On November 28, 2023, Alex Murdaugh was sentenced to 27 years in South Carolina state prison for the confessed crimes of stealing millions of dollars over the course of a decade from clients, friends, and family. Murdaugh was convicted of murdering his wife and son in March, a crime in which he maintains his innocence.
Kathy Pope, a consultant with 30-years of experience in helping law firms manage their trust accounts, provides insight into how Murdaugh’s law firm could have prevented these crimes, and offers tips for ethically managing your trust account.
Originally published in the Fall 2023 issue of the North Carolina State Bar Journal
From 2011 to 2021, Alex Murdaugh allegedly stole millions and embezzled cash from an IOLTA general trust account held by a Hampton, SC, law firm. How did that go undetected for so long? What opportunities were missed to disclose wrongdoing? How does an attorney rack up 99 counts of embezzlement, fraud, and other financial crimes against his firm and his clients without getting caught?
The answer is very simple: Failure to follow the Rules and lack of oversight. Alex Murdaugh’s law firm, Peters, Murdaugh, Parker, Eltzroth and Detrick (PMPED), now conspicuously renamed as just the Parker Law Group, LLP, appears to have failed to adopt and/or enforce a written policy detailing the firm’s trust account management procedures. Furthermore, the assignment of a firm trust account oversight officer (TAOO) would have been invaluable. It is unclear if PMPED had one, but if they did, that person did not do their job. At the end of this article, I have listed Five Missed Opportunities to Disclose Wrongdoing by accomplished, recognized professionals that could have and should have uncovered these alleged activities sooner.
How Did We Get Here?
Alex Murdaugh referred to a “tangled web of lies” as his testimony wrapped up. Lead prosecutor, Creighton Waters, compared Murdaugh’s situation as being akin to a Ponzi scheme on the verge of collapse. His plea to the Murdaugh jury included, “Don’t let him fool you too. He’s manufacturing an alibi. He’s smart, he’s a good lawyer.” Unfortunately, some “good lawyers” and their support staff often convince themselves that Rules do not apply to them. Over the years, I have heard comments like, “Those Rules do not apply to our firm because we are small.” I now laugh at how many times I repeated to controlling office staff, “That’s not how it works, Angie!”
How Can We Stop It?
The two main ways theft or mismanagement is discovered are 1) during random audit, or 2) when a grievance is filed with the State Bar by a client. Like most of his testimony in court, there was a mixture of truth and lies in the explanation Alex Murdaugh gave his staff, clients, and others. For example, the paralegal testified that Murdaugh often corrected her when she made out checks to Forge Consulting, a legitimate structured settlement firm used by the law group. Instead, he told her to make them out to Forge. Griswold testified that Murdaugh told her Forge was a subsidiary of Forge Consulting.
Although it is true that an attorney may move funds held on the behalf of a client to a separate interest-bearing account if the money is to be held for an extended period, there are Rules that apply. Rule 1.15 2(l) General Rules include, “A lawyer shall not use or pledge any entrusted property to obtain credit or other personal benefit for the lawyer or any person other than the legal or beneficial owner of that property.”
None of that would have been possible if someone was performing the required three-way reconciliations each month. Successful monthly three-way reconciliation to safeguard client funds, however, is only possible with good recordkeeping and self-audit. PMPED was ultimately responsible for safe keeping of client funds and cannot simply delegate the duties with no oversight. There is a difference between reconciling a bank account and identifying who the money belongs to. Outstanding (uncleared) checks must be addressed timely. Tracking money for each client is basically equivalent to having a trust bank account and several short-term liability subaccounts. Reports must be reviewed and signed. Clients must be informed when money comes in, goes out, and at least annually in writing if funds are held. Disengagement letters confirming all trust money is disbursed and the matter is closed serve a valuable purpose. Escheating of abandoned funds is a requirement, not an option. Lawyers often hire a CPA, a bookkeeper, and even outsource the reconciliation of the accounts, but that does not relieve the attorney of oversight. I have been told by NC State Bar field auditors that lawyers are often lulled into a false sense of security when the trust account reconciliation is outsourced. In reality, unless you have personally met those performing the work, you are at the mercy of the service provider to make sure their staff is qualified and knows the rules and procedures that apply in your state.
What Are the Rules?
Rule 1.15 and its four subparts govern a lawyer’s duty to protect and safeguard other people’s property. The duty to protect and account for client funds is, however, long-standing and predates the adoption of the Rules of Professional Conduct (RPCs) in 1990 as well as the Court’s adoption of the Financial Recordkeeping requirements in Rule 417, SCACR, in 1997 (as amended in 2011).
South Carolina and North Carolina both offer and require trust account compliance and legal ethics education. Case law describes the manner in which the Court expects lawyers to abide by these Rules. The South Carolina Bar’s Ethics Advisory Opinions add guidance to understanding the interplay between the RPCs and the Financial Recordkeeping Rules. While the requirements may not be identical in North Carolina and South Carolina, the basic concept is the same. For over 30 years I have offered confidential audits and have assisted firms to gain compliance. I often hear, “I just want to practice law. I am not a bookkeeper.” Staying current with amendments to Rule 1.15 of the Rules of Professional Conduct is often daunting. The Murdaugh case compels us to revisit these rules governing the safeguarding of property.
Amendments to Rule 1.15 – Did You Take Action to Remain in Compliance?
An article written by Peter Bolac, Coming to Terms (and into Compliance) with the Trust Accounting Rule Amendments, was posted to the Risk Management Resource Center on the Lawyers Mutual website. I started letting my attorney clients know action would be required to remain in compliance based on what I was seeing. I am shocked at how many firms have yet to change their procedure. I considered simply commenting on the Rules found in the Trust Account Handbook, but found the detailed explanation in the article to be very helpful, particularly for the attorneys practicing prior to 2016. I call them the old dogs that resist learning new tricks—of course, in a very respectful way. Notice the article is dated August 24, 2016. (It is important to note that some of the paragraphs have since been re-lettered, but the message is the same.) The article is still on the Lawyers Mutual Risk Management website as of this writing. I will comment on the Explanation of Amendments to Rule 1.15. The State Bar Rules can be found on their website, ncbar.gov.
Explanation of Amendments to Rule 1.15
(Items in bold marked with *** would require action in order to remain compliant.)
Rule 1.15-2, General Rules
Rule 1.15-2(f): This rule change clarifies that lawyers may not hold funds for third parties in the trust account unless they were received in connection with legal services or professional fiduciary services.
Comment/Observation: I have been asked many times if funds can be held for third parties. This Rule clarifies. Earnest money for a third party comes to mind.
Rule 1.15-2(g): This one-word change of “may” to “shall” clarifies that a lawyer must promptly remove funds to which the lawyer is or becomes entitled.
Comment/Observation: It has been made clear that the trust account shall not be used as a tax shelter or savings account for earned fees.
Rule 1.15-2(h): This amendment clarifies any confusion caused by the old language, but does not change the substance of the rule. Any item drawn on the trust account must identify (by name, file number, or other information) the client from whose balance the item is drawn. The identification must be made on the item itself, not on a stub or other document.
Comment/Observation: I constantly reiterate this Rule! While some attorney-specific software has settings that automatically include the information, some do not. It should become an automatic habit. Who is the client (name), what is their unique identifier (file number), and what information on the check face would be helpful for the payee to know to what account this payment should be applied. If not specified, a medical provider may apply the payment to an outstanding balance unrelated to the matter/lien as intended. While some firms include the information on the stub, that portion of the check is not included on the image on the bank statement. Put it on the check and be specific. Not only does this benefit the provider (payee), it helps the firm and provides a receipt if payment is questioned.
Rule 1.15-2(i): The amendment prohibits cash withdrawals by any means, not just debit cards.
Comment/Observation: I have noticed a reoccurring pattern of law firms with good intentions trying to help clients with no bank account to get their settlement check cashed. Consider disclosing whether the client needs to open a bank account when they retain your services to avoid last-minute confusion, or see if the use of a check cashing service is an option. Another issue is when the attorney makes a check payable to a minor. Do some research and you may find the check is to be made payable to the guardian for the benefit of the minor. I have seen many files opened on matters including an adult client and minor children in the same accident. It would make sense to open files with sub files to better track the separate awards, fees, payments, and costs in these cases.
Rule 1.15-2(j): The amendment moves the debit card prohibition from the end of Rule 1.15-2(i) to a standalone paragraph.
Observation: Noted. (All subsequent paragraphs in Rule 1.15-2 are relettered.)
Rule 1.15-2(k): An amendment to the title of the rule clarifies that entrusted funds should not be used or pledged for the personal benefit of the lawyer or a third party.
Comment/Observation: I would have assumed all lawyers that passed the bar exam would know this. Murdaugh repeated on the stand, “I took money that was not mine, and I shouldn’t have done it.”
Rule 1.15-2(p): This is a substantive amendment to the lawyer’s duty to report misappropriation or misapplication of entrusted property. While confirming that intentional theft or fraud must be reported immediately, this amendment removes the reporting requirement for unintentional and inadvertent misapplications of entrusted funds if the misapplication is discovered and rectified on or before the lawyer’s next quarterly reconciliation.
The amendment also clarifies that to satisfy the lawyer’s duty to self-report, the lawyer may reveal confidential information otherwise protected by Rule 1.6. Comment  further explains the lawyer’s duty to report misappropriation or misapplication of entrusted funds, and a comment to Rule 8.3, Reporting Professional Misconduct, clarifies that a lawyer has a duty to report misappropriation or misapplication of trust funds regardless of whether the lawyer is reporting the lawyer’s own conduct or that of another person.
Comment/Observation: I am consulted about this Rule probably more than any other when bookkeeping errors are made or fraudulent activity is discovered. The first key word here is intentional. Mistakes happen. As soon as it is discovered fix it, then explain it in your reconciliation report confirming the error was found and timely corrected. When a lawyer is found to have intentionally misappropriated or misapplied entrusted property as in the Murdaugh case, that is a whole different story. This is a sticky situation to find yourself in as the person in charge of HR, the bookkeeper, or the paralegal responsible for the case. I have found myself explaining to attorneys, staff, and software vendors that it is my duty to point out anything that would endanger the law license of any or all of the attorneys in the firm. It is especially hard when the attorneys are related, such as father and son, brothers, or husband and wife. If I see something and fail to make the person(s) that retained me aware, I have not done my job. I repeat that others have a duty to report and are held to a different standard than me. I make it a habit not to work for attorneys that expect me to turn my head to clear intentional violations that are repeated, even after I have pointed them out. To my knowledge, I personally do not have a duty to report the attorney to the State Bar. I am required based on my contract to make the attorney aware of the violation(s) I see and explain that it takes just one grievance from a client to bring down the house.
In the Murdaugh trial, Alex mentioned that his father knew of his drug addiction, but did not disclose this to the proper authorities or to Alex’s brother, a partner in the family firm. I like to think they could have sought help, and that the outcome could have been totally avoided. I was highly impressed that Alex’s paralegal did not simply overlook her duties, but spoke out. It is unfortunate that Alex was allowed to continue to conduct himself in what was described as “ass on his shoulders, Tasmanian devil, disrespectful way” (her words) without gaining the attention of HR or another partner. It took courage to set healthy and professional boundaries. Stress caused by his son’s boat case was cause for mental health wellbeing intervention.
***Rule 1.15-2(s) – This amendment requires that checks drawn on a trust account must be signed by a lawyer, or by an employee who is not responsible for reconciling the trust account and who is supervised by a lawyer. Further, any lawyer or employee who exercises signature authority must take a one-hour trust account management CLE course before exercising such authority. The rule also prohibits the use of signature stamps, preprinted signature lines, or electronic signatures on trust account checks. As comment  explains, “dividing the check signing and reconciliation responsibilities makes it more difficult for one employee to hide fraudulent transactions. Similarly, signature stamps, preprinted signature lines on checks, and electronic signatures are prohibited to prevent their use for fraudulent purposes.”
*** Comment/Observation: The Three-Way Reconciliation form provided by the NC State Bar includes check boxes and notes to assist with assuring compliance. I DO NOT have signature authority on the checking account and my work is reviewed/supervised by the attorney. After review, he/she signs the Reconciliation Report (monthly) and randomly selects, reviews, then signs the required self-audit (quarterly). As stated earlier, I have been informed by NC State Bar auditors that some firms are lulled into a false sense of security to allow software vendors or other businesses to reconcile their trust account. There is no way for the firm to really know who is reconciling their account and if they are familiar with the Rules or keep up with changes.
Rule 1.15-3, Records and Accountings
Rule 1.15-3(b) and (c): Lawyers can now electronically maintain images of cancelled checks and other items instead of hard copies because new Rule 1.15-3(j) allows lawyers to maintain records electronically, provided certain requirements are met.
Rule 1.15-3(b) also amends language to mirror the clarification in Rule 1.15-2(h).
Comment/Observation: Including digital images (front and back) of checks can cause the bank statement to be quite voluminous. Most bank statements do not include images of deposits. Be aware that copies of deposited images and reports can be printed and stored as proof of deposit when remote image deposit machines are used. Care must be taken to provide information on any deposit made using a cell phone to include the information that would otherwise be written on a deposit slip.
***Rule 1.15-3(d): Explains how a quarterly reconciliation should be performed and adds the requirement that a lawyer must review, sign, and date a copy of all monthly and quarterly trust account reconciliations.
*** Comment/Observation: This is an excellent resource.
***Rule 1.15-3(i): The new rule requires the lawyer to 1) review bank statements and cancelled checks for each trust account and fiduciary account on a monthly basis, 2) at least quarterly, review a random sample of a minimum of three transactions (statement of costs and receipts, client ledger, and cancelled checks) to ensure that disbursements were properly made, 3) resolve any discrepancies discovered during the reviews within ten days, and 4) sign, date, and retain a copy of a report documenting the monthly and quarterly review process, including a description of the review, the transactions sampled, and any remedial action taken.***
The monthly review will disclose a) forged signatures, b) improper payees or checks to cash, and c) unexplained gaps in check numbers indicating checks may have gone missing. The lawyer can verify that checks from the general trust account properly identify on the face of the check the client from whose balance the check is drawn. The lawyer can also examine the back of cleared checks to ensure proper endorsements were made. Random review of ledgers and settlement statements helps to ensure that the ledgers and statements accurately reflect the transaction. This type of review can uncover improper disbursements, incorrect deposits, and substituted or unissued checks.
While the random review requirement may not uncover any improper activity, it will most definitely act as a deterrent to employee malfeasance.
Comment/Observation: This Rule is often overlooked, be it intentional or unintentional. This is the first Rule that came to mind when I was made aware that a South Carolina attorney was able to make checks payable to a variation of a known payee and endorsed the checks with his own scribbled handwriting. Because the checks are right there on the bank statement, I do look at them. Sometimes the bank will actually pick up what appears to be obvious fraud and will flag it as fraudulent, and a deposit/credit for the check will appear along with the provisionally cleared check. REMINDER: This duty cannot be delegated to staff or the bank.
Rule 1.15-3(j): The new Rule provides for the retention of records in electronic format provided 1) records otherwise comply with Rule 1.15-3, including any signature requirements, 2) records can be printed on-demand, and 3) records are regularly backed up by an appropriate storage device.
Comment/Observation: It is not uncommon for attorneys to request that all generated reports be printed to paper along with only the first page of the bank statement. The statement can be reviewed and saved in electronic format. It is also available from the bank by request if it is not available on the bank history online.
Rule 1.15-4, Alternative Trust Account Management Procedure for Multi-Member Firm
This new rule permits, but does not require, a law firm to designate a trust account oversight officer (TAOO) to oversee the administration of the firm’s general trust accounts. This is an optional rule; firms are not required to designate a TAOO. However, if the firm would like to designate a TAOO, it must follow the following guidelines.
Rule 1.15-4(a): Permits a firm to designate a partner as the firm’s TAOO. A partner is defined as a member of a partnership, a shareholder in a law firm organized as a professional corporation, or a member of an association authorized to practice law. The designation must be in writing and signed by the TAOO and the managing lawyers of the firm. A law firm may designate more than one partner as a TAOO. Comment  explains the supervisory requirements for delegation under Rule 5.1, and states that “delegation consistent with the requirements of Rule 1.15-4 is evidence of a lawyer’s good faith effort to comply with Rule 5.1.”
Rule 1.15-4(b): Lawyers remain individually responsible for the oversight of any dedicated trust account and fiduciary account associated with a legal matter for which the lawyer is primary legal counsel, and must continue to review disbursements, ledgers, and balances for any such account. Comments  and  further explain the limitations on delegation.
Rule 1.15-4(c): Explains the initial and annual training requirements of a TAOO. Comment  further explains this requirement.
Rule 1.15-4(d): Sets forth what must be included in the written agreement designating a lawyer as a TAOO.
Rule 1.15-4(e): Requires any firm that designates a TAOO to have a written policy detailing the firm’s trust account management procedures.
Comment/Observation: Pay attention to this part: Lawyers remain individually responsible for the oversight of any dedicated trust account and fiduciary account associated with a legal matter for which the lawyer is primary legal counsel, and must continue to review disbursements, ledgers, and balances for any such account. Occasionally I have been assigned the task of assisting with a written policy detailing the firm’s trust account management procedures. This includes individual reports for each attorney for their review, along with a master report including all information necessary to ensure the other partners are not guilty of professional misconduct.
Reporting professional misconduct clarifies that a lawyer has a duty to report misappropriation or misapplication of trust funds regardless of whether the lawyer is reporting the lawyer’s own conduct or that of another person. It is also important that support staff know their boundaries and do not practice law. It can be very tempting to bill for legal work performed by a skilled assistant without a license with little or no overview.
Reminders / Checklist
- All trust account checks are signed by a lawyer, or by an employee who is not responsible for reconciling the trust account and who is supervised by a lawyer.
- Any person with signatory authority on the trust account has taken a one-hour trust account management CLE (within the last three years). NOTE: Proof of completion of the CLE requirement will not need to be sent to the State Bar, but should be retained and will be checked during a random audit.
- No trust account checks are signed using signature stamps, pre-printed signature lines, or electronic signatures.
- All three-way reconciliations are reviewed, signed, and dated by a lawyer along with the name and signature of the person that prepared the report stating their position. If the report is prepared by a non-lawyer, he/she cannot have check signing authority for the trust account. Be careful to note the total on the Reconciliation Report must include only POSITIVE balances. This requires looking at each client balance individually to confirm no ledger has a negative balance.
- A lawyer reviews the bank statements and cancelled checks for all trust and fiduciary accounts on a monthly basis and a report is created documenting the review. These checks should appear on the bank statement (front and back images).
- At least quarterly, a lawyer reviews a random sample of at least three transactions (selected by the lawyer) to ensure that disbursements were properly made by reviewing the statement of costs and receipts, client ledgers, and cancelled checks for each transaction. Transactions should include multiple disbursements where available. A report is created documenting the lawyer’s review. All reports are signed and dated by a lawyer.
- Any discrepancy discovered during reconciliations or reviews is to be investigated and resolved within ten days.
Missed Opportunity to Disclose Wrongdoing #1
(Law firm – No oversight, three-way reconciliation, or self-audit performed by firm?)
Fake Forge Account – Forge was a shell account Murdaugh had disguised to look like the legitimate Forge Consulting. Forge Consulting is a company that, among other services, helps clients set up structured settlements. Checks were written from at least two separate IOLTA trust accounts to this fake Forge account at the direction of Alex Murdaugh. It is reported that Alex Murdaugh deposited checks himself using remote deposit (cell phone). Alex then used the fake Forge account to divert money for his personal use. He created this scheme to control client settlement funds, and it went unnoticed for years. If the NC State Bar Reconciliation Report in use in April 2017 was completed by someone familiar with the Rules, then reviewed and signed by either the TAOO or an attorney active in management of the firm, the images would have been reviewed as part of the process and Alex’s signature on the back of the checks would have been discovered. (The current form – revised on 11/2019 – is available online.)
The reports provided by the Bar for trust account reconciliation provide an excellent tool for assisting with reviewing file status, proper workflow, etc. I now understand a comment made to me by an insightful Charlotte, NC, attorney that hired me to oversee the reconciliation of his trust account. “I am hiring you because you are not friends with anyone here, keep it that way.”
Missed Opportunity to Disclose Wrongdoing #1 (Continued)
(Law firm – Lack of trust account procedure, or enforcement of same, which should include providing proper backup documentation before writing checks out of account.)
Attorney Richard A. Harpootlian introduced the idea in court, when cross examining the PMPED CFO, that at least some of the clients were aware Alex had borrowed from them, and in some instances those clients agreed that Alex could take ownership of their money as a gift or repayment of money owed to him in other matters. It was implied by Jeanne Seckinger that none of the settlement approvals, if any existed, were properly filed through the Hampton County clerk of court or discussed with PMPED partners and would be hard to prove without further witness testimony.
It is reported that the PMPED law firm filed a complaint in Colleton County Court in South Carolina, which reads, “PMPED has determined that Alex Murdaugh was able to covertly steal these funds by disguising disbursements from settlements as payments to an annuity company, trust account or structured settlement for clients, or as structured attorney’s fees that he had earned when in fact they were deposited into the fictitious account at Bank of America.”
Missed Opportunity to Disclose Wrongdoing #2
(Palmetto State Bank CEO failed to report Murdaugh.)
Russell Laffitte, the former CEO of Palmetto State Bank, had the opportunity/duty to report misappropriation. Instead, he allegedly conspired with Lowcountry Attorney Alex Murdaugh on all six charges. Laffitte presented the good faith defense. His attorneys argued he did not have intent to commit any crime. Judge Gergel reminded the jurors that deliberately closing one’s eyes to something that would have been obvious is not good faith.
Missed Opportunity to Disclose Wrongdoing #3
(Clerk’s office review of accounting.)
Palmetto State Bank’s Russell Laffitte served as the court-appointed conservator for Natarsha Thomas. The prosecutors say the settlement funds were diverted by Laffitte at Murdaugh’s direction to the lawyer, his family members, and those to whom he owed money. Among the recipients, Laffitte’s father, who had lent Murdaugh money, Murdaugh’s wife, Murdaugh himself, and the conservatorship account of Hannah Plyler, to which Murdaugh also owed money. Laffitte was said to have lent him money from Plyler’s account as her conservator in a separate car crash case. While her lawsuit was playing out, Thomas needed money for school expenses. In 2010, she borrowed money against the settlement she expected to win. Laffitte had signed papers to become her conservator a few months earlier, but he did not mention it and she didn’t know he had been appointed to the role. According to Thomas, even after she turned 19, her conservatorship was still open.
It is my understanding that when you take on the important role of serving as a conservator, you must complete and file an accounting with the clerk of superior court, not less than annually. Did the clerk of court, when reviewing the accountings, overlook the opportunity to catch a pattern of wrongdoing?
Missed Opportunity to Disclose Wrongdoing #4
(Banker failed to fulfill duties to the estate as well as to the probate court.)
Also accused of wrongdoing is Chad Westendorf, vice-president of Palmetto State Bank. Murdaugh allegedly encouraged Satterfield’s sons to hire Westendorf to deal with “business matters” he said would arise. Murdaugh, Fleming, and Westendorf are accused of negotiating $4.3 million in payouts from Lloyd’s Underwriters and Nautilus Insurance Company—two insurance companies with which Murdaugh held policies. See Chad Westendorf Deposition by ABC News 4 on Scribd.
Missed Opportunity to Disclose Wrongdoing #5
(Attorney, banker, and judge allegedly failed to fulfill duties to the estate as well as to the probate court.)
Statements under oath by a Hampton banker paint a picture of possible misdeeds by a Beaufort attorney and low country judge in connection to a reported multi-million-dollar theft by Alex Murdaugh.
Kathy E. Pope has over 30 years of experience in reconciling IOLTA trust accounts, as well as conducting confidential trust account audits. As a consultant, Kathy is available to design and implement procedures to assist your firm in improving compliance and documentation. Contact Kathy at Kathy@Popetrust.com.
DISCLAMER: My work background includes stenographer with the Department of Correction and deputy clerk in Buncombe County, NC (courtroom clerk). I have over 30 years of experience working to assist with trust account compliance. I am not an attorney. Nothing in this article is to be construed as practicing law or giving legal advice. The purpose of this writing is to share experiences which may prove helpful to lawyers and their staff relating to IOLTA trust account compliance. Information gathered by viewing trial live stream, editorial commentary, and personal experience is shared.
1. Article written by Peter Bolac, Coming to Terms (and into Compliance) with the Trust Accounting Rule Amendments, bit.ly/43S5YI3
About The Author
Camille Stell is the President of Lawyers Mutual Consulting & Services and the co-author of Designing A Succession Plan for Your Law Practice: A Step-by-Step Guide for Preparing and Packaging Your Firm for Maximum Value. Continue this conversation by contacting Camille at email@example.com or 800.662.8843.