Clients' Security Board tops $1 million in reimbursements for first time since 2015

Thursday, Oct. 4, 2018 By Cameron Woodcock

CSB2018

The Clients’ Security Board of the Massachusetts Supreme Judicial Court awarded $1.29 million to individuals defrauded by their attorneys in fiscal year 2018, marking the first time since 2015 that annual reimbursements exceeded $1 million.

As detailed in the recently released “Annual Report to the Supreme Judicial Court Fiscal Year 2018," the seven-member CSB more than doubled its prior-year total of $500,701.48, which was the lowest since 1989. The 91 awards made between Sept. 1, 2017, and Aug. 31, 2018, also rank as the fifth-highest total in the CSB’s 44-year history, during which time it has provided $50,924,921.76 in reimbursements to defrauded clients.

In a letter accompanying the report, outgoing CSB Chair D. Ethan Jeffery wrote that the $5.6 million awarded during his four-year tenure includes not only a record-low amount in 2017, but also the largest-ever annual total, $2.9 million, in 2015. Despite “steep fluctuations” from 2015-18, Jeffery pointed to the median annual award for the last 11 years, $2,059,195, as evidence that CSB reimbursements have traditionally held steady over the long term. 

“This microcosm of Board history underscores both the inherently unpredictable nature of our work in any one year, and its consistency over many years,” said Jeffery.

In a result that closely mirrors the previous four years, 22 attorneys accounted for all awarded claims in 2018, representing .04 percent of the 59,193 lawyers in the state. Attorneys Paul C. Dick of Amesbury ($309,800), David Zak of Cambridge ($261,524), John F. Paczkowski of Dracut ($215,939.84) and Frederick B. Hayes III of Boston ($210,770) combined for defalcations totaling $998,033.84, or 77 percent of the reimbursement funds provided in 2018.

“While only a very small number of lawyers are responsible for the awards made each year by the Board, for the individual claimants, theft of their personal injury settlement, probate inheritance, or funds from a real estate transaction is devastating and means a real loss not just of money but of trust and confidence in lawyers,” said CSB General Counsel Karen D. O’Toole.

Zak alone was responsible for 52 of the year’s 91 awards, resulting from his exploitation of Spanish- and Portuguese-speaking homeowners seeking mortgage relief from the 2008 real estate crisis. Besides failing to deliver on his false advertising claims, Zak violated state and federal law by charging thousands of dollars in advance fees for his services. The defrauded clients received proper reimbursement only after the Massachusetts Attorney General’s Office shared documentation used in a Chapter 93A lawsuit against Zak, whose bankruptcy had limited the final settlement amount.

“This is a sterling example of cooperation with other agencies that helped to restore trust in our profession and to provide full restitution to victims of lawyer fraud,” Jeffery said.

Much like in prior reports, attorney misconduct involving trusts and estates made up the largest portion (36.69 percent) of total defalcations, with two awards amounting to $475,939.84. The unearned retainer category produced by far the highest number of awards (71), the majority of which (52) stemmed from Zak’s fraudulent practices. Zak and the 11 other lawyers who collected unearned fees also combined for the second-highest amount of defalcations ($388,366) and 29.94 percent of this year’s $1.29 million total.

Writing for his final time as chair, Jeffery called the CSB “the gold standard of client protection agencies nationwide,” namely because it covers 100 percent of actual misappropriations, with no statute of limitations on claims. True to the original vision of the SJC, the Massachusetts CSB continues to differ from its counterparts in many other states, where client reimbursements are capped at a specified level. The CSB is also funded entirely by Board of Bar Overseers registration fees, paid annually by all licensed attorneys in the commonwealth.

“The CSB and Karen O’Toole have demonstrated their professionalism and dedication to preserving the reputations of all practitioners,” said Massachusetts Bar Association Chief Legal Counsel and Chief Operating Officer Martin W. Healy. “The MBA benefits greatly from the CSB’s diligence in making clients whole who have been the unfortunate victims of attorney defalcations.”