Mixed response to bar’s plan to audit high-dollar trust accounts

The State Bar's decision to bring in forensic accountants to audit high-dollar trust accounts drew mixed responses from lawyers.

Some called the move an attempt to divert attention from the bar's failure to discipline plaintiffs' lawyer Thomas V. Girardi, who was sued dozens of times by clients and other attorneys over several years and is now accused of stealing millions of dollars from clients.

Others said the bar's decision, announced Thursday, was a good idea that had been explored before issues with Girardi arose.

Heather L. Rosing, CEO and president of Klinedinst PC, said random audits of large trust accounts were considered in 2014 while she was a member of the bar's board of trustees.

"At the time, about 10 other states were doing it, and we spoke to a number of them," Rosing said. "It is a good idea to revisit this discussion. We learned that audits not only reveal improprieties in the handling of client funds, but help law firms detect issues with internal controls, to help avoid embezzlement."

Carol M. Langford, an ethics expert and adjunct professor at the University of San Francisco School of Law, said she believes the move is just an attempt by the bar to divert attention from its failures.

"The Girardi problem was not caused by the bar's failure to audit trust accounts," Langford said. "There were numerous lawsuits and complaints against Mr. Girardi that the bar was well aware of. Numerous, and all over the fact that he would not distribute settlement funds properly.

"Yet, he was not disciplined even one time," Langford continued. "That is a failure of a different sort and one that requires a deep dive into why so many were dismissed. Who was in charge with the final say on letting Girardi go without being disciplined? Who was in charge of each individual complaint. They knew he had had others. Shouldn't they be asked to explain?"

"I see this as a way to just move into random audits of all lawyers one day. Lawyers had better beware," Langford said.

The bar did not define a high-dollar trust account. That question could be answered in a report the trustees asked staff to produce.

Girardi had a lavish lifestyle with two private planes at his disposal and a celebrity wife who showcases her expensive jewelry, clothes and a posse of personal attendants on the TV show "The Real Housewives of Beverly Hills." Last week, a bankruptcy trustee hired a lawyer to investigate whether Tom Girardi used client money to fund his wife's lifestyle.

Discipline proceedings were launched against Girardi this year after a Los Angeles Times investigation was highly critical of the bar's inaction in the face of signs Girardi was mishandling client money. Some critics have said the bar turned a blind eye to warning signs because Girardi had close relationships with a bar executive and an investigator. They also say the bar should have taken advantage of a rule that allows hiring a special counsel to investigate well-connected lawyers.

In the announcement Thursday, the trustees said the bar takes responsibility for its inaction but declined to finger anyone personally -- at least not publicly. An audit of the bar's failures was not made public.

State Bar spokeswoman Teresa Ruano said Friday the bar had used a special deputy trial counsel in roughly 1% of investigations in the past three years. A review was undertaken to see how those cases were handled in comparison to cases handled by the Office of Chief Trial Counsel.

"When comparing the stages at which cases were closed and the percentage of cases that resulted in discipline, case handling was very similar in overall percentage terms," Ruano said. "When comparing the percentage of attorneys whose cases resulted in discipline, the percentage rate was identical. The only significant difference appears to be in case disposition time; cases referred to [special deputy trial counsels] tend to move more slowly through the process than those handled internally."

Antonio R. Sarabia II, with IP Business Law Inc., said the bar should make public the results of the audit into how it handled past complaints against Girardi.

"Everybody knows when an enforcement agency clearly does something wrong they need to behave as an adult would and immediately take responsibility. But the bar is not doing that," Sarabia said. "That shows an institution that is not learning from its mistakes, but it seems to be living in a different world," Sarabia said.