Supreme Court enhances protection of client funds invested by attorneys

Attorneys investing funds for clients will be subject to stricter standards of accountability

under new rules adopted Tuesday by the Supreme Court of Pennsylvania.

The changes, which enhance accountability when attorneys invest client funds, take effect in 60 days.

“The integrity of our legal system depends a great deal on the professionalism and accountability of attorneys,” said Chief Justice of Pennsylvania Ronald D. Castille. “These new rules serve as a reminder that attorneys are obligated to live up to the trust people put in them by working diligently and honestly or face serious consequences.”

The new rules come as a response to the actions of attorney Anthony Lupas in Wilkes-Barre. In 2012, federal investigators indicted then-77 year-old Lupas on 29 counts of mail fraud, one count of conspiracy to commit mail fraud, and one count of conspiracy to commit money laundering.

The indictment alleges that Lupas used the mail to perpetrate a scheme to defraud several clients of more than $6 million. Lupas allegedly took the money from clients promising to hold the money for the benefit of the clients in trust accounts earning a minimum of 5 percent tax-free interest. At times 7 percent tax-free interest was promised.

However, allegedly Lupas did not hold any of the clients’ money in an interest-bearing tax-free account and no trust accounts were ever created. Instead, Lupas deposited clients’ money into his own general checking account and then knowingly and intentionally converted the clients’ money to his personal use.

After examinations of Lupas by doctors and a competency hearing in 2013, U.S. District Court Judge Robert D. Mariani ordered that Lupas be committed to the custody of the Attorney General to receive further treatment pursuant to the governing statute.

In June 2014, physicians at the U.S. Bureau Of Prisons facility at Butner, N.C., issued a report stating that Lupas was suffering from a mental disease or defect rendering him incompetent to stand trial and there was a strong probably that his competency will not be restored in the foreseeable future.

On Aug. 4, 2014, Mariani dismissed the indictment without prejudice and ordered Lupas released from prison and returned home in Luzerne County.

The nearly 50 people who have been allegedly bilked will receive $3.25 million from a fund established by the Pennsylvania Supreme Court that is supported by attorney registration fees.

The 47 claimants will receive the money from the Pennsylvania Lawyers Fund for Client Security, which was created by the Supreme Court in 1982 to reimburse clients who suffered losses as a result of misappropriations of funds by the Pennsylvania-based attorneys.

Among the important rule changes is the addition of a new Rule of Professional Conduct that prohibits a lawyer from brokering, selling or offering to place an investment for a client unless the attorney is licensed to do so, and as long as he or she does not have disqualifying financial interests in the transaction.

Other key provisions require that financial records be more accessible to the attorney disciplinary bodies examining alleged misappropriation of trust accounts, and streamline the investigative procedures.

The rule amendments also promote the prompt and complete disengagement from the practice of law by a suspended or disbarred attorney found to have stolen or mishandled client funds.

A working group of representatives of the Disciplinary Board of the Supreme Court helped shape and recommend the changes with public input.  Although existing rules already provide for the suspension or disbarment of an attorney for misappropriating client funds, many clients are not fully compensated for their losses.

The amendments to the Pennsylvania Rules of Professional Conduct and the Rules of Disciplinary Enforcement made Tuesday aim to curb such losses.Victims may file claims with the Pennsylvania Lawyers Fund for Client Security for reimbursable losses from a dishonest attorney. However, some claimants are not fully compensated because the maximum payout is capped at $100,000.