Lawyers Journal

Defrauded 
clients get 
$2 million 
from CSB

The Clients' Security Board has awarded $2.06 million this year to compensate clients whose lawyers stole from them, according to the annual report it filed recently with the Supreme Judicial Court.

For fiscal 2011, which ran from Sept. 1, 2010 to Aug. 31, 2010, three lawyers accounted for 50 percent of the total paid out to clients, or $1.07 million.

Of the 63 claims awarded this year, trusts and estates cases accounted for $891,000, or 43.3 percent of the total money paid to clients, while real estate cases accounted for $629,000, or 30.5 percent. Unearned retainer claims accounted for the largest category of cases -- 36 out of 63 awards resolved by the CSB this year -- worth a total reimbursement of $125,685.

The CSB began reimbursing members of the public in 1975, at a compensation rate of 100 percent of the stolen money. The funds come solely from lawyers' annual registration fees, with 12.49 percent devoted to the CSB.

As in previous years, a few attorneys accounted for about half of the total money awarded to clients. This year, the lawyers responsible for the largest claims awarded were:

  • Raymond J. Paczkowski, responsible for five real estate clients being reimbursed a total of $509,392.16;
  • Harley H. Anderson, responsible for one trusts and estates client being reimbursed $253,279.64; and
  • Harold Meizler, responsible for one trusts and estates client being reimbursed $250,000.

Anderson's case illustrates the type of work the board does in returning stolen funds and policing the profession, said CSB Assistant Board Counsel Karen D. O'Toole. In 2008, a California client of Anderson's was awarded $280,286 for the sale of her mother's home. Anderson was trustee of the mother's realty trust and stole the money. At the claimant's hearing, she presented the CSB with a copy of a 1992 trust, but didn't know about any trust assets.

The CSB used its subpoena power to obtain documents proving that Anderson, again as the trustee, had stolen $253,279.64 from a family trust between 1992 and 1998, explaining that the funds had been used for the mother's care and nursing home expenses.

"I hope we've gotten all of his victims, but we don't know," O'Toole said.

The CSB does not have statute of limitations for filing a claim, as long as they can prove they were not negligent in pursuing a claim, O'Toole said. Applications on the CSB website are formatted so that victims can file them without hiring a lawyer.

The board is seeing a disturbing increase, O'Toole said, in the claims tied to bankruptcy filings, in which clients file for Chapter 13 protection and pay an attorney to handle the paperwork. The attorneys will deposit the money but never begin bankruptcy proceedings for their clients, putting them at risk of harassment by creditors and even foreclosure.

The amounts owed these victims may be relatively small compared to a real estate or trust claim, O'Toole said, but "The harm that it causes that victim is enormous because the victim doesn't have the money to pay another lawyer." And the delay in filing for protection for creditors puts them at enormous risk.

Though the cases the board reviews can be shocking in their impact and duplicity, O'Toole notes that the percentage of lawyers guilty of defalcation is tiny, and plenty of lawyers are interested in righting those wrongs. She noted for example, that a number of bankruptcy lawyers "have been very generous with their time and agreed to represent these clients, often without a fee."

Despite the increase in bankruptcy-related claims, CSB Vice Chairman John J. Egan, of Egan, Flanagan & Cohen in Springfield, said the board hasn't seen a deluge of claims related to national recession, like some other states have.

"I think most of the members of the board are concerned that that might be coming. As economic pressures increase, temptation and wrongdoing may increase," Egan said. "The board members always worry about the future. We hold our breath when times like this arrive. So far the other shoe hasn't dropped."

The CSB has roughly $5 million in a reserve fund to help offset unusually large payouts, and board members have praised the SJC for upholding its commitment to fund the CSB so that claims can be fully reimbursed for theft from dishonest lawyers.

In this year's report to the SJC, outgoing CSB Chairman Charles W. Goddard noted that "But for the Court's unwavering support for the Board's mission … claimants would have little if any opportunity to obtain meaningful reimbursement for their 
financial loss."

©2014 Massachusetts Bar Association