Regulation Beat: Theft by attorneys nonetheless an issue, even amid pandemic

Not even a pandemic could slow down one of the longest-standing practices of shady lawyers in New York state: theft.

The Lawyers Fund for Client Protection, a state agency that compensates victims of crooked and extremely negligent attorneys, paid $3.4 million alone last year to victims whose attorneys who stole from real estate escrow accounts. That’s more than 40 percent of all the money the agency reimbursed, according to its most recent annual report.

That itself is no shock considering the agency has reimbursed more than $81 million to victims of real estate escrow thefts since 1982. It’s the highest dollar amount of all kinds of funds sent back to clients. 

More alarming is that in 2020, The Lawyers Fund for Client Protection had its fewest number of overall claims since 1984. And yet it paid out more money for real estate escrow thefts last year — amid the COVID-19 pandemic — than the $2.2 million it dished out to victims in 2019.

“The few lawyers responsible for these losses cause substantial harm to law clients and to the reputation of the over (338,000) registered lawyers in New York State,” the report stated. 

The fund, created in 1981, is the product of $60 fees that attorneys may not even realize they are paying. It is part of the $375 registration fee lawyers must pay every two years in New York. Last year, the fund doled out 114 payments worth a combined $8.4 million to compensate victims of 46 ex-lawyers.

The persistence of pilfering has led The Lawyers Fund for Client Protection to recommend serious consequences for crooked attorneys.

“Lawyers who steal should be disbarred,” the fund’s former executive director, Timothy J. O’Sullivan, testified in 2015 before the Commission on Statewide Attorney Discipline, which was put together by then-Chief Judge Jonathan Lippman to review the state’s disciplinary system for attorneys.

O’Sullivan testified that automatic disbarment for lawyers who intentionally “convert” (aka “steal”) funds  would “deliver a strong message to victims, the public and to lawyers about the administration of justice in New York state.”

Under Sullivan’s successor, Michael J. Knight of Bethlehem, that view has not changed. The agency’s 2020 report said lawyers who intentionally steal escrow funds should be disbarred “no questions or excuses.”

The vast majority of real estate escrow theft is in New York City and downstate counties, but The Lawyers Fund for Client Protection, based in Albany, has plenty of experience paying back victims of attorneys in the Capital Region.

Payments to victims can range from only a few hundred dollars to hundreds of thousands of dollars to millions.

The most recent report for 2020 showed the fund paid 1,195 to a client of Troy attorney Philip G. Ackerman. Additional details were not provided. In 2019, the Appellate Division of state Supreme Court’s Third Department in Albany disbarred Ackerman, a lawyer since 1993, after he did not comply with the a grievance committee’s investigation into complaints by Ackerman clients who said he neglected their cases.

The agency paid $372,748 to a client victimized by James M. Russell, a former Fulton County lawyer who was disbarred in 1995. That was after he pleaded guilty in Westchester County to fourth-degree grand larceny for his handling of trust funds.

The agency paid $400,000 to a client of Paul Richard Karan, a disbarred Manhattan attorney who pleaded guilty in 2018 to grand larceny and scheming to defraud. Karan fleeced more than $2.6 million from estates and trusts of multiple families. He then spent the proceeds on mortgage payments, loans, credit card bills, restaurants, traveling to Europe and country club fees.

And the fund paid $400,000 to a victim of John Shasanmi, a Delaware lawyer who pleaded guilty in 2019 to grand larceny for stealing $600,000 from an upper Manhattan church that he represented in a real estate transaction, stealing the money from an escrow account.

Russell, Karan and Shasanmi were all listed as attorneys registered in the Albany-based Third Judicial District, which covers Albany, Rensselaer, Greene, Columbia, Schoharie, Ulster and Sullivan counties. Their direct ties to Albany were not entirely clear.



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