Court Opinion

ID: 4536829
Source: CourtListenerOpinion
Date Created: 2020-05-27 15:12:10.252547+00
Date Added: 2024-06-11T08:49:01.617709
License: Public Domain

THE STATE OF SOUTH CAROLINA
                        In The Supreme Court

            In the Matter of an Anonymous Member of the South
            Carolina Bar, Respondent.

            Appellate Case No. 2020-000478

                             Opinion No. 27974
                  Submitted May 8, 2020 – Filed May 27, 2020

                              ADMONISHMENT

            John S. Nichols, Disciplinary Counsel, and Sabrina C.
            Todd, Senior Assistant Disciplinary Counsel, both of
            Columbia, for the Office of Disciplinary Counsel.

            William C. Wood, Jr., of Nelson Mullins Riley &
            Scarborough, LLP, of Columbia, for Respondent.

PER CURIAM: In this attorney disciplinary matter, Respondent and the Office
of Disciplinary Counsel (ODC) have entered into an Agreement for Discipline by
Consent (the Agreement) pursuant to Rule 21, RLDE, Rule 413, SCACR. In the
Agreement, Respondent admits she failed to restrict access to South Carolina-
based trust accounts containing client funds and ensure monthly reconciliations of
those accounts were performed properly. Respondent consents to the imposition of
confidential admonition or a public reprimand. An investigative panel of the
Commission on Lawyer Conduct (the Commission) voted unanimously to
recommend accepting the Agreement and further recommended a public
reprimand, issued in an anonymous opinion, be imposed.

We agree with the spirit of the Commission's recommendation; however, the
sanction of a public reprimand requires publicly identifying the name of the
disciplined attorney. In the instant matter, we find the imposition of a public
reprimand identifying Respondent by name is not warranted based on Respondent's
prior responsible handling of client funds, her complete lack of knowledge
regarding the criminal activities of other involved parties, and her continuous
cooperation with ODC's investigation. Accordingly, we accept the Agreement and
issue this anonymous admonition for the benefit of the Bar. The facts, as set forth
in the Agreement, are as follows.

                                       Facts

      Morris Hardwick Schneider

Morris Hardwick Schneider (MHS) was a multi-jurisdictional real estate closing
and default services law firm based in Atlanta, Georgia. In 2014, Nathan
Hardwick was MHS's CEO and held a majority interest in the firm. Hardwick
oversaw corporate accounting for MHS and financial and accounting matters for
the closing side of the practice from his office in Atlanta. MHS's two other equity
partners, Mark Wittstadt and Gerard Wittstadt, were based in Maryland and headed
the firm's default services practice. None of MHS's equity partners were licensed
to practice law in South Carolina.

Respondent began working for MHS in 2004. Respondent—who was licensed to
practice law in South Carolina and Georgia—worked from one of MHS's Georgia
offices and handled some South Carolina transactions. In 2013, Hardwick asked
Respondent to open an MHS office in Columbia. MHS had an existing office in
Greenville and previously had offices in other South Carolina cities. The
Columbia office opened in early 2014. Respondent was the sole attorney in the
Columbia office and held the title of "Senior Managing Attorney." Respondent
took marketing direction from a South Carolina licensed attorney who was a non-
equity partner at MHS and held the title of "President of South Carolina
Operations." However, Respondent received no other formal supervision or
training regarding trust accounting or other aspects of running the Columbia office.

MHS had five South Carolina IOLTA accounts, some of which were referred to as
"the old and new SunTrust accounts." Respondent had signatory authority on all
South Carolina accounts, but both the Columbia and Greenville offices used the
old and new SunTrust accounts. MHS's President of South Carolina Operations
was not a signatory on any of the South Carolina trust accounts, but numerous non-
attorney accounting staff located outside of South Carolina and attorneys not
licensed in South Carolina were signatories on the accounts.
As she had done when she was in Georgia, Respondent responsibly handled the
receipt and disbursement of funds related to her real estate closings; she ensured
that disbursements were made only after corresponding funds were deposited and
that all funds were disbursed. Respondent personally authorized the release of
outgoing wires and issued checks for her closings. Respondent also followed up
on outstanding checks issued for the closings she handled. However, if money was
wired into the wrong account by mistake, only the MHS accounting staff in Atlanta
could correct the mistake by transferring funds from one account to another.
Although Respondent had access to a bank portal to review and approve wires, she
did not have access to bank records for all transactions. Respondent never saw the
South Carolina trust accounts' bank statements or reconciliation reports. She could
not generate a reconciliation report, and, although she could see ledgers for all
individual South Carolina closings, she did not review, and does not know if she
could access, firm ledgers. The MHS accounting staff in Atlanta reconciled the
accounts and never advised Respondent of any problems with the accounts.

      The NSF Report

In May 2014, SunTrust Bank reported it paid three wires that were presented
against insufficient funds on a new SunTrust IOLTA account, leaving the account
overdrawn by $65,752.69. Approximately one month later, SunTrust reported the
same account was overdrawn by $18,538.42 after the bank paid two additional
wires that were presented against insufficient funds.

      Respondent's Response

In response to the insufficient funds reports, Respondent submitted an explanation
she prepared with the assistance of Asha Maurya, MHS's Chief Financial Officer
for the firm's closing division. Maurya provided Respondent with the supporting
documentation attached to Respondent's response. Respondent explained a real
estate software upgrade made it necessary for MHS to open the new trust account
at SunTrust, but several subsequent deposits were incorrectly made into the old
trust account, triggering the shortfalls in the new account. In each instance, the
firm's accounting department in Atlanta internally transferred the funds to the
proper account, but the transfer process could not be completed until the end of the
next business day.

Respondent noted that each MHS office was responsible for balancing its accounts
and ensuring all funds were received and deposited prior to disbursement.
Respondent explained she had followed normal procedure, but a bank error
resulted in unspecified deposits being routed to the wrong account. Respondent
provided a letter from a vice president of SunTrust asserting the bank had
incorrectly credited remote deposits meant for the new trust account to the old trust
account. The SunTrust vice president indicated the error had been corrected and
would not be a problem in the future.

Respondent also included in her response MHS's reconciliation report for the new
trust account. One of the wires presented against insufficient funds was an internal
wire transfer from the new SunTrust account to the old SunTrust account to cover
a shortage in a client ledger. Although it is unclear why this transaction occurred,
this $1,320 wire was not large enough to explain the shortfall in the new account.
All of the other wires presented against insufficient funds were proper
disbursements for transactions with adequate funds on deposit. Respondent was
not able to identify any other misdirected deposits or provide any additional
documentation of corrective measures.

      MHS's Self-Report

In an August 4, 2014 letter, Hardwick and Mark Wittstadt notified ODC of an
unfolding investigation into MHS's trust accounts. The letter claimed Maurya
admitted to Hardwick that she altered a bank statement to conceal her inadvertent
transfer of nearly $690,000 from a trust account into an operating account. The
letter advised (1) numerous irregular transfers between trust accounts were
identified, (2) Maurya had been placed on leave, (3) a full investigation was
underway, and (4) both the firm's outside counsel and outside auditing firm had
been instructed to disclose all data they obtained to ODC.

      The Trust Account Shortfalls

The investigation by MHS and its title insurance company revealed unauthorized
transfers between various MHS trust accounts and significant shortfalls in dozens
of trust accounts. An early report estimated more than $29.4 million in shortages
across the firm's operating and trust accounts, with the majority of the shortages
occurring in trust accounts. The report estimated $648,937.40 in shortages across
four South Carolina trust accounts.

After discovering funds in various trust and operating accounts had been moved
and then transferred to or used for the benefit of Hardwick, the majority partners
demanded Hardwick's resignation. MHS changed its name and sued Hardwick and
a company he controlled. The United States Attorney's Office prosecuted both
Hardwick and Maurya.1 MHS's title insurance company funded $29,530,391 to
cover MHS's trust account shortfalls.

After MHS filed for bankruptcy, Respondent assisted MHS in closing its South
Carolina offices. However, because of the bankruptcy, pending litigations, and
pending prosecutions, both Respondent and ODC struggled to gain full access to
MHS's South Carolina trust account records.

ODC's investigation revealed the explanatory letter issued by SunTrust was issued
at Maurya's request and using her explanation. The SunTrust vice president who
authored the letter did not check the trust account records before writing the letter,
and the explanation he offered did not match the fact that no remote deposits were
ever credited to the old trust account. Additionally, the balance report prepared by
Maurya and submitted with Respondent's response to ODC was altered to conceal
the fact that multiple firm ledgers and one client ledger had significant negative
balances. Respondent was unaware the document had been altered and fully
cooperated with ODC.

Genuine reconciliation reports showed that, at the end of June 2014, the new
SunTrust trust account had $48,170.36 less than necessary to cover client ledger
balances and outstanding disbursements. Meanwhile, comparison of MHS's
internal records for the old SunTrust trust account to bank statements revealed the
account had had $320,668.10 less than was needed to cover all outstanding checks
and client ledger balances. Additionally, the June 2014 reconciliation report for a
South Carolina trust account Respondent was not using was short $140,060.

It appears that money was misappropriated from the accounts primarily through
frequent online transfers between accounts that were recorded on firm ledgers,
money was often replaced or partially replaced later, and misappropriated funds
primarily left MHS via Georgia accounts. A review of the firm's South Carolina
trust account statements and available internal records revealed over $9 million in

1
  Initial investigations indicated Maurya redirected firm and client funds to Hardwick and to third
parties for Hardwick's benefit, but federal prosecutors discovered Maurya also misappropriated
more than $900,000 for her personal benefit. Maurya pled guilty to one count of conspiracy to
commit wire fraud and was sentenced to seven years' imprisonment and three years' supervised
release. Following a jury trial, Hardwick was convicted of twenty-one counts of wire fraud, one
count of conspiracy to commit wire fraud, and one count of making false statements to a
federally insured financial institution. Hardwick was sentenced to fifteen years' imprisonment
and six years' supervised release. Both Maurya and Hardwick were ordered to pay restitution,
jointly and severally. Both have filed appeals.
suspicious, unexplained transfers into and out of the accounts during 2014. As
noted above, MHS's title insurance company funded any identified shortfalls and
ODC reports it is unaware of any South Carolina clients who were harmed.

                                        Law

Rule 417, SCACR, restricts access to South Carolina trust accounts in order to
protect the funds contained in those accounts and those to whom the funds belong.
Rule 2, Rule 417, SCACR. Only an attorney admitted to practice in South
Carolina and individuals directly supervised by an attorney so admitted may have
authority to sign checks or transfer funds from a client trust account. Id. Rule 417
also requires monthly reconciliation of all South Carolina trust accounts. Rule 1,
Rule 417, SCACR. Individual ledgers must be reconciled to the firm's journal of
receipts and disbursements, and the journal must be reconciled to the bank
statement. Id. Outstanding items must be reviewed in the reconciliation process
because the account must contain enough money to cover both the ledger balances
and the outstanding disbursements. Id. The resulting reports must be carefully and
skillfully reviewed, and any problems identified and addressed in order to gain the
client protection envisioned by the Rule's reconciliation requirement. Id.

Respondent admits numerous people forbidden by Rule 417 from having access to
South Carolina trust accounts had such access. See Rule 2, Rule 417, SCACR.
Respondent failed to ensure a South Carolina licensed attorney had access to the
bank statements and reconciliation reports and, instead, improperly allowed MHS
accounting staff in Atlanta to transfer funds between MHS's accounts, including
South Carolina trust accounts, without Respondent's direct supervision as required
by Rule 417. See Rules 1 and 2, Rule 417, SCACR. Respondent's failure to
exercise control over the South Carolina trust accounts placed South Carolina
client funds at risk and allowed misappropriation of those funds. By failing to
restrict access to the South Carolina trust accounts, directly supervise individuals
who had access to the accounts, and ensure monthly reconciliations were not only
performed, but also revealed no problems requiring her attention, Respondent
violated Rule 417, SCACR. See id.

Respondent admits the allegations contained in the Agreement constitute grounds
for discipline pursuant to Rule 7(a)(1), RLDE, Rule 413, SCACR (violating or
attempting to violate the Rules of Professional Conduct).
                                        Conclusion

We find Respondent violated Rule 417, SCACR, and her violation constitutes
grounds for discipline. Accordingly, we accept the Agreement and admonish
Respondent for her misconduct.2 We publish this admonishment in the "In re
Anonymous Member of the Bar" format so as to warn members of the Bar against
allowing law firm leadership or staff located outside of South Carolina to have
unfettered access and control over South Carolina client funds.

ADMONISHMENT.

BEATTY, C.J., KITTREDGE, HEARN, FEW and JAMES, JJ., concur.

2
 In accordance with the Agreement, Respondent shall pay the costs incurred by ODC and the
Commission in the investigation and prosecution of this matter or enter into a reasonable
payment plan with the Commission to pay the same within thirty (30) days of the date of this
opinion. Respondent shall also complete the Legal Ethics and Practice Program Ethics School
and Trust Account School within one (1) year of the date of this opinion.