ATTORNEY USES ESCROW ACCOUNT TO HIDE MONEY FROM TAX AUTHORITIES

From: New York attorney Gary E. Rosenberg (personal injury and accident attorney and lawyer; serving Brooklyn Queens Bronx; Bronx accident lawyer)

Some general background. Attorneys can have different kinds of bank accounts. Their law firm bank account for business and lawsuit expenses and stuff; their personal account to accept deposit of their pay checks and pay personal bills and living expenses; and an escrow or "IOLA" bank account. An escrow account is a special creature-it is not the attorney's money and usually not entirely the client's money. The funds in an attorney escrow account belong to everyone and to no one at the same time. This bank account can only be accessed when the money is paid out or distributed according to contract or agreement or court order.

Escrow accounts are ferociously protected by the courts, because they always contain at least some (if not all) attorney's client money. The easiest way for an attorney to get into trouble is to mess with his or her escrow account, say "borrowing" money from it like a personal piggy bank. Or using the money to pay off losing investments, or for gambling debts, or to buy drugs, etc. The courts do not tolerate this. And there can never be an excuse by the attorney controlling the account that the money disappeared by accident, because cash withdrawals or escrow checks paid to "cash" aren't allowed.

Now we turn to lawyer Mark Kressner.

First admitted to the practice of law in 1976, attorney Kressner got into trouble in 1985. A corrupt son-of-a-gun, Kressner and his then law partner paid off an attorney who worked for a charitable organization to give them information about clients of the charity hurt in accidents or injured by medical malpractice. The purpose was to allow attorney Kressner's firm to improperly solicit potential clients who had been injured in accidents or had potential medical malpractice claims against the organization's hospitals and facilities. This decision, reported at 111 A.D.2d 730 and 108 A.D.2d 334, does not give the name of the charity.

Kressner and partner plead guilty to a misdemeanor - soliciting business on behalf of an attorney, a violation of New York State's Judiciary Law. Noting that lawyer Kressner and his partner "[p]aid another attorney to act in breach of his duty to his employer," the Court gave Kressner a three-year suspension of his law license. For reasons unknown, lawyer Kressner waited an extra five years until he requested and got his law license reinstated. He was allowed to practice law again commencing on September 23, 1993.

Apparently he didn't learn his lesson. In this case (the subject of this blawg), the lawyers' Departmental Disciplinary Committee went to the Appellate Division and requested an immediate suspension of attorney Kressner from the paractice of law because it felt that "[h]e has committed acts of professional misconduct posing an immediate threat to the public interest."

Now it gets even more interesting, Dear Readers.

It seems that lawyer Kressner was using his attorney special escrow bank account to block money from being seized by the government for tax bills and other debts. This could only work because - as I said before - of the special nature of the attorney escrow bank account, that being that the money there is mostly or even all belonging to client(s) so that seizure of those funds by the authorities would punish innocent clients who might be entitled to and, in fact, need their funds for their business dealings or whathaveyou. On the other hand, the escrow account provides a neat camouflage for wrong-minded lawyers seeking to put their money out of reach of the law. As attorney Mark Kresssner did seek to keep the tax authorities from taking his money.

Kressner had gotten involved in a failed real estate venture and tax shelters, forcing him into personal bankruptcy in 1991. And he owed:

Shortly after attorney Kressner deposited a $50,000 legal fee into his business operating account in December 2007, the New York State tax authorities seized those funds plus the remaining balance in the account.

From that point forward, lawyer Kressner stopped using his operating account and personal bank accounts and only utilized his IOLA account for business and personal purposes. Kressner admitted to the attorney disciplinary authorities that he knew that the IRS and New York State tax authorities could not seize the money he deposited in his IOLA account. He further admitted that there were client funds in his IOLA account when he deposited personal funds into it, but stated he has not used any client funds.

Attorney Kressner used lending companies, such as Ardec Funding, to advance funds to himself to be used for both personal and business operating purposes in anticipation of cases being settled. Lawyer Kressner would deposit Ardec funds into his IOLA account to shield this money from the IRS and New York State tax authorities. He admitted that he did not maintain a ledger for his escrow account identifying client matters, monies deposited and disbursements as required.

Lawyer Kressner asserted that he planed on retiring or resigning from the practice of law, with no assurance that he would fulfill that promise.

The Court held: "We conclude that [Kressner's] commingling of funds in his IOLA account in order to hide his income from tax authorities, his failure to maintain adequate bookkeeping records, and his financing arrangements with lending corporations to keep his apparently insolvent law practice afloat creates a troubling situation which puts his clients' funds at risk and thus immediately threatens the public interest warranting an interim suspension."