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SRA achieve strike off again in Escrow Account cases

SRA achieve strike off again in Escrow Account cases

In a decision dated 11th January 2016, the Solicitors Disciplinary Tribunal have struck off another solicitor who faced allegations of Dishonesty and Lack of Integrity over the use of his client account as an Escrow Account for transactions that were suspicious and had the hallmarks of dubious financial investment schemes.

In the case of the SRA v Tom Jenkins Merralls,  which was heard on 28 and 29th July and again on 17th November 2015, the Solicitors Disciplinary Tribunal imposed a strike off order and also ordered the Registrant to pay costs in the sum of £43,000.

This is another in a long line of cases which tend to involve small firms of solicitors who were keen to diversify into new business areas, and fell foul of sophisticated fraudsters who were simply looking to create the veneer of respectabilty for their unregulated financial products.

The law in relation to the use of a client account for this type of activity has been set out in a number of decisions and guidance on the SRA website. See blog article dated 11th June 2015 which sets out the cases and principles.

In this case Mr Merralls set up his sole practice in 2008 and employed one or two other fee earners in a small practice that had a turnover of approximately £200,000 with an annual profit of £40,000 - £50,000. Mr Merralls agreed to manage an escrow service that turned over £5,151,581.08 ´╗┐through 392 escrow transactions, generating just under £76,000 in fees.

The case was interesting as it demonstrated the importance of the Twinsectra test for dishonesty that is used at the SDT. This test has both an objective and subjective test which some feel is unnecessarily lenient [the SRA have recently suggested that the use of the criminal burden of proof at the SDT should be brought into line with other regulators who use the civil standard of proof].

It is also interesting to note that in this case an intervention order was granted by the SRA panel on the grounds that there were reasons to suspect dishonesty.

Here the Tribunal found that although Mr Merralls was objectively dishonest in some of his transactions, his lack of understanding of certain basic rules rendered him subjectively 'not guilty' of these charges. However, the Tribunal found that certain aspects of the case including continuing to operate the scheme after the investigation by the use of a company without telling the investigators, was dishonest and demonstrated a lack of intergrity.

It is not surpirsing therefore that, in view of their findings, the only appropriate sanction was the imposition of a striking off order. A review of all of the cases show that in circumstances where such a scheme has been operated by an otherwise honest and decent solicitor, there is the prospect of a financial penalty. But it is clear, that where there is a finding of dishonesty or lack of integrity in these circumstances, the almost inevitable sanction is immediate strike off, coupled with a substantial costs order.

[The author is currently representing a number of solicitors facing client account/escrow service allegations]

For any advice and assistance for issues like these please do call Jeremy on 0844 2722322 or submit a comment below. Jeremy will come back to you at the earliest convenience.

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