Taxi!: Firm stands by lawyer accused of expense account scam

yellow cabMuch of the focus on lawyer economics and client concerns is on the legal fees, which are usually 90% or more of most legal bills.  The other 10% or so is usually referred to as “costs” or “expenses” and are supposed to be amounts the lawyer actually paid (“out of pocket” is the common phrase) on behalf of the client.  (Expenses may be just a percent or two — it all depends on what’s reasonable and necessary.)

For expenses, the lawyer is being reimbursed — no profit on expenses is allowed — and only for reasonable amounts.  Proper expenses are not supposed to be firm overhead, personal expenses of the lawyers or firm, or the like.

There is a temptation for some lawyers to abuse the expenses, with or without firm knowledge, whether it’s arrogance or greed, or they’re just cheap.  Some expense scams are directed at the firm, with clients unaffected or incidental victims.  Scams have included, for example, petty expense account abuse, on up to elaborate schemes involving faked charges for fictitious vendors — like experts or consultants — with the checks going to a PO Box controlled by the firm insider running the scam.  And then there’s the Metropolitan Evening Combo:  Stay late at work for some overtime or billable hours, a meal (bill that time, too), and a cab ride home (hell, might as well bill that, too).

While hourly fees, in particular, can be much more easily cheated for larger amounts — hours are an honor system, initially — that money usually goes to the firm.  That may help you meet billable hours quotas or earn a bigger bonus, but it’s not cash in your pocket.  Individual crooks like to cheat on expenses:  A couple of inflated or faked receipts can get you cold cash.  (Firms can also methodically try to turn a profit on expenses, e.g., by inflating actual costs for copies or phone charges, or by charging for overhead, like clerical staff or online research.)

A senior partner at a Chicago law firm has been accused of bilking some clients (and his firm) out of more than $100,000 in faked expenses.  According to Illinois ethics enforcers, the scam goes back at least to 2007 when the lawyer was at Sidley & Austin, where he was fabricating receipts for cabs at $80 apiece for years.  The lawyer recently left Sidley without explanation, then popped up at DLA Piper, which apparently admits it knew about the pending ethics investigation and is choosing to stand by their man.  You’ve got to wonder when and how the clients potentially involved were informed, by either firm.  (Naturally, the lawyer’s presumed innocent until proven guilty.)

Note that it’s ambiguous whether he simply took the money from his own firm — some firms reimburse business expenses out of their own money unrelated to client bills — or ultimately firm clients paid the tab if the items were passed through as client-related expenses.  At least part of the money seems to have been charged to clients.

While the amount is relatively small compared with his probable compensation, it’s a significant amount that also shows how porous the firm’s internal accounting and pre-billing review must have been.  This may simply be a case of a cheapskate looking for ways to chisel a few bucks here and there — it’s a compulsion for some people.  Given the amounts, many of the cab rides would probably not have been caught even by sophisticated clients — which may have been why he focused on cab transactions since many are in cash and cab drivers hand out blank receipts routinely — though they are the sort of thing professional bill reviewers would normally check.  (My firm performs such reviews.)  Other items, like meals, are personal items that many clients latch onto as being particularly dubious.

Here’s a local story with details:

The Illinois Attorney Registration and Disciplinary Commission alleged that Lee Smolen fabricated taxi receipts averaging about $80 each to steal the approximately $69,000 from 2007 to 2012.

A former partner at a global law firm based in Chicago is accused of fraudulently billing the firm for at least $119,000 in cab rides, country club dinners and tickets to sports events.

Lee Smolen billed Sidley Austin LLP nearly $70,000 over five years for more than 800 cab rides he never took, according to a complaint made public against him this week by the state agency that disciplines lawyers.

The Illinois Attorney Registration and Disciplinary Commission alleged that Smolen fabricated taxi receipts averaging about $80 each to steal the approximately $69,000 from 2007 to 2012.

Smolen also fraudulently submitted expenses for $35,000 for sporting events, $13,000 in restaurant gift cards and $2,000 for meals at his country club on Mother’s Day and other holidays that were unrelated to firm business, according to the complaint.

Smolen played a key role at Sidley Austin as the partner in charge of its Chicago real estate practice group, a member of the firm’s executive committee and global coordinator of its real estate practice group….

DLA Piper said in a statement that it was aware of the alleged fraudulent billing when it hired Smolen, ….

“After our own due diligence and a thorough review of the facts, the firm decided to give great weight to the total body of Lee’s work [which is code, I suppose, for bringing in a heavy load of portable business, body-wise] over his 25-plus years as a lawyer and to extend to him the opportunity to continue his career at DLA Piper,” the statement said. “Lee is a well-respected attorney who has learned from his experience [does this mean DLA’s saying he’s guilty?] and taken all the necessary steps to move forward as a productive [$$$$] member of our team.”

The DLA statement is particularly funny since it’s using about every euphemism for “we’ll keep him as long as he’s profitable” they could muster.  It’s not clear whether Smolen’s fighting the charges — why would he have “learned from his experience” if he weren’t apologizing?  You can also assume that he’s either not getting reimbursed for anything or DLA’s taken extra steps to mind the store, or both.

Local story: Chicago attorney allegedly billed for $69,000 in cab rides he never took

Here’s a passage from his resume page at DLA Piper, which still shows him as being a “partner” with the firm as of June 26.  Note in particular that he’s got plenty of those faux Super Duper Best™ and in-house committee credentials favored by lawyers lacking real world experience:

Lee Smolen is a partner in DLA Piper’s Real Estate practice, based in Chicago….

Chambers USA … has consistently recognized Mr. Smolen in the top tier in every year since 2009. The respected publication has quoted clients describing him as “a transaction guru.” [Yes, he sweats the minute details.] … In 2009, 2010 and 2011, he was named in Legal 500 US …. He has been named an Illinois Super Lawyer in every year since 2005 and in The Best Lawyers in America in every year since 2006. He has also been listed in PLC Which Lawyer?; in Who’s Who Legal; and as an Illinois Leading Lawyer….

He is devoted to mentoring the next generation of lawyers.  [Looks like the next generation’s going to need re-training, too.]

Nothing about his passion for cheap cab rides?  One of the problems with these faux credentials is that they are essentially popularity contests rigged in favor of larger firms (who vote for their own people first), plus they mislead the public into thinking that these lawyers have been vetted and their backgrounds, performance, qualifications, and so on really checked.  These are just money making schemes.

There are people spending years — even decades — in jail for stealing less than this, if the charges are true.  And your typical thief doesn’t have professional, fiduciary obligations. So where are the police?  And why did it take six years and counting to figure this out?

For clients:  You’ve got to monitor expenses as well as fees.  With expenses, there should be an actual paper, auditable trail that can be verified.  It’s not usually worth that unless the expenses are high or something looks off.  Expenses can often be the tipoff to larger problems because, unlike the mysterious mumbo jumbo justifying legal fees, any business and most individuals can relate to charges for phones, faxes, copies, and even taxis.

Here’s something else clients should take away from this situation:  The lawyer’s first firm just eased him out quietly — maybe they came clean with clients, maybe they didn’t.  But whatever they did it allowed him to land at another big firm whose clients didn’t volunteer for any of this.  And that firm has its eyes open, one would hope, but they’re still advertising him as a mentor for others.  Really?  Even if he’s not ‘guilty,’ why volunteer that gratuitous bit of information now?

About JWT

John Toothman founded The Devil's Advocate, the legal fee management and litigation consulting firm, in 1993. He graduated from Harvard Law School, with honors, in 1981. John has been a lawyer with large and small law firms and the US Dept. of Justice. He's tried over sixty cases. He has testified as an expert witness in over seventy more. ... He is the author of several books and dozens of articles about lawyers, law firms, legal fees, ethics, litigation and trial practice, and related issues. Books include: Trial Practice Checklists 2d (West), Legal Fees: Law & Management (Carolina Acad. Press), and the Civilian's Guide to Lawyers series. His pro bono activities include teaching and speaking at seminars. ... John is admitted to practice law in DC, Maryland, and Virginia. More information: http://www.DevilsAdvocate.com
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