Commercial lawyers: you’re not immune from fraud!

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This high-dollar scam was reported to our company

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Our company publishes an excellent newsletter entitled “Fraud Insights”. The Editor, Lisa Tyler, National Escrow Administrator, deals mostly with residential transactions. It’s unusual for her to report on a scam involving a commercial transaction, but the edition that hit my in-box today outlines the story of a chilling scam involving a commercial transaction in New York. Fortunately, the scammers were not successful despite their best efforts.

Here are the facts. On April 10, 2019, an attorney at a large, prestigious New York City law firm sent a settlement services office in Lake Success, New York, a payoff letter for a private mortgage. The payoff letter said $1.7 million should be wired to a bank account in New Jersey.

The afternoon before the closing, the settlement office received an email purportedly from the payoff attorney’s office with revised payoff instructions for a bank in the Netherlands.

The closing was postponed for reasons not involving the loan payoff. When the closing was rescheduled, the settlement office emailed the lawyer and his assistant inquiring about the change in the wiring instructions. The responding email confirmed that the change was legitimate.

Reviewing the emails carefully, the closer noticed the domain name for the lawyer’s office contained an extra “s” beginning with emails dated April 16. The attorney’s email signature was also partially cutoff beginning April 16.

Two hours before the closing, the attorney’s assistant purportedly sent the closer an email asking if the wire had been sent. The closer did not want to alarm her that her email had been compromised, so he responded that the closing was happening shortly, and he would be in touch. The closer then searched the law firm by Internet and called the main telephone number, asking for the assistant directly. She answered the phone and said the original payoff letter was the only payoff letter, and she had not sent the recent email. She was, of course, alarmed.

She said her attorney was in court and she would relay the distressing information to him immediately. She was asked to refrain from using email for that notification because the emails were clearly being watched. Regardless, she emailed the attorney. At that point, the scammers were tipped off that their scheme had been uncovered.

While the legal assistant and the closer were discussing the situation by phone, the closer received another email purportedly from the assistant demanding that he call the lender to confirm the payoff information. Immediately following that exchange, a man called the closer office to confirm the altered wiring instructions.

At this point, everyone involved with the closing knew for sure that they were dealing with attempted fraud. The closing took place, but the payoff was accomplished via bank check.

The closer said his office tries to remain on the cutting edge of technology and industry news. His sharp eye in pinpointing the email discrepancies kept the closing from being another cybercrime news story. Commercial lawyers may feel somewhat insulated from the rampant cyber fraud that plagues residential practices, but this cautionary tale is an example of penetration into a sophisticated law firm. Be careful out there!

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Nat Hardwick ordered to pay $40M in restitution

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Nat Hardwick

Nathan E. Hardwick IV

This blog discussed Nat Hardwick, a name familiar to many South Carolina real estate lawyers, last fall when he was convicted of embezzling more than $25 million from his former companies, including his former law firm, Morris Hardwick Schneider. He was discussed again in February when he was sentenced to 15 years in prison. His co-conspirator and controller, Asha Maurya, was sentenced to seven years after she cooperated with the government. On May 9, Hardwick and Maurya were ordered to pay $40 million in restitution.

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 and one of the parties awarded restitution because it funded the firm’s escrow accounts when the losses were discovered.

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, reached an agreement last 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. Her lawyer argued at the restitution hearing that she should be liable for only $900,000, the amount she admitted taking from the firm for her own benefit. She had agreed to pay restitution in that amount as a part of her plea bargain.

During the trial, 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.

Hardwick’s former partners, Mark Wittstadt and his brother, Gerald Wittstadt, were each awarded $6 million in restitution, and Art Morris, a retired member of the firm, was awarded $5 million.  All claim damage to their reputations in addition to substantial monetary losses.

Nat Hardwick sentenced to 15 years

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Nat HardwickThis blog discussed Nat Hardwick, a name familiar to many South Carolina real estate lawyers, last fall when he was convicted of embezzling more than $25 million from his former companies, including his former law firm, Morris Hardwick Schneider. Last week, he was sentenced to 15 years in prison. His co-conspirator and controller, Asha Maurya, was sentenced to seven years after she cooperated with the government.

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, reached an agreement last 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.

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.

A scary Halloween story to keep real estate attorneys up at night!

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This South Carolina man’s criminal conviction will stop you in your tracks!

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BOO!

A South Carolina man made a name for himself this year in Washington, DC, and not in a good way. Robert McCloud, a 39-year old former resident of Warrenville, in Aiken County, was sentenced in federal court in Washington, DC, to 18 months in prison followed by three years of supervised release including six months of home confinement. He also forfeited almost $60,000 and will be required to pay restitution in an amount to be determined later. Finally, he will be required to perform 150 hours of community service.

The charges were based on wire fraud statutes and involved real estate transactions. McCloud pled guilty in June in the U.S. District Court for the District of Columbia. His sentence was imposed October 19.

McCloud and co-conspirators identified residential properties that appeared to be vacant and abandoned. They prepared and recorded fake deeds into fictitious names and later fraudulently sold the properties, using fake drivers’ licenses, to legitimate purchasers. McCloud and his co-conspirators involved unsuspecting title and escrow companies in the subsequent closings.

In his guilty plea in June, McCloud admitted to participating in two of these fraudulent transactions in 2015, which generated a total of around $580,000.  Of that total, law enforcement officials were able to seize almost $370,000 in administrative forfeiture proceedings. In both cases, the properties were unencumbered. The true owners of both properties are elderly owners and have been involved in difficult proceedings to have the properties re-titled in their names.

The harm caused to the true owners and the legitimate buyers was covered by title insurance, and the restitution represents funds owing to the title insurance companies. Dirt lawyers, when you need an example of why your clients should be protected by title insurance, you can use this story! And I have many others if you need them.

Take a look: deep within the Internet is a secretive place…

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.. where criminals buy and sell your private information

Nobody in my household is old enough to receive publications from AARP. (And if you believe that, I should either say “thank you” or try to sell you that beautiful 8-lane bridge crossing the Cooper River in Charleston.) But, for some reason, AARP’s September Bulletin arrived in my mailbox today, and it contained an excellent article entitled “Inside the Dark Web” that provides the best information on that topic than I’ve read to date. You can read the article here.

The article, written by Doug Shadel with Neil Wertheimer, said much of the available information on the dark web comes from Brett Johnson, an “imposing and charismatic” former criminal once dubbed the “Original Internet Godfather.” Johnson created “Shadowcrew”, one of the first online forums where criminals could buy guns, credit cards, Social Security numbers, and drugs. He landed on the Secret Service’s most-wanted list and was in and out of prison for a decade. The other source of information is a character who is now in prison and who asked to be called “Blue London” in this article. Today, according to this article, Brett and Blue are willing to share detail about the dark web, Brett, as a law enforcement consultant, and Blue, as an inmate who wants to reduce his prison sentence.

dark web

The article describes the entire content of the web. The “surface web”, which makes up 5-10% of the Internet, consists of sites that show up when you use normal search engines like Google, Yahoo and Bing. These sites encompass news, entertainment, products, services and consumer information. The creators of these sites, like Wikipedia, Amazon and WebMD, want lots of people to see them.

The “deep web”, which makes up 90-95% of the Internet, consists of pages requiring a password and can’t be accessed by normal search engines. These sites include online banking, subscription websites, government records, emails and most social media content. Examples include PayPal, Netflix, LinkedIn, Instagram and Dropbox.

The “dark web”, which makes up just 01% of the Internet, consists of sites that provide anonymity to users and go largely unregulated. Many are legal. For example, sites service as outlets for human rights activists can be found on the dark web. But the dark web is also used by criminals to make illicit purchases and sales with total anonymity. Cryptocurrency like Bitcoin is used to make the transactions untraceable.

The article described AlphaBay, a site that, before it was taken down in 2017 by the FBI, had over 200,000 users and took in between $600,000 and $800,000 daily, mostly drug related. But that site also dealt in stolen personal IDs, stolen credit card numbers and hacking tools.

Brett and Blue showed the authors of the article many other inhabitants of the dark web that moved in to take the place of AlphaBay. These sites sell the items marketed on AlphaBay plus logins and passwords, credit reports, and “fullz” which translates to a “complete package of everything needed to commit identity theft: Social Security number, date of birth, mother’s maiden name, address, phone numbers, driver’s license number and more.”  Blue said a fullz can sell for $20-$130, depending on the victim’s age and credit score.

Data can also be sold piecemeal. Brett asked the author his wife’s name and quickly found her Social Security number available for purchase at $2.99. The author also paid a small fee and received a 92-page report containing all his current and previous addresses, phone numbers, social media sites and email addresses. The report also contained descriptions of his family members and neighbors and details about properties he has owned.

Much of the data, according to this article, goes up for sale shortly after it is stolen. The huge data breaches we hear about routinely apparently flood the market and deflate prices. Brett and Blue told the author that they could study social media sites to harvest data for criminal purposes. Many sites use “knowledge-based authentication” (KBA) questions, which should be information that only the user knows. But if the user adds this type of information to social media sites, the scammers can successfully mine the information.

The article provides some advice to stop the cybercriminals. First, we should all simply assume that our information is already “out there” on the Internet, and take action to protect ourselves. Cybersecurity experts and former criminals agree on three steps to help us all stay safe:  freeze credit, closely monitor all accounts and use a password manager. The author said he fully subscribes to this advice and has taken all three steps. I’m at two out of three. What about you?

(You can thank me later for directing you to this outstanding article that you are much too young to read.)

ALTA develops wire fraud rapid response plan

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Dirt lawyers:  post this in your office!

alta-color-regIn this era where cybersecurity is our greatest challenge, American Land Title Association has benefited all of us in the real estate industry by developing a rapid response plan for wire fraud incidents. Two links are here, one to the plan itself and another to a response worksheet.

Many of our offices have been challenged with these incidents, and we have learned that time is of the essence. We are, in fact, hearing more and more stories where the diverted money (or some of it) actually gets returned when action is taken quickly. Every second counts! Use these resources to guide you and your staff in reacting immediately.

This plan guides offices in contacting banks, parties to the transaction and law enforcement officials at various levels. Websites for notices are included.

I recommend that you save these resources in a place where everyone in your office can access them. And I recommend that you make hard copies and post them in a central location in your office.

Be safe out there!

And thank you, American Land Title Association!