Attorney Admonished for Failure to Exercise Proper Oversight Resulting in Employee’s Embezzlement of Client Funds

In In re PRB Docket No. 2016-042, 2016 VT 94 (August 24, 2016), the Vermont Supreme Court approved a private admonition for an attorney who failed to maintain proper control and oversight of his client trust account.

Issue: This case concerns the appropriate sanction for attorney whose employee was embezzling money. The employee worked for the attorney for 24 years and handled the bookkeeping for the attorney’s operating and client trust accounts. The attorney made the bank deposits, confirmed that they were recorded correctly, reviewed the ledger reports for the accounts each month and when closing a file. He hired a CPA to review the finances annually and his title insurance company reviewed the client trust account periodically. No issues were discovered until 2015. Unbeknownst to the attorney, for years, the employee engaged in a scheme of embezzlement, resulting in about $962,000 misappropriated from his operating account and $2,020.18 from his client trust account. He immediately fired the employee, hired a CPA to do a thorough forensic review, and notified law enforcement and Vermont Disciplinary Counsel. He also transferred money from his own account to cover the missing client funds and implemented internal controls to ensure safekeeping of all client funds.

Holding: The Court reviewed the requirements under the Vermont Rules of Professional Conduct 1.15, 5.3(a) and (b). It found that the attorney had violated these rules by delegating the responsibility of handling money to a non-lawyer employee without appropriate oversight and failing to have reasonable internal controls to safeguard client property, which resulted in the misappropriation of client funds. In determining the appropriate sanction, it considered the attorney’s mental state, which was one of negligence, and the potential for injury to clients, which was low given the nature of his practice. In this situation, the presumptive sanction is a public reprimand. There was one aggravating factor, specifically that the attorney had been practicing for more than 40 years. However, there were several mitigating factors, including that fact that the attorney had never been the subject of disciplinary action in 40 years, he had no knowledge of or benefit from the conduct, he immediately took steps to rectify the issue, and he self-reported the violation. The attorney also established that he has an excellent reputation and good character. The Court held that these mitigating factors outweighed the aggravating factor and that the appropriate sanction was an admonition.