Cashier's Check Fraud

The legal trade journals have been humming lately with cautionary tales of a new scam that specifically targets lawyers. The scam, which has snared multiple lawyers (but not this one), is a play on the generic cashier’s check scam that could target anyone.

The new scam involves an unsolicited request from a new potential client to represent him or her in a debt collection matter. Fee agreements and letters of representation may even be executed and legitimate looking documents provided, such as invoices and contracts. Thereafter, perhaps with only having written one demand letter, the lawyer receives the funds demanded by way of a cashier’s check. After depositing the check in his or her trust account, and being told by his bank that “funds are available” or something similar, the lawyer wires the money out to his “client” after retaining a fee for services rendered. Some days later, of course, it’s discovered that the check was a forgery, and the lawyer is on the hook for hundreds of thousands of dollars.

How might a non-lawyer run into this scam? Perhaps you are selling a boat on Craigslist. A potential buyer contacts you and agrees to pay the asking price. However, the cashier’s check is for an amount much higher than the sales price. There’s usually a good story to go along with it, but it’s always accompanied by aggressive demands to wire out the overpayment.  In another scenario, you receive notification that you’ve been selected to be a “mystery shopper” and are provided with a cashier’s check, with instructions to spend some, retain some for yourself and to transfer the remainder to a third party via wire transfer. Or, perhaps you are notified that you’ve won a lottery or received an inheritance and are told that you have to pay a fee or tax, but that a cashier’s check will be sent to cover that cost. Of course, you’re then instructed to wire out the proceeds immediately. The iterations of the scam are countless.  Many, but not all, also involve someone from Nigeria.

Reports are that these checks are high-grade forgeries, and that bank employees have not been able to spot them.

Let’s look a bit more at how this scam works. First, a cashier’s check is a check written by a bank on its own funds and signed by an authorized officer of the bank. It’s preferred in many situations because it’s easy to verify and a difficult instrument on which to place a stop payment or hold. So, people are inclined to trust a cashier’s check.

What happens when you deposit a cashier’s check into your account? Due to a variety of laws, when you make a deposit, banks must make funds available to you within a certain timeframe. But, funds being “available” does not mean that the funds are actually in your account. Instead, the bank has merely made the funds available as a “provisional credit.”  In fact, the funds may be made “available” even before the cashier’s check is presented for payment to the bank on which it is drawn.

So our unsuspecting victim deposits the cashier’s check and, within a few days, is told by the bank that funds are available.  Thinking this means the check has been collected or cashed, the victim accedes to the scammer’s urgent pleas to wire the funds.  Almost inevitably the wire is made to an overseas account.

However, when the check is actually presented to the payee bank for collection, it’s determined to be a forgery. The provisional credit is reversed and your bank comes looking to you to be made whole.

What are the lessons to be learned here? First, if it sounds too good to be true, it probably is. Windfalls or high fees for little work should sound alarm bells. But, let’s pretend the victim is blinded by thoughts of easy money.

The well-advised citizen realizes that a check must be “collected” or must “clear” for funds to be indubitably placed in a bank account.  It might take several weeks for a check to be collected or to clear. Just because funds are “available” does not mean they are in your account.  The bottom line: Don’t send out funds until you are completely sure they’ve been “collected” and the check has cleared.

Don’t forget to use the power of the internet. The first time I received one of these emails I literally copied and pasted a few sentences from the email into a search engine. A few clicks later and I had a dozen websites that identified the scam. Or, try to independently confirm the facts that you’ve been fed. Look for a listing in an online directory or phonebook for the person with whom you are allegedly dealing. Try to get a sense that the unknown person you are dealing with is legitimate.

If you have any concerns about the validity of a check, contact the issuing bank. Be advised not to use the contact information contained on the suspect check. It’s probably fraudulent as well and will direct you to an accomplice of the scammer who will, of course, authenticate the check.  Instead, independently obtain a phone number for the bank and ask that the check (whether cashier’s check, official check, money order, teller’s check, etc) be verified as authentic. 

Alternatively, if possible, require that the check be drawn on a local bank or a bank with a branch in the area so that you can show the check to someone in person for verification.

If possible, especially if you are a seller, require that funds be transferred through Fedwire (where funds are collected almost instantaneously) or use Paypal or a similar service.

Finally, use common sense and resist pressure to “act now.”