I know this is a violation of the IOLTA agreement, but does that raise it to the level of a SAR?

It's probably also a violation of state law for an attorney to use client funds except for the clients. If it rises to the SAR threshold, I recommend filing. It could be the tip of the iceberg for law enforcement once they start digging.

Good point! Thanks!

Check the requirements of your state's IOLTA program. You may also have a requirement that you report the transaction to the IOLTA overseers (bar association, state supreme court, or other).

SkiDoo, what state are you in?

I would definitely file a SAR on this.
An attorney cannot "borrow" from an IOLTA account.
A recent list of attorneys disbarred or fined included several for this activity.

I thought with the timing of your post you would be interested in this article, if you haven't already seen it.

http://www.pressofatlanticcity.com/184/story/362138.html

In NY, we have a Lawyers Client Protection Fund board...you probably have something like this in your state. You should contact them as well.

An attorney cannot borrow funds from an IOLTA in my opinion though, that is fraud. Those funds are not his, they are his clients. We just had a few attorneys in this area that were charged with bank fraud for doing so.

Hey- sorry I didn't post - been very busy. I'm in IL (the most corrupt state in the union).

Back to the original post, why do you believe the attorney is borrowing? Is (s)he issuing checks and then paying the funds back to the IOLTA account, or just issuing check to themselves?

Some of the funds in the IOLTA represent unearned fees (i.e. a retainer). As the work is done, the attorney bills the client and pays themselves from the IOLTA. Those funds should be paid to the general account.

Al

IOLTAs are generally mandated and controlled by the rules of the state's Supreme Court. They are not a product of a law or a regulation. Some state bar associations require their members to instruct the bank to notify the bar association if an IOLTA account is overdrawn. However, they would not think to expand a reporting structure to include borrowing because they would classify "borrowing" client funds as the simple misappropriation of client funds under another name.

If I suspected that's what the lawyer was doing I would file a SAR. I would not quibble over whether the filing was voluntary or mandatory. If I was positive that's what the lawyer was doing I would also try to find a way to get the bar association to review the activity in the account without my having to characterize the activity in any way.

Please review Al's post. Attorneys can withdraw funds from an IOLTA account and simply be accruing fees they have earned. Taking funds out doesn't suggest a problem, but repeatedly putting them back with a check drawn on the law firm might.

I suspected something was up because there are several wires out to one entity. Sometimes to cover the wires he gets a wire from what I think is his son. Wires in one month were over $100,000.00. I started reviewing deposits to the IOLTA account and found law firm checks with the memo "payback loan from trust account" in the memo section. I traced some of the withdrawals back to the wires to the entity. (May be a settlement not sure.) Attorney got a loan from us for working capital. Money deposited into a payroll account, then wired to entity. I'm not 100% sure this guy is doing anything illegal, but I think it is suspicious. Lender says attorney is struggling financially, but did not elaborate. I asked lender to talk to attorney and try to get an understanding of this activity, but lender is too busy and he thinks I am overreacting. Thoughts?

"I started reviewing deposits to the IOLTA account and found law firm checks with the memo "payback loan from trust account" in the memo section."

I think that says it all. I would contact the governing body for IOLTA accounts in your State and file SAR.

I've always been amazed at what people will write on the memo line...

At a minimum, the conduct is unethical. However, a SAR filing is based on suspicion of criminality and I agree with Mr. Carey that it exists here.

Frankly (read cynically) I would anticipate some internal pushback about contacting the bar association. The end result may jeopardize the repayment of your loan. (I don't see that your loan is worth 100 cents on the dollar as it is.) Nevertheless, I would not bring up contacting the bar association until the SAR was in the mail.

The people who will have the most interest in what you have to say are here. There is an array of possibilities and considerations, but it would be prudent to ask bank counsel to make the initial call without identifying your bank. You want a strategy that will prompt the bar association to review the activity in the account without a direct accusation from your bank.

P.S. Loan proceeds were described as "working capital," deposited to a payroll account, then wired to a single entity? That's a red flag in its own right. Your "too busy" lender should be asking questions about that...

Thanks everyone! I will continue my investigation on this one.

Again, thanks for all your help and guidance. I really appreciate it!