Since the news of Tom Girardi’s alleged IOLTA violation broke, many accountants have been wondering what implications this might have for their own practices. While it’s still too early to say anything definitive, this scandal may remind the importance of compliance with IOLTA regulations. Therefore, in order to avoid any potential issues, it’s important to familiarize yourself with these rules and make sure your practice is in compliance.
What is IOLTA And Why Is It Important For Lawyers to Comply?
Whenever a law firm handles a client’s funds, they are responsible for keeping them separate in a trust account. However, lawyers’ trust accounts are complex. So you need to familiarize the rules first for you to be able to follow the practices. IOLTA stands for Interest on Lawyer Trust Accounts. Over the years, IOLTA allowed law firms to set these funds into an interest-bearing trust account. This form of trust account can accumulate interest and subsequently donate it to the state bar. In a nutshell, it is a method to raise money to fund civil legal services for low-income people through the use of the interest earned on the attorney trust account.
It is important for lawyers to comply with the rules governing operation. Therefore, under the rule of Professional Conduct 1.15 (f), lawyers must deposit short-term or nominal funds of clients and third persons into IOLTA accounts and shall report annually IOLTA compliance prescribed by the Foundation and State Bar of Texas.
The Story of Tom Girardi
Meanwhile, when Lion Air Flight 610 from the Boeing company crashed into the Java Sea, killing 189 passengers on board. Hundreds of bereaved family members sued Boeing, and many lawyers took up the plaintiffs’ case, and Tom Girardi is among them. Girardi is a well-known lawyer who sued the insurance industry, agencies, governments, and even the Los Angeles Dodgers in the aftermath of many of the state’s most notable tragedies—the Ghost Ship fire, the Northridge earthquake. He became a famous lawyer in the law firm industry.
Some unexpected revelations tainted the beautiful picture of Girardi in the winter of 2020. Girardi’s bank account had been depleted, and his wife, a well-known reality TV star, was divorcing him. Add up that hundreds of lawyers, litigation lenders, and clients became the victim of his corporate misconduct and carelessness as he repeatedly took their money and lied to them (or over the phone). Then, according to a document filed by the bankruptcy trustee reviewing Tom’s assets, it was detected that Erika, his ex-TV star wife, allegedly received $20 million and more in loans from his law firms, and Erika had multiple financial accounts. It was, without a doubt, California’s biggest legal scandal. For those reasons, Tom Girardi has been involved in a number of lawsuits and a civil suit in which Tom is accused of embezzling money and fraud from a Boeing 737 aircraft crash settlement fund.
When we are concerned about how to avoid those situations, we should go over the procedures that law firms can use to ensure compliance with IOLTA requirements.
Here’s a checklist of things you can do to stay on track.
●Avoid borrowing money from an IOLTA
●Keep your client and business account separate
●Avoid charging clients for payment fees
●Avoid recording a trust deposit as income
●Avoid Bad Recordkeeping
How to get help if you are struggling to meet your IOLTA obligations?
To begin, you can speak with a practice management advisor in your state. Prestige Accounting Solution can assist you in locating a consultant for your law firm. Rest assured, we have dealt with and understand the IOLTA regulations. We are very detailed on the importance of ethics in the legal profession. In which a lawyer has divided loyalties because he owes a duty to the court as well as a duty to the client. These responsibilities will occasionally come into conflict. Nevertheless, we are specialized professionals who prioritize their clients’ interests over their own and strive to achieve respect for the Rule of Law. They must balance continuous legal development updates with service to their clients, reverence for the courts, and the legitimate desire to maintain a decent standard of living.