Hello everyone and welcome to this Ethics Alert, which will discuss the recent suspensions of 3 New York law firm partners for failing to supervise an office manager who stole more than $200,000.00 from the firm’s trust account. The May 29, 2019 opinions and orders are here:
In the Matter of Louis P. Karol, Case No. 2016-01156 http://www.nycourts.gov/courts/AD2/Handdowns/2019/Decisions/D59287.pdf,
In the Matter of Michael J. Hausman, Case No. 01157 http://www.nycourts.gov/courts/AD2/Handdowns/2019/Decisions/D59288.pdf
In the Matter of Howard L. Sosnik, Case No. 2016-01158 http://www.nycourts.gov/courts/AD2/Handdowns/2019/Decisions/D59289.pdf
According to the opinions, in May 2013, the law firm was notified of a returned check written from the firm’s escrow (trust) account. The firm hired an accounting firm, which conducted an audit and discovered shortages of over $200,000.00. The audit also revealed that the employee had been transferring money between escrow (trust), operating and payroll accounts without any “rhyme or reason” for a period of at least 3½ years. The law firm replenished the misappropriated funds and cooperated in the investigation.
The opinions also state that a review of monthly bank statements would have put the partners on notice of questionable transfers between account which should have been an early warning to give the accounting records greater scrutiny. One partner testified that the office manager was a “dedicated and trusted employee” and he and his partners occasionally checked transactions to make sure disbursements equaled deposits; however, the opinions stated that this was insufficient supervision. The partner that the firm did not report the employee to police since “(we) didn’t want it to get out there that we were foolish because that would hurt us”; however, the firm instituted new bookkeeping practices.
“We find that had the Firm’s partners provided proper oversight, including a review of the Firm’s escrow account bank statements, the questionable transfers between the Firm’s escrow, operating, and payroll accounts, including those transfers which were made using online access, should have served as an early warning to the respondent and his partners to undertake greater scrutiny of the escrow account transactions. The failure to detect these early warning signs is directly attributable to the respondent’s and his partners’ failure to provide proper oversight of the escrow account.”
The opinions found the following mitigation: “acceptance of responsibility and candor; the absence of venal intent; the Firm’s replenishment of the misappropriated client funds so that no client sustained a continued financial loss; the Firm’s cooperation with the petitioner’s investigation; the remedial actions taken to institute proper bank and bookkeeping practices to avoid a reoccurrence; the expressed remorse; the character evidence; and the respondent’s unblemished disciplinary record…” After discussing the facts and mitigating factors, the Court imposed a 6 month suspension on each lawyer.
Bottom line: This is another very unfortunate cautionary tale. Partners in a law firm must be fully aware that they will be held responsible for the proper supervision of employees, even if that employee is “dedicated and trusted”. If the firm employee steals money, particularly if the employee steals money from the law firm trust account, the lawyer will potentially be subject to severe discipline.
Be careful out there!
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Joseph A. Corsmeier, Esquire
Law Office of Joseph A. Corsmeier, P.A.
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Clearwater, Florida 33761
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