Practice Watch

by Barbara Buchanan, Practice Advisor

Not a holiday for fraudsters

The “Oklahoma flip” – a cautionary tale of property value fraud
Phony debt collection scams a plague – new twists
Getting rid of your photocopier? A potential gold mine for fraudsters
Blacklined documents – undertakings and representations of accuracy
Authentication of a client’s document for use in a foreign country


Summer holidays are here, and fraudsters like to prey on law firms when they think they may be short-staffed, rushed for time and not as careful. Be extra vigilant during the summer and at any time of the year when there are bank holidays.

The “Oklahoma flip” – a cautionary tale of property value fraud

What is an Oklahoma flip? The Oklahoma flip (also known as “the bump”) is an old scheme, but in today’s real estate market it is worth remembering to be on guard against this type of property value fraud. Typically, two fraudsters work together to dupe lenders and lawyers. A fraudster purchases real property and resells it (the “flip”) to a complicit purchaser at an artificially inflated price. This positions the new purchaser to deceive a lender as to the property’s true value when obtaining a mortgage.

To illustrate the scheme, this reminder reflects on the misfortune of a BC lawyer who failed to make sufficient inquiry into the bona fides of clients who retained him for numerous related residential real estate transactions, and who agreed to act for multiple clients with conflicting interests. Following a discipline hearing, his poor judgment resulted in a six-month suspension, and an order that he pay costs and remain bound by a previous undertaking not to practise real estate law.

Over a period of months, the lawyer’s corporate clients, I Ltd. and Q Ltd., bought 13 properties and assigned the 13 contracts of purchase and sale to nominee purchasers at significantly higher prices. The lawyer also acted for the purchasers and the banks that loaned money to the purchasers for mortgages based on inflated prices. The lawyer improperly acted for multiple parties, failed to disclose potential conflict issues to his clients and preferred the interests of some clients (corporate assignors) over others (lender banks and nominee purchasers).

The lawyer explained that the fraudsters told him the company’s business was to help clients moving to Canada to obtain visas, and the properties were bought at favourable prices from clients and sold by the company to other clients to assist in the immigration process. The hearing panel found that, while the lawyer’s actions were not consistent with knowing participation in a fraud, they were consistent with a lack of judgment, skill and diligence. If he had complied with the “formalities” of real estate practice and conflict of interest rules, it is doubtful he would have participated in this scheme. His conduct shows he was oblivious to these requirements, which are fundamental to the practice of law.

By making prudent inquires before accepting a retainer and by steering clear of improperly representing multiple parties in real estate transactions, you will stay on the right side of your professional obligations and avoid becoming a pawn in a real estate fraud.

When acting for multiple parties, carefully review Law Society Rules 3-91 to 3-102 (the client identification and verification rules), and the following rules in the Professional Conduct Handbook:

  • Chapter 3, Rule 1 (Knowledge and skill)
  • Chapter 4, Rule 6 (Dishonesty, crime or fraud of client)
  • Chapter 6 (Conflicts of Interest Between Clients); and
  • Appendix 3 (Real Property Transactions), especially the “simple conveyance” rules.

Consider contacting a Practice Advisor if you have doubts about whether you should be acting. For more information on the Oklahoma flip, see the following on the Law Society website at lawsociety.bc.ca:

Phony debt collection scams a plague – new twists

Be on guard and look for new twists to the phony debt collection scam. This scam started out in the business context, then appeared in the matrimonial context, and both versions continue to plague lawyers. While the initial contact is often by email, it sometimes comes in the way of a phone call or even in person.

Fraudsters pretending to be lawyers are now making “referrals.” A fake lawyer referred a phony foreign client (but using the name of a real company) to a BC lawyer to collect a debt. The supposed debtor sent the lawyer an authentic-looking, but phony bank draft in the name of a real BC company. The astute lawyer contacted the real company who told the lawyer that it had never done business with the foreign company, didn’t owe it any money and hadn’t sent a bank draft to the BC law firm. The phony foreign client wanted the lawyer to deposit the draft into his trust account and then wire the money to the fraudster’s account in Japan (to a different name than the name of the real company). The law firm’s bank confirmed the bank draft was fake and the scam came to a halt.

If you receive a referral from a lawyer whom you do not know, check to see that the person truly is a lawyer and actually made the referral to you. Also, always follow the client identification and verification rules (Rules 3-91 to 3-102).

For more information regarding phony debt collection scams and how to protect yourself, see Practice Watch in the Fall 2009, Winter 2009 and Spring 2010 Benchers’ Bulletins.

Getting rid of your photocopier? A potential gold mine for fraudsters

photocopierToday’s lawyers not only have to be concerned about protecting the confidentiality of sensitive information in their laptops, desktop computers, PDAs, flash drives, etc., but must also be concerned about hard drives in photocopy machines. A photocopier’s hard drive may automatically store copies of thousands of confidential documents that have been copied, scanned or emailed. Media reports have cautioned the public that confidential information stored on hard drives is easily accessible. Speak with your service provider to find out what steps you can take to ensure that the information is not stored or is erased from the hard drive before you dispose of the machine. Lawyers must take all reasonable steps to ensure the privacy of a client’s confidential information (Chapter 5, Rule 1, Professional Conduct Handbook). Failure to do so could result in an action for damages and disciplinary consequences.

Blacklined documents – undertakings and representations of accuracy

Lawyers commonly send documents to other lawyers indicating where changes have been made to a previous draft by “blacklining” (also called “redlining”). Are you giving an implied undertaking or representing that the blacklined version is an accurate blackline of the changes from the previous version when you do this? Here’s a scenario considered by the Ethics Committee:

Lawyer A and Lawyer B represent clients opposed in interest. Lawyer A proposes changes to a document (version 1) (either one drafted by Lawyer B or already reviewed by Lawyer B) and sends version 2 to Lawyer B, in clean and with a blackline to version 1. In doing so, without expressly undertaking anything in relation to the document, does Lawyer A do either of the following?

  • impliedly undertake that the blacklined version is an accurate blackline showing the changes between version 2 and version 1; or
  • represent that the blacklined version is an accurate blackline showing the changes between version 2 and version 1.

The Ethics Committee’s opinion was as follows:

“A lawyer who sends a blacklined document to another lawyer in these circumstances, in the absence of language to the contrary, neither undertakes nor represents that the blacklined document accurately shows the changes made to it. A lawyer in such circumstances simply represents that he or she believes, in good faith, that the blacklined version correctly describes proposed changes to the document.” (June 2009 Ethics Committee minutes)

Authentication of a client’s document for use in a foreign country

Sometimes foreign governments and organizations will only accept a document notarized by a BC lawyer if the lawyer’s signature has been “authenticated.” The Law Society provides an authentication service. For information about authenticating your signature, contact the Member Services Department at memberinfo@lsbc.org or 604-605-5311.

Additional authentication services may be obtained in BC through the Order in Council Administration Office, or federally through Foreign Affairs and International Trade Canada. The contact information for the government offices is as follows:

British Columbia government service
Order in Council Administration
Ministry of Attorney General
Attention: Authentication Clerk
Room 208, 553 Superior Street
Victoria, BC  V8V 1X4
Phone:  250-387-4376

Federal government service
Authentication and Services of Documents Section (JLAC)
Foreign Affairs and International Trade Canada
125 Sussex Drive,
Ottawa, Ontario K1A 0G2
Phone: 1-800-267-8376
Website: international.gc.ca (search for “authentication”)

Further information

Contact Practice Advisor Barbara Buchanan at 604-697-5816 or bbuchanan@lsbc.org for confidential advice or more information regarding any items in Practice Watch.

?