A while ago I posted an item on collection fraud “Lawyers Increasingly Targeted by Fraudsters” (February 4, 2009). Apparently, perhaps as a result of the higher diligence of lawyers, scam artists are adopting a new MO – business loan scams, targeting solicitors.
This is how the business loan scam works: (courtesy of LAWPRO, Lawyers’ Professional Indemnity Company)
Recently a previously unknown client and asks the targeted firm incorporate a company. The client then asks the firm to arrange a business loan from a private lender for the newly incorporated company, typically in the range of $250,000 to $450,000). The loan proceeds are to go to a third-party corporation (often a numbered company) and not the client’s new corporation.
By now you’ve probably guessed the rest. The firm receives a forged but authentic-looking certified cheque or bank draft. After depositing the forged document in the trust account, the clients pressures the firm into disbursing the funds before they’re cleared through the bank. After receiving the funds, the client disappears, leaving the firm with a shortfall in the trust account.
According to LAWPRO, the business loan frauds have some common traits:
- The client pays cash for the initial incorporation.
- The address of client and the corporation is the same.
- The corporation is without a particular purpose but requires for a substantial start-up loan.
- The only security is a GSA (general security agreement) or a promissory note.
- The client’s home or work number is not working, or the client’s only contact is through a cell phone.
- The client’s address is not real.
- The client pressures the firm to disburse the funds before they can be cleared through the bank.
The best way to avoid becoming a victim is to hold the funds until they’re cleared through a bank-to-bank verification. The fraudster invariably attempts to pressure the firm into disbursing the funds earlier than the protocol. Remember, once the money is gone, it’s gone.
