A former Gold Coast principal has been sanctioned for failing to supervise an employee who misappropriated more than $3 million in trust funds from his firm.
In the Queensland Civil and Administrative Tribunal decision published on Friday, Justice Alan Wilson said it was a gross dereliction of duty by the practitioner that had resulted in seven charges by the Legal Service Commission (LSC).
Justice Wilson ordered that the conduct constituted professional misconduct, and that the practitioner be publicly reprimanded and fined $7500.
The practitioner was also banned from holding a principal practising certificate for five years, and must complete the Queensland Law Society’s Practice Management Course and Trust Accounting Remedial Course before applying to hold such a certificate again.
The charges related to failures to implement and keep appropriate management systems; and failure to manage and/or deal with trust money as required by the Legal Profession Act 2007 (Qld).
The LSC did not allege the practitioner misappropriated trust money; rather that he was liable as sole practitioner-director of the incorporated legal practice.
The Commission alleged that between 1 July 2020 and 14 June 2022, the practitioner failed to ensure that appropriate management systems were implemented and kept.
It alleged that the practitioner’s conduct during that period included failing to deposit trust money, failing to deposit trust money as soon as possible, failing to hold trust money for a client, mixing trust money with other money, and failing to maintain accurate trust account records. It also alleged that between March 2022 and November 2022, he caused a deficiency in the trust account or trust ledger account.
The firm’s employee had drawn cheques from the trust account totalling more than $2 million and deposited them into personal bank accounts, and a housemate’s account; and directed clients to deposit up to $1 million into her personal bank accounts. She also directed about half a million dollars to unrelated third parties, without instructions.
She was charged and pleaded guilty to one count of fraud as an employee, and was sentenced to nine years in prison.
The practitioner agreed with the LSC that with appropriate supervision, his employee would not have been able to misappropriate the funds, and that he did not implement or keep any appropriate management systems required.
The practitioner admitted to signing cheques for payments from the trust account presented to him by the employee, which did not have a beneficiary identified.
“The fact that (the practitioner) would sign a trust account cheque that did not have an identified beneficiary payee is in and of itself evidence of a failure to implement and keep appropriate management systems,” Justice Wilson said.
“An appropriate management system would have included, at the very least, a policy where no incomplete trust account cheques would be signed.”
He said the LSC had stated that it was also a “basic and necessary requirement” to check the ledger to at least ensure the correct amount had been receipted.
“It would be expected, the Legal Services Commission state, that if a legal practitioner director were to delegate day-to-day management of a trust account, which is a very serious matter, then, acting reasonably, they would also implement and keep appropriate strict management systems, including, at the very least, regularly checking (a) trust account ledger accounts in relation to each matter on whose behalf trust money had been received, and (b) that clients were being provided correct banking details and that they were depositing money into the trust account,” he said.
Justice Wilson said it was clear that a “contravention of obligations in relation to maintaining a trust account, including maintaining relevant financial and accounting records and documents even in a single instance, is serious and carries with it commensurately serious consequences”.
He said there were three features of the case that justified the conduct being classified as professional misconduct, and the conclusion that the practitioner was in gross dereliction of his duties as legal practitioner, director and principal of the firm.
First, the failure to implement and maintain controls over the employee’s access to the trust account was “an extremely serious failure”.
“(The practitioner) could have easily implemented measures to prevent or, at the very least, substantially lessen the likelihood of such exploitation occurring,” he said.
Second, that the employee’s contraventions went undetected for nearly two years was “concerning”.
“I note that if the QLS had not contacted him in June 2022 in response to concerns being raised by a client, it is possible that the breaches would have continued undetected for substantially longer,” he said.
Third, that the practitioner failed to implement and maintain controls despite knowing of his employee’s gambling habit and other financial circumstances.
Justice Wilson said it appeared the practitioner became aware of his employee’s gambling habit about September 2021, and that she had provided him with a copy of a self-exclusion casino note a month later.
The practitioner had warned her not to borrow money from clients, and had lent her between $1000 and $3000 at times to supplement her basic weekly wage of $600.
“Despite (the practitioner) knowing of (his employee)’s gambling habits, and her very low salary, and her approaching clients to borrow money, he seemingly took no steps to monitor her apparently unrestricted access to, and/or control of, trust moneys, being moneys belonging to clients of the law practice and others which have a sacrosanct character,” Justice Wilson said.
“Such dereliction of his professional responsibilities not only resulted in detriment to clients, but it has exposed the public to (the employee’s) unlawful activities and, ultimately, the profession, with significant claims being made against the fidelity fund.”
In determining sanction, Justice Wilson also considered factors including the practitioner’s co-operation with the QLS and the LSC; his remorse; the closure of his firm and detriment to his reputation.
He said the LSC had not sought an order recommending the practitioner be removed from the roll but had submitted that a substantial sanction was warranted.
“I agree, and I am satisfied that the sanction ought to properly reflect the scale of the misappropriations which were caused or contributed by Mr Lee’s dereliction of his professional responsibilities…”
The practitioner was also ordered to pay the LSC’s costs.
Read the case here.
Practitioners who need guidance on trust accounting can consult this QLS resource.
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