Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, November 13, 1994 TAG: 9411140090
SECTION: VIRGINIA PAGE: D1 EDITION: METRO
SOURCE: LAURENCE HAMMACK STAFF WRITER
DATELINE: LENGTH: Long
Two years ago, Virginia's legal profession was rocked by allegations that a Newport News lawyer had bilked $40million from clients and investors. A few months later, an Arlington lawyer admitted stealing $3million from trust funds he had administered.
The two cases prompted the Virginia State Bar, headed at the time by Roanoke lawyer William Rakes, to conduct a review of how lawyers handle their clients' money.
"I had always felt that it was a rare instance and an aberration when a lawyer had absconded with a client's funds," Rakes said. But after the bar's study, he said, "It's now clear to me that across the commonwealth, it happens all too frequently."
In the Roanoke area, questions about lawyers' handling of client funds have been raised three times so far this year:
Last week, Roanoke lawyer Thomas J. Meadows was indicted by a grand jury on charges that he took more than $100,000 from three client accounts over the past decade.
In June, Roanoke County lawyer George Harris was sentenced to a year in jail for stealing nearly $60,000 by writing bad checks and taking money from young clients' trust funds. Harris, who pleaded guilty to charges in Roanoke, Roanoke County and Salem, said he took the money to support a cocaine addiction.
And in July, a Buena Vista lawyer committed suicide as he was facing a court order to explain questions about his handling of a trust fund.
State bar officials are quick to point out that the vast majority of lawyers in Virginia who act as fiduciaries handle their duties capably and honestly.
Still, the embezzlement cases illustrate that when someone puts their trust - and their money - with a lawyer, there is little regulation in Virginia to ensure that the trust is well-placed - until it's too late.
Evidence has shown that Harris, for example, nearly emptied a trust account he was handling before the problem was discovered.
In 1992, Harris was granted power of attorney for Teresa Lynn Newbill of Franklin County. Newbill, a minor at the time, was the beneficiary of her grandfather's life insurance policy, and $32,000 was placed in a trust account for her.
After withdrawing about $8,900, Newbill was told by Harris that she could not take any more money out of the account. After hiring a new lawyer, she discovered the $32,000 fund had been depleted to a balance of $791.
"There's no independent auditing of the accounts going on that I know of," Roanoke Commonwealth's Attorney Donald Caldwell said.
Statewide, 105 lawyers were disciplined for some type of financial impropriety involving their business during a three-year period that ended in September of 1993, according to a recent study by the Virginia State Bar.
Those cases "ran the gamut" from lawyers accused of actually taking money from trust funds to others guilty of sloppy record-keeping and other minor infractions, according to Patricia Rios, clerk of the state bar's disciplinary system.
There are 19,740 licensed lawyers in Virginia, and about 500 in the Roanoke Valley.
Some of the Roanoke allegations date back to the early 1980s, but it was not until 1992 that two high-profile embezzlement cases grabbed the state bar's attention.
In January 1992, Newport News lawyer David Murray committed suicide as investigators closed in on his pyramid real estate investment scheme. Authorities later determined that Murray bilked nearly $42million from client and fellow investors, making his case the largest embezzlement by a lawyer in U.S. history.
Several months later, James Arthur of a large Arlington law firm admitted taking nearly $3million from client funds to support a lavish lifestyle. Arthur was sentenced to five years in prison.
The two cases prompted Rakes to appoint a Special Committee on Lawyers Serving as Fiduciaries. The committee was charged with examining the current system that governs lawyers who handle client accounts, such as a commissioner of accounts, a trust administrator or an executor under a will.
"Out of those cases [Murray and Arthur] came the need to review the entire process by which people serve as fiduciaries and what should be done to tighten the reins," said Michael Rigsby, who as counsel for the state bar investigates cases of alleged lawyer misconduct.
One proposal was for a new law that would allow the beneficiary of a trust fund to make a demand for regular accounting from the attorney - similar to a monthly bank statement for a checking or savings account.
Under the current system, Rigsby said, "If I were the executor under a will, I don't have to tell anybody anything right now. And if I do my job right, everything will be fine.
"But if I don't, they'll have a devil of a time figuring out what I did with the money."
The proposed law was presented to the General Assembly at its last session and was held over for study until the legislature convenes again next year, Rigsby said.
The committee recommended a number of other changes that have already been implemented, Rakes said, including expanding the bar's Rules of Professional Responsibility to cover all accounts handled by lawyers.
The bar has also set a goal of increasing the amount in its client protection fund, from which clients can recover up to $25,000 if they are defrauded by a lawyer. The fund stands at about $1.5million, and bar officials hope to double that amount.
Victims of dishonest lawyers have few other ways to get their money back, except when a judge orders a convicted lawyer to make restitution. Theft cases are not covered by legal malpractice insurance, which applies only to instances of negligence.
No matter what checks and balances are put in place, there is no foolproof way to prevent lawyer thefts, Caldwell and Rakes said.
"Having wrestled with this for two solid years, I think that there is no way that it can be absolutely prevented," Rakes said. "If a person sets out to steal and they have something in their possession, it's going to happen."
But, he added, "While it is a problem, and a serious one, 99-plus percent of lawyers are meticulous in their handling of client funds and have had no problems for many years."
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