Complaints, Lawyer Discipline and Public Hearings

Summary of Decision of the Hearing Panel on Facts and Determination

Hong Guo

Richmond, BC

Called to the bar: May 4, 2009

Discipline hearing: February 3 to 7 and 10 to 14, and June 23, 2020

Panel: Jennifer Chow, QC (chair), Ralston Alexander, QC and John Lane

Decision issued: November 4, 2020 (2020 LSBC 52)

Counsel: Alison Kirby for the Law Society; Gerald Cuttler, QC and Lucy Zhao for Hong Guo

FACTS

Hong Guo is a sole practitioner with a busy practice focused on real estate conveyances, immigration and corporate-commercial transactions. From May 2014 to April 1, 2016, she employed a bookkeeper who was responsible for preparing trust and general cheques, making bank deposits, recording financial transactions, preparing monthly trust reconciliations, preparing payroll and other general office duties.

Guo relied on her bookkeeper to a significant extent to ensure compliance with accounting rules. Her bookkeeper was casual about timing of trust receipts and disbursements. Several key trust accounting reconciliations were not done for the months leading up to an employee theft and fraud. If trust reconciliations had been done, it would have revealed the false inflation of the trust account balances by fake deposits as there was more money owed to clients than was in the bank.

Before leaving for a two-week vacation in March 2016, Guo signed a number of blank trust cheques and left them with her bookkeeper to use for trust transactions. Guo submitted that some of the blank cheques used for theft were forged, but no appropriate evidence was provided to the hearing panel.

The bookkeeper was able to orchestrate the theft by crediting fake deposits to a trust account ledger he had set up in a former conveyancing assistant’s name, thereby inflating the apparent balance available for withdrawal. From late February to March 31, 2016, $7.5 million in trust funds were provided to the former conveyancing assistant using the pre-signed blank trust cheques. On April 1, 2016, Guo discovered the theft when she could not find her bookkeeper to review her monthly trust reconciliation statements.

Guo deposited approximately $2.6 million of family money to address some of the more pressing real estate closing obligations impacted by the theft. By early 2018, the trust shortage was fully eliminated by the family funds as well as $4 million from an insurance policy that covered employee theft.

DETERMINATION

The hearing panel found that Guo failed to prepare monthly reconciliations of her pooled trust accounts within 30 days of the effective date of the reconciliation in a significant number of instances over more than a two-year period.

Prior to the theft, Guo withdrew funds from a trust account when there were insufficient funds held to the credit of the client in one or more of 39 instances. The panel determined that this also occurred in one or more of 17 instances in another trust account with another bank. The majority occurred as a result of a mismatch between the date of the trust cheque and the date of the deposit of the trust funds. Law Society accounting rules require that the funds be deposited in the account before a trust cheque can be written. The first of many theft cheques cleared the bank account on February 24, 2016, and the trust shortage was not discovered until more than a month later on April 1, 2016.

The hearing panel determined that Guo failed to report to the Executive Director a trust shortage greater than $2,500 in four instances, three of which Guo admitted to. In the fourth instance, the overdraft was caused by the theft, but Guo did not report the overdraft.

In one or more of 10 instances, Guo withdrew or authorized the withdrawal of $1,870,123.08 in trust funds by way of debit memo, which is not permitted by the Law Society Rules. Funds must be withdrawn either by cheque or by electronic transfer. The debit memo transactions occurred while Guo was in China, and the panel found she made no effective arrangements to cover her practice, which meant she had no other way to close these transactions except by debit memo.

Guo gave her bookkeeper 125 pre-signed blank trust cheques, some of which were used in the employee theft. The panel found that entries in Guo’s bookkeeper’s notebook were initialled by both the bookkeeper and Guo. While she was unclear whether it was her writing, Guo admitted that she left pre-signed trust cheques with her bookkeeper, which is consistent with the panel’s understanding of how her practice could continue during her absence from the office. As the sole signatory on the trust account, Guo was required to be physically present to sign trust cheques.

The panel found Guo failed to properly supervise her bookkeeper and improperly delegated her trust accounting responsibilities to him. The bookkeeper was free to work in any manner he felt appropriate, including facilitating a massive theft of $7,506,818 from trust. Although the theft amount was $7.5 million, in fact only $6.7 million was actually paid out by the banks because the last cheque was caught by the bank before it cleared. The panel found that the sheer volume of her practice made it improbable Guo could properly supervise the accounting department and employees.

The panel found that, after Guo discovered the theft, she misappropriated or improperly withdrew three separate clients’ trust funds when there were insufficient funds on deposit to the credit of other clients. The total funds shortage for these three clients was $649,423.24. The panel determined Guo made decisions to close certain real estate transactions due to imminent closing dates and she manipulated her trust account records in a way that allowed her to use other clients’ funds to complete those transactions. While Guo deposited $1.69 million in family funds, the funds were not allocated to particular clients or client files, making it difficult to determine the amount of funds actually on deposit, and most of the funds had been paid to close other transactions. In one instance, Guo delayed paying half of the real estate commission, some unpaid strata fees and her legal account for fees, disbursements and taxes to reduce the impact of the theft.

The panel determined Guo breached her undertaking to the Law Society by failing to immediately open a new trust account for new client matters, depositing a total of $196,613,345.22 into her trust account in connection with 165 new client matters and withdrawing $7,269,159.28 in trust funds by way of one or more of 30 cheques that had not been signed by a second signatory.

The panel found Guo failed to comply with an interim order made by Benchers by depositing trust funds totalling $24,446,106.29 into a trust account in connection with 28 new client matters.

The hearing panel determined that Guo committed professional misconduct.

2020 LSBC 52 Decision on Facts and Determination