Small Firms Take Look At Theft Prevention
Grady founded the law office that bears his name in 1969. He handles a mix of personal injury work, retirement law, divorce and probate litigation. Grady self-reported the theft to the Statewide Grievance Committee in May. He declined to comment on the case, but said the firm's partners immediately replenished the client accounts that had been pilfered. "We're sad that we had a long-term employee embezzling money," Grady said.
Patricia King, the state's chief disciplinary counsel, said the theft of client funds, in general terms, is "pretty problematic for the law firm.... The lawyer in these cases has an obligation to supervise employees, and in the end, it's the lawyer who has to make sure the account is secure."
She said her office will investigate whether there is an ethics violation against Grady, but nothing else could be said about the case at this time."
Speaking generally, she said the fact that a firm repaid the client funds that were taken "can be a mitigating factor."
Such disciplinary cases are not that common, but they do come up from time to time, King said. "It's important that lawyers know what these rules are on protecting client accounts," she said.
In 2010, Stamford solo Daniel Barber was suspended for 90 days after it was discovered that his sister siphoned clients' funds from real estate closings for about three years. At the time, it was said that the money was stolen to pay for his sister's heroin addiction. Barber got into further hot water when officials noticed he had been mixing client funds with money used to run his condominium maintenance business. "These rules are very clear," King said.
A Simsbury lawyer, John McCann, said he believes that having a trusted family member or long-time employee handling the books can actually increase the risk of theft. "That's because firm owners and managers can become too reliant on trusted staff members and become too lax in their management of their activities," he said.
McCann, for one, thinks firms with IOLTA accounts of over $1 million should be subjected to annual audits by state bar authorities. "These controls should include, at the very minimum, that the person who prints the checks is never the same person who signs or stamps them," said McCann, a real estate and bankruptcy attorney who recently wrote a letter to the Law Tribune suggesting extra controls.
He acknowledged that adding controls would be burdensome to some firms. "But without them," he said, "the funds the firm is holding in trust for the benefit of their clients becomes at risk to the very kinds of fraud that the firm of Grady & Riley has apparently been exposed to."•