Nat Hardwick convicted on 23 counts

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Nat HardwickMany South Carolina real estate lawyers know the name Nat Hardwick.

Nathan E. Hardwick IV, 53, described himself as the face of Morris Hardwick Schneider, an Atlanta residential real estate and foreclosure firm that grew into sixteen states, including South Carolina. The firm once had more than 800 employees and boasted of offices in Charleston, Hilton Head, Columbia and Greenville.

On October 12, Hardwick was convicted in federal court in Atlanta of 21 counts of wire fraud, one count of conspiracy to commit wire fraud, and one count of making false statements to a federally insured financial institution. In federal court, sentencing is typically delayed, and the convicted person is released and allowed to get his affairs in order. In this case, however, Hardwick had been released pending trial on bond. After his conviction, he was described by the U.S. Attorney who prosecuted him as a flight risk and was handcuffed and taken to jail immediately.

This story hits close to home. My company was one of the victims of the crimes.

The prosecutor described an extravagant lifestyle that Hardwick enjoyed at the expense of others. The case was said to be particularly troubling because the illegal activity was orchestrated by a lawyer who swore an oath to uphold the law and represent his clients with integrity. The U.S. Attorney said he hoped the case sent the message that the FBI and the U.S. Attorney’s office will not tolerate this type of white-collar crime.

According to the evidence, from January 2011 through August 2014, Hardwick stole more than $26 million from his law firm’s accounts, including its trust accounts, to pay his personal debts and expenses. The firm’s audited financial statements showed that the firm’s net income from 2011 through 2013 was approximately $10 million. During that time, according to the evidence, Hardwick took more than $20 million from firm accounts.

Asha Maurya, who managed the firm’s accounting operations, was also charged. She reached an agreement in May with the U.S. Attorney’s office and pled guilty. She was expected to testify at the trial, but was unexpectedly not called as a witness.

Hardwick did take the stand in his defense and attempted to blame Maurya with the theft. He said that he trusted her to his detriment, that he was entitled to the funds, and that he was unaware that the funds were wired from trust accounts. Hardwick testified for more than a day and explained that he believed Maurya followed proper law firm procedures.

On the stand, Hardwick, described as the consummate salesman, said that he gave his cellphone number to almost everyone. He said he returned calls and messages within a few hours and instructed his employees to do the same. He apparently believed himself to be a master in marketing and customer service and prided himself in focusing on the firm’s expansion strategy. He hoped to expand to all fifty states and make money through a public stock offering.

With his ill-gotten gains, Hardwick bought expensive property, made a $186,000 deposit for a party on a private island, spent $635,000 to take his golfing friends to attend the British Open in 2014, paid off bookies, alimony obligations, and sent more than $5.9 million to various casinos, all according to trial evidence. Hardwick’s activities lead to the loss of his law license and the bankruptcy of his firm.

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Department of Insurance files data security bill in SC legislature

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Bill is similar to model data security law adopted by NAIC

If you are a SC title agent, this bill will likely affect you if it passes!

The National Association of Insurance Commissioners (NAIC) adopted the Insurance Data Security Model Law, intending to promote rigorous cyber risk management practices, in October. And the South Carolina Department of Insurance (SCDOI) has introduced a similar bill in the South Carolina legislature. The South Carolina version, the South Carolina Insurance Data Security Act, is now in committee, and can be read here.

The model law creates data security standards for insurers and agents. The rules would apply to the real estate lawyers in South Carolina who are also title insurance agents. The rules require overseeing third-party providers, investigating data breaches and notifying consumers and regulators of data breaches.

security unlocked data breach

Insurers and agents will be required to have a written information security program for protecting sensitive date. Incident response plans and data recovery plans will also be required. Compliance certifications to the DOI will be required annually.

One important exemption applies to licensees with ten or fewer employees. This exemption will benefit small South Carolina law firms. Cyber security insurance may become a hotter commodity in South Carolina if this law passes, but the law is not intended to create a private cause of action.

We will watch this legislation and keep everyone posted on how it proceeds through the legislative process in South Carolina.

SC dirt lawyers sued for email funds diversion by a third-party criminal

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This is the first suit of this type I’ve seen. I’m confident it won’t be the last!

A dirt lawyer friend sent a copy to me of a hot-off-presses lawsuit filed in a circuit court in South Carolina against a closing law firm because the purchaser’s $50,000 in closing funds were diverted by a third-party criminal posing in an email exchange as the transaction’s real estate agent. My friend said he sent the case for my information. I think he sent it so I wouldn’t sleep!

Here are the facts as recited in the complaint. The names are being changed to protect all parties.

Paul and Penny Purchaser signed an Attorney Preference Form on March 28, 2017, selecting Ready and Able, LLC as their legal counsel for the purchase of a residential home and the closing of a purchase money mortgage with Remedy Mortgage, LLC.

On April 10, Paul and Penny Purchaser received Ready and Able, LLC’s “Purchaser’s Information Sheet” which required Paul and Penny to pay all closing funds over $500 to Ready and Able, LLC by wire transfer. The complaint states that these were silent as to the security of wire transfers, the security of private information to be conveyed between the purchasers and the law firm, and the security or lack of security of the use of email for closing information.

Also on April 10, Penny Purchaser telephoned the law firm and spoke with paralegal, Candy Competent, providing her with the purchasers’ Social Security numbers. The complaint states that Ms. Competent accepted the information and provided no wiring information or warnings.

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The complaint states that on April 14, Paul Purchaser received what purported and reasonably appeared to be an email from Regina Realtor, their real estate agent for the transaction, asking Mr. and Mrs. Purchaser to wire closing funds in the amount of $48,490.31 that day so that the closing scheduled for April 21 would not be delayed. Penny Purchaser replied to the email requesting wiring instructions. An attachment purporting to be wiring instructions for Ready and Able, LLC. was sent via reply email.  The complaint states that the wiring instructions reasonably appeared to be the correct wiring instructions for the law firm and appeared to be printed on law firm letterhead. This email exchange was actually with a third-party criminal.

Later on April 14, Penny Purchaser telephoned Candy Competent and requested the amount needed to close. Ms. Competent discussed the amount needed to close despite the fact, according to the complaint, that she knew or should have known that the law firm had not sent wiring instructions to the purchasers or the real estate agent.

On April 17, Ms. Competent sent an email to Mrs. Purchaser advising her to add $550 to the funds due to close to cover a survey bill that came in on April 14. No mention was made of wiring instructions in that email. The email also did not discuss the fact that the law firm had not yet provided an amount to close to the purchasers or to the real estate agent. Mrs. Purchaser wired $49,015.31 using the wiring instructions provided by the third-party criminal.

On April 21, Paul and Penny Purchaser learned for the first time that the wiring instructions were the work of a criminal third party, who received the funds and has failed to return the funds.

The complaint states two causes of action, negligence and legal malpractice, and lists the following breaches of duty committed by the law firm:

  • Requiring the plaintiffs to use wire closing funds to defendant, without counseling the plaintiffs about the methods by which the secure delivery of such funds could be compromised;
  • Failing to counsel the plaintiffs about the risks and insecurity of email communications, particularly of private, sensitive, or financial closing information; and
  • Failing to be alerted by the circumstances of Mrs. Purchaser’s telephone call on April 14, and therefore to warn her that no communication had been sent by the law firm.

Is this, in fact, negligence or legal malpractice?  We will have to wait to see.  Would the processes established by your law firm for the protection of your clients’ funds prevent this type of crime? That is the question of the day. Please discuss among yourselves!

Blogging in the holiday spirit

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Be excellent to each other!

Bill and Ted christmas

The purpose of this blog is to, in a very small way, assist South Carolina real estate lawyers in their constant quest to stay out of trouble. And there are so many ways we can get ourselves into trouble!  Trust accounting, cyber-security, legislative changes, case law changes and rule revisions are just a few examples. But I’m in the holiday spirit, and it occurred to me that one of the easiest ways to get into trouble is to simply fail to be nice.

Some lawyers had developed such terrible habits of failing to be courteous to each other and to opposing parties that our Supreme Court added a “Civility Oath” in 2003, which reads:  “To opposing parties and their counsel, I pledge fairness, integrity, and civility, not only in court, but also in all written and oral communications…”  New lawyers now take this oath when they are sworn in, and the rest of us had to attend seminars or functions that included the new oath as a component. We have all now pledged to be civil.

South Carolina lawyers have been disciplined for being uncivil and unprofessional. One lawyer wrote a letter questioning whether the officials of a municipality had brains and souls. He was suspended for 90 days and required to complete the Bar’s legal ethics and professionalism program. Another lawyer was suspended for 90 days for slapping an opposing party during a deposition.

The Office of Disciplinary Counsel has requested a sanction for bringing the profession into disrepute through a blog. Because the lawyer didn’t identify himself as a lawyer in his blog, the Supreme Court said the profession was not harmed. (I promise to be careful!)

Some authorities on the subject of attorney civility have speculated that technology and social media have exacerbated this problem. It’s easy to be rude while hiding behind a computer screen. Another factor has been the economy. When young lawyers are forced to hang out shingles without the careful mentorship of seasoned lawyers, they often fail to obtain the requisite training on how lawyers should behave.

Litigation lawyers are in the business of fighting for a living, so they often walk a tight rope between vigorously representing their clients and mowing over their opponents in an uncivil manner. I remember, however, attending a trial early in my career to witness two excellent, seasoned, respected Columbia lawyers attempt to out-polite each other. It was an impressive display of civility and effective representation that has remained vividly in my memory for many years. If we were all as civil as those two litigators were, no civility oath would have been necessary.

Unlike trial lawyers, transactional lawyers are in the business of providing solutions, solving problems, arriving at consensus and properly documenting all of the above. Transactional lawyers should, in theory, have fewer problems getting along with each other than trial lawyers have. That is definitely not always the case.

Sitting here in Columbia and listening to title problems from lawyers across South Carolina all day long, the lawyers in our office hear fights between real estate lawyers on a routine basis. It seems to us that an inability to communicate civilly can have a direct dollar impact on business through lost time and productivity.

Books and articles on business ethics stress the value of being nice. I believe that being nice is particularly valuable to transactional lawyers. Being nice can, for example, go a long way toward keeping a lawyer from being sued.

I was taught as a young lawyer to be courteous to the most annoying real estate agents and the most exasperating clients. We should all own up to and fix our mistakes, even when fixing a mistake requires writing a check. Our written and oral communications should demonstrate that we are not only effective lawyers, but also courteous, caring, sympathetic individuals. Being a meticulous and effective lawyer is the best method to eliminate being a defendant in litigation, but being nice is probably the second best method.

I am now stepping off of my soap box and wishing each of you happy holidays and a healthy, happy and prosperous 2018!

Criminal defense lawyer’s advertising debacle may be instructive for us

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Title insurance companies in South Carolina persistently encourage attorney agents to market their firms. We offer seminars on social media marketing. We invite experts to the table to explain the latest and greatest marketing tactics. I trust all the title companies also explain the professional responsibility rules that relate to marketing and bring in professionals to assist with compliance. The rules are detailed and specific, and any South Carolina lawyer who dips a toe into that arena should get the education needed to stay out of trouble. The South Carolina Supreme Court and the Office of Disciplinary Counsel (ODC) are serious about the rules.

The criminal defense lawyer who received a public reprimand in last month’s disciplinary case, In the Matter of Lord,* apparently did not take the safe approach.

fingers crossed realtor

To market his legal services, Lord sent direct mail solicitation letters to potential clients who received traffic tickets. One of those clients filed a complaint with the ODC. Lord made several mistakes in those letters. He used the tagline “attorneys at law” in his letterhead although he was a solo practitioner.

He touted “28 years’ experience both as a lawyer and former law enforcement officer” although he had been a lawyer and former law enforcement officer for only 16 years. His telephone number was (844) FIXTICKET, which may have created unjustified expectations or an implication that he can receive results by unethical means. Further, the Court held that the phoneword is also an improper moniker that implies an ability to obtain a certain result.

The letter also referred to the lawyer’s website which claimed he has “unique insight into the South Carolina traffic laws that many other lawyers simply do not have.” Lord admitted that this claim cannot be factually substantiated. Finally, the letter indicated Lord learned of the traffic tickets from “court records”. The court held that this source identification as not sufficiently specific.

The letter also referred to the lawyer’s profile on www.avvo.com (“AVVO”), a legal marketing website. AVVO, according to the Court, creates profiles for attorneys without their consent, knowledge or participation, then invites them to “claim” their profiles and participate in a variety of AVVO marketing activities, including “ratings”, peer endorsements, client testimonials and online contact with prospective clients.  Lord claimed his AVVO profile and used the website to market his legal services, making him responsible for the content.

A prior disciplinary investigation revealed a negative review on AVVO to which respondent replied. In the response, Lord revealed information relating to the representation of the complaining client and said: “Do me a favor. The next time you are arrested, call a public defender and see what happens after you sit in jail for 3 months they might get around to sending you a form letter. Good luck.” He was issued a confidential admonition in 2013 as a result of this exchange. Lord failed to remove the offending post after receiving the admonition.

He was also required to add a “clear and conspicuous” disclosure regarding endorsements, testimonials and reports of past results. He added this disclosure, but the terms “clear and conspicuous” were not defined in the rules until 2014, and Lord failed to revise the disclosure when that rule changed.

The lawyer advertising rules are not always intuitive. But they are always taken seriously by the ODC and the Supreme Court. If dirt lawyers choose to market their services, as the title companies believe they should, they should make every effort to follow the rules. Your title insurance company will help. Ask!

* South Carolina Supreme Court Opinion 27741 (November 15, 2017)

Lawyer accolades

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Is it ethical to advertise you’ve won?

If you are a recipient of legal awards and accolades, you’ll be glad to know that we now have an Ethics Advisory Opinion that tells us it is acceptable to let the world know you have won, under certain circumstances.

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Many newspapers, television stations and national publishers compile an annual “best of” list by surveying their customers or conducting evaluations. Some of the entities ask for nominations from their customers or ask for a fee to be paid in order to receive a nomination. Some accept all nominations and votes without the consent of the nominee. Most offer a badge or emblem to be used on firm websites and in other marketing materials to publicize the honor.

The question posed in EAO 17-02 is whether a South Carolina lawyer may accept and advertise a designation or accolade such as “Best Lawyers” or “Super Lawyers” in a legal publication or newspaper readers’ poll, in conformity with the rules for lawyer advertising.

The Ethics Advisory Committee answered that these accolades and designations, including the badges and symbols are ethical when:

  1. The entity or publication has strict, objective standards for inclusion that are verifiable and would be recognized by a reasonable lawyer as establishing a legitimate basis for determining whether the lawyer has the knowledge, skill, experience, or expertise indicated by the listing;
  2. The standards for inclusion are explained in the advertisement or information on how to obtain the standards is provided in the advertisement. Referral to the publication’s website is adequate;
  3. The date of the designation or accolade is included;
  4. An advertisement makes it clear that the designation or accolade is made by a specific publication or entity through the use of a distinctive typeface or italics;
  5. No payment of any kind for any purpose, including, but not limited to, advertising or purchase of commemorative items, is required of the lawyer, or the lawyer’s firm, for giving the designation, accolade or inclusion in the listing; and
  6. The organization charges the lawyer only reasonable advertising fees to the extent it not only confers the designation or accolade but also provides a medium for promoting or advertising the designation or accolade.

The opinion stated that courts and bars of several jurisdictions nationwide uniformly approved the acceptance of designations or accolades including badges, symbols and other marks in attorneys’ advertising, subject to conditions designed to insure that the use of the accolades or designations is not false or misleading.