Spring Surge in Fraud

Recent attacks on BC law firms:

An associate, Anika, represented a plaintiff in a tort claim and negotiated a settlement. She received settlement funds of approximately $900,000 to hold in trust, pending receipt of an executed release. Unfortunately, the fraudster was already in the firm’s email and was monitoring communications just waiting for an opportunity to steal funds. Subsequently, Anika’s paralegal, Sam, received an email with an executed release that appeared to come from the client but was actually sent by the fraudster. Sam also received email instructions directing that the funds be wire transferred to a business account purportedly held by the client but was being controlled by the fraudster. Suspicious, but unaware he was corresponding with the fraudster, Sam verified the payment instructions by email only, and not by phone. Anika proceeded to wire transfer the $900,000 to the fraudsters.

How did this happen? We believe that a firm employee fell victim to a phishing email sent several weeks earlier, and this is what allowed the fraudster to gain access to the firm’s computer system. Awareness and training are key to avoiding these thefts.

Unauthorized withdrawals from lawyer accounts

Four BC firms have been hit with unauthorized withdrawals from their accounts. In two cases, fraudulent cheques were issued and withdrawals made and attempted from the firms’ trust accounts in varying amounts, ranging from $14,500 to $48,000. While LIF does not provide coverage for this type of loss, we want to alert you to these risks so you can take steps to protect your firm from losses.

In one case, a firm’s receptionist received a call from an individual in Quebec who was trying to confirm whether a cheque they had received made out in the firm’s name had actually been issued by the firm. We do not know if the caller was the fraudster. The receptionist referred the matter to the Controller of the firm. The Controller immediately contacted the bank and discovered that a fraudulent cheque for $14,500 had just cleared the firm’s account. The Controller was able to freeze the account and put a stop payment on the cheque.

It is unclear how the fraudsters targeted the firms or whether they had access to the firms’ systems.

What can you do? Regularly review your bank accounts to ensure no unauthorized payments are being made. A surge of unauthorized withdrawals from law firms in Ontario has made its way to BC. If this happens to you take these steps: (1) Contact your Bank Manager and immediately put a stop payment on the cheques (2) Close the account (3) Open up a new account (4) Contact your IT department (5) Contact LIF so we can continue to monitor the risk (6) Report to your insurance broker for coverage under your crime insurance policy.

Key takeaways for funds transfer fraud:

1. Always call to verify payment instructions using a trusted number. Implement this funds transfer fraud verification checklist. Never ever email a client, opposing counsel, or another party to verify payment instructions.
   
2. Break the email chain! The verifier should never send an email confirming that the payment instructions have been verified. Why? Fraudsters impersonate lawyers and staff alike, and if a fraud is being perpetrated, the email purportedly from the lawyer or assistant confirming that verification has been completed will be from the fraudster.
3. Never use the contact information provided in the instructing (or confirming) email. A fraudulent email will always contain a fraudulent phone number.
4. Constantly educate yourself and your staff about preventing and detecting cyber fraud. Have all your staff read the notices we send out. Awareness, vigilance and training are key to cyber security.
5. Make your computer network as secure as you can and see the steps you can take in our January 22, 2026 Notice to Lawyers.

If you think you have been a victim of a funds transfer fraud:

1. Immediately notify your bank of the fraud and request a claw-back of the funds;
2. Contact your IT department and cyber insurer (Coalition or other) to ensure the fraudster is not still lurking in your system; and
3. Report any potential loss of client trust funds to LIF (under Part C of your policy)* and the Law Society Rule 3-74 (Trust Shortage).

How can you check if your firm has coverage under the Coalition policy? Take the steps set out on our cyber insurance page.


*There is funds transfer fraud coverage through Part C of your LIF Indemnity policy up to $500,000 for each fraud, each lawyer, and the firm, collectively and in aggregate, regardless of the number of losses. The deductible is 30% of the loss. Talk to a commercial insurance broker about additional coverage for funds transfer fraud and cybercrime.