Solicitor paid away £290k of sale proceeds after falling for email fraud

Email: Solicitor did not notice changed address

A veteran solicitor who was tricked by an email fraud to pay out £290,000 in proceeds from a conveyancing transaction to a third party has been fined £10,000.

Andrew John Murlis Rugg was also found guilty of multiple accounts rules breaches, down largely to an unfit system that relied on handwritten methods.

Mr Rugg, 74 this year, qualified in 1971 and is a sole practitioner based in Taunton, Somerset.

Acting for a local company on a conveyancing transaction in 2018, the Solicitors Disciplinary Tribunal heard that at some point the email traffic between them was compromised, with emails supposedly sent from the client actually coming from very slightly different email addresses.

On the day before completion, Mr Rugg received an email asking him to transfer the sale proceeds to a different bank account from that provided previously.

He replied by email the following day, seeking telephone confirmation. Instead, he received an email seeking to reassure him to use the new account details. This appeared to come from one of the client’s original email addresses, but was subsequently confirmed as not being genuine.

A statement of facts and outcome agreed between the Solicitors Regulation Authority (SRA) and Mr Rugg said the solicitor did not obtain telephone instructions but agreed to make the transfer the following Monday.

The day after he did so, an email from one of the different email addresses supposedly confirmed receipt of the funds.

A week later, Mr Rugg’s bank informed him of its suspicions about the account to which he had transferred the sale proceeds. The client confirmed he had not received the money and Mr Rugg reported the matter to his insurers – but not to either the police or the SRA.

The agreed outcome said: “Mr Rugg’s consistent position has been that he had the facility to replace the client money, but did not do so as he did not know quite what had happened and the client had, at least initially, been quite relaxed about the situation while the insurers considered the position.

“On 3 September 2018, the client ledger recorded receipt from the insurers of £290,584 to replace the missing client funds.” This meant there had been a shortage on client account for three months.

The SRA’s investigation was sparked by a qualified accountant’s report and Mr Rugg admitted that he had separately caused or permitted a client account shortage of at least £26,448 to exist as at 31 August 2019 – which he corrected in the weeks after.

In all, he had not properly investigated or rectified client debit balances of £128,649 across 103 matters, and office credit balances of £36,195 across 115 matters.

“Many of the client debit balances had arisen due to basic administration problems, with Mr Rugg not updating client ledgers across different matters and/or making or allowing posting errors,” the agreement said.

A large proportion of the client debit balances were found to be on matters where the same client retained a contra credit on other matter ledgers, but with no inter-ledger transfer having taken place.

The SDT heard from the solicitor’s accountants that action has since been taken to remedy the problems. In particular, Mr Rugg now forwards ledgers, bank statements, bills and transfers to them fortnightly, rather than monthly as before.

The agreement said: “In essence, Mr Rugg had not set up a reliably coherent accounts system and had not paid proper attention to the firm’s accounts.

“Reliance on handwritten methods combined with not very suitable software, and the lack of other controls, meant that ledgers were not properly maintained, payments and transfers were made in error and many mis-postings were made.

“In addition, simple controls such as monthly reconciliations were not being undertaken properly at the time.”

In agreeing that Mr Rugg should pay a fine of £10,000, the SDT said he was in a position of trust in respect of client money “and that he breached that trust by not looking after it properly”.

The misconduct was aggravated by the fact that he had received advice from the SRA on similar issues in 2012/13, but there was no suggestion of dishonesty.

The tribunal said the failures on the conveyancing transaction – particularly not insisting on additional verification when the payment instructions changed – were “particularly troubling given the critical importance of such steps to counter attempted fraud and criminality”.

However, it accepted that the solicitor had taken steps to remedy all the breaches, had cooperated with the SRA and had hitherto enjoyed “a long unblemished disciplinary record”.

Mr Rugg was also ordered to pay costs of £16,000 and file accountant’s reports every six months for the next three years.

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