What must an Alaska lawyer do to protect a client trust account from fake-check and wire-fraud scams before disbursing funds?

Plain-English summary

The opinion addresses fraudulent and criminal schemes aimed at law firm trust accounts, which it describes as widespread in Alaska and nationwide. It works through a hypothetical the Committee calls "regrettably typical": a lawyer takes on an out-of-state client by email, sends a demand letter, receives a quick settlement check from the alleged debtor, deposits it in trust, and, under pressure from the client, wires the funds out, less fees, before the check clears. The check later bounces, and trust funds belonging to other clients have been disbursed to an untraceable third party.

The opinion concludes that the lawyer in the hypothetical violated ARPC 1.1 (competence), 1.3 (diligence), and 1.15 (safekeeping property) by ignoring a series of red flags: a new or unfamiliar client from a foreign jurisdiction communicating by email or text, a simple task that generated a speedy "payment," and immediate pressure to pay out of the trust account before the payment cleared. While the rule requires a lawyer to "promptly deliver" funds a client or third person is entitled to receive, the opinion states the lawyer should not disburse trust funds "without taking all reasonable steps to assure that the funds are actually in the trust account and are correctly disbursed."

The opinion stresses that ARPC 1.15 contains no intent element, so a violation can occur even without dishonest motive. It does not make lawyers guarantors against every scheme, but it requires affirmative, competent, and diligent efforts to understand the risks and take reasonable steps to prevent them.

In practice

Under this opinion, conduct that disburses settlement or deposit funds from a trust account before confirming the funds have actually cleared, in the face of recognizable scam red flags, falls short of the duties of competence, diligence, and safekeeping. The opinion identifies the recurring pattern (a new remote client, an easily completed task that produces a fast payment, and urgent pressure to release funds) as the common thread practitioners are expected to recognize.

The opinion frames the safekeeping duty as one of reasonable precaution rather than a guarantee, and it notes that disciplinary agencies elsewhere now expect lawyers to be alert to these scams and to train staff accordingly.

Common questions

Q: Can a lawyer be disciplined for falling for a trust-account scam even without bad intent?

A: Yes. The opinion emphasizes that ARPC 1.15 includes no intent element, so a lawyer who improperly disburses trust funds can violate the rule regardless of state of mind, citing the Restatement and the Triem disciplinary matter.

Q: When can a lawyer release settlement funds deposited in trust?

A: The opinion states the lawyer should not disburse trust funds without taking all reasonable steps to assure that the funds are actually in the account and are correctly disbursed, even though the rule also requires prompt delivery of funds a client is entitled to receive (ARPC 1.15(d)).

Q: What are the warning signs of a trust-account fraud scheme?

A: The opinion lists a new or unfamiliar client from another jurisdiction communicating mainly by email or text, a simple task that generates a fast "payment," and immediate pressure to pay out of the trust account before the payment clears.

Background and rules framework

The opinion interprets the Alaska Rules of Professional Conduct, drawing the duty to safeguard client funds from ARPC 1.15 (safekeeping property) and reinforcing it with ARPC 1.1 (competence) and ARPC 1.3 (diligence). It quotes the ARPC 1.15 comment's instruction that "a lawyer should hold property of others with the care of a professional fiduciary" and its record-keeping obligations. The opinion situates Alaska's guidance among similar authorities from other jurisdictions, including North Carolina 2020 Formal Ethics Opinion 5 and New York City Bar Formal Opinion 2015-3, and points to FBI, insurer, court, and bar-association warnings about business-email-compromise and wire-fraud schemes.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.15 / ARPC 1.15 (safekeeping property; no intent element)
• Model Rule 1.1 / ARPC 1.1 (competence)
• Model Rule 1.3 / ARPC 1.3 (diligence)

Cases:

• In the Disciplinary Matter Involving Triem, 929 P.2d 634 (Alaska 1996), sanctions for improper dealing with client property

Other opinions cited:

• North Carolina State Bar 2020 Formal Ethics Op. 5: duty to guard against trust-account fraud
• New York City Bar Formal Op. 2015-3: escrow and counterfeit-check scams

See also

• CA Op. 2005-169: Client Trust Account Overdraft Protection
• ABA Formal Op. 505: Fees Paid in Advance
• AL Ethics Op. 2008-03: Flat Fees in Trust (IOLTA)

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/2025-2.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ALASKA BAR ASSOCIATION
ETHICS OPINION No. 2025-2
A Lawyer’s Duty to Safeguard Client Trust Funds from Third Party Fraudulent and Criminal Activity Issue Presented Fraudulent and criminal schemes directed at law firm trust accounts are widespread in Alaska and nationwide. When successful, these schemes can result in client trust funds being misappropriated, causing financial harm to clients. This Opinion examines what a lawyer should do under the Alaska Rules of Professional Conduct (“ARPC”) to be aware of and mitigate the potential for harm from such schemes, in the context of a hypothetical situation. Short Answer ARPC 1.1 (competence) and 1.3 (diligence) provide that a lawyer shall provide competent and diligent representation, backed with the legal knowledge, skill, thoroughness and preparation reasonably necessary. ARPC 1.15 (safekeeping property) applies these rules with particular force in trust account transactions, where a lawyer is responsible for client and third party funds.1 While a lawyer is required to “promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive,” ARPC 1.15(d), the lawyer should not disburse trust account funds without taking all reasonable steps to assure that the funds are actually in the trust account and are correctly disbursed. Analysis Our hypothetical situation is regrettably typical. Lawyer Robin receives an email inquiry from a prospective client in another jurisdiction who claims to need assistance in a commercial dispute. The prospective client claims to be owed substantial funds. On behalf of the prospective client, Robin writes a demand letter to the alleged debtor. The alleged debtor responds immediately by acknowledging the debt and offering to pay the balance. Robin draws up settlement paperwork, and the alleged debtor promptly sends a check for the full amount, which Robin deposits in her trust account. 1 “Misappropriation of client funds usually is an obvious violation of the rule

and is dealt with by disbarment or other severe disciplinary sanction.” Annotated Model Rules of Professional Conduct, 10th Edition, p. 297 (Bennett, Gunnarsson, and Kisicki, eds.); "[S]uspension is generally appropriate when a lawyer knows or should know that he is dealing improperly with client property and causes injury or potential injury to a client." In the Disciplinary Matter Involving Triem, 929 P.2d 634, 647 (Alaska 1996). 1

The client aggressively pressures Robin to release the settlement funds, claiming the funds are urgently needed. Robin transfers the settlement amount to the client, less her fees. One week later Robin checks her trust account and discovers that the alleged debtor’s settlement check bounced. In a panic, Robin tries to reach her client, without success, and searches the public record for information about her client and the alleged debtor, but finds nothing. Neither the client nor the alleged debtor can be located. The result is that trust account funds belonging to other clients have been disbursed to an unknown, untraceable third party. Robin ignored a series of “red flags”: (1) a new or unfamiliar client from a foreign jurisdiction, who communicated primarily by email or text; (2) performance of a relatively simple task (in this case a demand letter2) that generated a speedy “payment”; and (3) immediate pressure from the client for the lawyer to make prompt payment from the lawyer’s trust account, before the “payment” clears. Robin’s failure to verify the prospective client’s identity and bona fide existence and her haste in transferring funds out of the trust account violated her professional obligations under ARPC 1.1 (competence), 1.3 (diligence), and ARPC 1.15 (safekeeping property).3 Criminal and fraudulent activities directed at lawyers, law firms, and legal transactions have become commonplace, as acknowledged by the FBI,4 professional trade associations5, insurers6, court systems7 and bar associations

2 While the hypothetical addresses a putative client purporting to have a legal

claim against another person, these scams can also involve requests that an attorney provide assistance in a real estate or business transaction that may result in the client receiving funds as a “deposit” or holding funds as a trustee. Other variations will no doubt surface in the future. The common thread is that the lawyer’s work generates a prompt deposit into the trust account, followed by a prompt demand for payment from the putative client. 3 See ARPC 1.15 Comment (“A lawyer should hold property of others with the care of a professional fiduciary.”). The Comment further clarifies that the rule includes an obligation to “maintain on a current basis books and records in accordance with generally accepted accounting practice…”). 4 https://www.fbi.gov/file-repository/fy-2022-fbi-congressional-reportbusiness-email-compromise-and-real-estate-wire-fraud-111422.pdf/view 5 https://www.nar.realtor/law-and-ethics/protecting-your-business-and-yourclients-from-cyberfraud 6 https://www.hanover.com/resources/tips-individuals-andbusinesses/prepare-now-learn-how/email-wire-fraud-scam-affecting 7 https://www.wicourts.gov/courts/offices/docs/olrscams.pdf 2

around the country, both in informal guidance,8
ethics opinions,9 and
10
discipline. As the North Carolina State Bar opined in 2020 Formal Ethics Opinion 5, “given the constant threat to client funds and the significant harm that can result from such fraudulent activity, a lawyer’s duty in representing clients …. necessarily requires the lawyer to be vigilant in reasonably educating him or herself on the current state of such fraudulent attempts and in communicating with clients and staff about such risks.” The risks of financial fraud in today’s world are of such magnitude – and the speed of electronic transactions are so fast – that affirmative, competent, and diligent efforts of a lawyer are required to (1) understand the nature of the risks in such an undertaking, and (2) take reasonable steps to prevent such risks. This is particularly true when a lawyer encounters common and repeated patterns that are or should be well known to competent practitioners; are suspicious on their face; and are avoidable through the exercise of basic care, not requiring extraordinary efforts.11 This is not to say that lawyers are the guarantors of all aspects of a transaction, nor that every fraudulent scheme can be prevented. Nonetheless, lawyers are required by the ARPCs to take all reasonable precautions to protect their clients’ interests in the face of the rapid proliferation of fraudulent schemes.12 To meet the ARPC duties of competence, diligence and safekeeping of others’ property requires lawyers to be aware of the risks of fraud and to take all reasonable steps to protect against it. Approved by the Alaska Bar Association Ethics Committee on February 6, 2025. Adopted by the Board of Governors on April 23, 2025.

8 https://blog.texasbar.com/2024/07/articles/law-firms-and-legal-

departments/scams-continue-to-target-texas-attorneys/ 9 North Carolina State Bar 2020 Formal Ethics Opinion 5; New York City Bar Formal Opinion 2015-3. 10 Private Reprimand 2024-OLR-08, Wisconsin Office of Lawyer Regulation. 11 Private Reprimand 2024-OLR-08, Wisconsin Office of Lawyer Regulation (“After years of educational efforts, disciplinary agencies are now expecting lawyers and law firms to be cognizant of and alert for red flags signaling such scams and appropriately train their staff. Failure to do so may be prosecuted . .
. as a failure to take reasonable steps to safeguard client property.”). 12 While many of the Rules of Professional Conduct are directed at intentional misconduct, no intent element is included in ARPC 1.15. “Some few offenses , such as those requiring a maintenance of office books and records… are so absolute in form, thus warranting a finding of a violation… no matter what the lawyer’s state of mind.” Restatement (Third) of Law Governing Lawyers Sec. 5 cmt. d (2000). 3