope the lawyer will dip into their trust account without ensuring the cheque has cleared.

“Because I suspected them I asked for money upfront. I said I couldn’t take money out of trust until the funds were cleared. That is the thing that ultimately would have saved me if I was not alive to [the scam].

“Also, the real giveaway was that the envelope the cheque arrived in was postmarked from Canada.

“Of course we do not have absolute proof that this was a scam, but we have had no response to our [last] email and do not expect one. The greatest downside was that I wasted time while I am trying to run a busy practice. Anything that takes my time costs money.”

Mr Speakman also unsuccessfully attempted to contact the Adelaide company using the phone number his “client” provided and colleagues found warning notices posted on the internet of a scam akin to the firm’s experience.

The profession was warned of the scam in the 31 July edition of the weekly LIV e-newsletter Friday Facts.

LIV compliance manager Jolyon Dunn advises practices that the best defence is to not act for overseas “clients” who are unknown to them, particularly if the first contact is unsolicited and by email.

“We do rely in many instances on the alertness of staff within practices to not take any unauthorised action such as paying out uncleared funds. As the scammers are trying to obtain money by deception, they will change the documents and the story all the time,” Mr Dunn said.

Mr Dunn also said that once discovered, scam warnings appear on the websites of law societies around Australia. He urged any practitioners with suspicions to perform a web search and call the LIV if approached.


Mr Speakman’s experience is just one variation of a scam currently targeting law firms.

Another involves companies claiming to be from Japan, mainland China or Hong Kong, seeking to “eradicate delays due to inter-continental monetary transactions” and are “most inclined” to retain an Australian lawyer.

These are just two of the myriad of scams to which busy professionals regularly fall victim.

Scams can appear in the letter box, by email, telephone or fax, at investment seminars, on television and radio and cold-calling from the doorstep to Nigeria.

There are Ponzi and pyramid schemes, spam, spyware, employment, insurance, superannuation, lottery, chain letter, inheritance, weight loss, muscle gain, miracle cure, romance and dating, fake pharmacy, identity theft and income scams.

And there are upfront payment frauds, where you pay money to receive nothing.

Others more relevant to small business and legal firms include bills for non-existent advertising, office supply and domain name renewal scams, expensive fax back requests and false claims of new government requirements needing cash payments.

The Australian Competition & Consumer Commission’s (ACCC) website SCAMwatch warns businesses to watch for unsolicited emails or letters offering “free” business directory listings and for employers to limit those with authority to handle money or place orders, to keep up-to-date records and deal only with those you can trust.

SCAMwatch also says not to let tactics such as bullying, negotiations for a lower price or charges for unordered or unused goods affect a decision to hand over money and to always seek independent advice if significant amounts of money are involved.

The Australian Securities and Investments Commission (ASIC) suggests those wanting to invest in stocks, schemes or companies in the wake of the Global Financial Crisis ask some serious questions before committing.

These questions would include: who owns and directs the business, whether any are disqualified from acting as managers or bankrupt, other businesses they may be involved in and whether they are registered for selling certain schemes and products.

The length of time the company has been in business, its share capital, financial details, credit rating, whether it has credible trade references and whether it is unregistered or under external administration should be other questions.

Also, ensure the company managing the investment has a product disclosure statement and holds an Australian financial services licence to sell the investment.

Any company selling investments in Australia must also hold an ASIC licence and be a public company.

Much of this information can be sourced from ASIC databases.

According to the Australian Institute of Criminology (AIC), consumer fraud costs the Australian community $1 billion a year.

The AIC has found that 90 per cent of respondents to a survey reported having contact with a variety of scams, such as fictitious lotteries, phishing scams and other attempts to elicit personal information.

In 2007, the Australian Bureau of Statistics found a “victimisation” rate of 2 per cent of those who come into contact with a variety of scams. Victims included the young, old, well-educated and not.

Under legislation before federal Parliament scammers will face fines of up to $1.1 million and the ACCC will have increased powers to prosecute people who have acted unconscionably or have misled consumers.

Report any scams to the ACCC on ph 1300 302 502 or see the ACCC website at www.scamwatch.gov.au/content/index.phtml/itemId/693900 or ASIC at www.asic.gov.au.

Ways to lose money

Each year ASIC presents the “Pie in the Sky” Award for the most outrageous financial scheme that’s too good to be true. Here is the best of the worst.

  1. A barrister from Spain, Togo etc. attempts to convince people to pretend to be the next-of-kin of a person killed in the 2005 Boxing Day tsunami in order to assist in the recovery of US$17.5 million.
  2. A Sydney man promised 90 unsuspecting Australian investors that they would receive an astronomical 8 per cent return on their investment every week. He even issued a certificate of guarantee from the fictitious International Investment and Securities Commission.
  3. More than 220 people handed over a total of $2.4 million to secure an “interest-free loan” offered by the Carsworthy Scheme. They were told if they purchased a car through the club, and borrowed a little more from their financier and invested it offshore, the high returns would repay their car loans. But there were no returns.
  4. Get a cheap one-way ticket out of Australia with New Flights Limited. Those who emailed credit card details to the fake company had money stolen.
  5. Surprise! You own some valuable overseas shares. Pay the fake International Asset and Compliance Centre to transfer these shares into your name and you will never hear from them again.

Jason Gregory

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