The alternative explanation for using IOLTA funds to pay personal bills is that the bills are being paid from accrued fees which should be transferred to the firm as income. That is, instead of withdrawing funds that are actually owed to him, he is using them to pay personal bills. Thus, he is only
cheating on his income taxes, not defrauding his clients.
These situations require some courage, but courage has to come based on the ability to identify the lesser of two evils. Obviously, your bank believes the SAR subject is litigious by nature and there will be blood if he finds out about the SAR. On the other hand, you believe you may be watching a customer commit a crime.
Today, banks are being punished for voyuerism; they are expected to do more than watch.
So, simply watching it happen is not an option. If the dollar thresholds are exceeded a mandatory SAR filing accrues. That's actually the easy decision. The more likely "stop action" will come from contacting the bar association as discussed here.
P.S. You might also consider "embezzlement" as a check box option. While the deifinition provided years ago assumed the victim was the bank, it's still an accurate descriptive term.