review of the report of the Iowa Supreme Court Grievance
M. van Brederode and Patrick W. O'Bryan of O'Bryan
Law Firm, Des Moines, for complainant.
L. Brown of Hansen, McClintock & Riley, Des Moines, for
attorney disciplinary proceeding requires us once more to
address proper trust account procedures. The attorney
maintained individual client trust account records on
handwritten ledger cards but failed to regularly reconcile
those records with bank records. One of his answers to the
annual questionnaire propounded by the Client Security
Commission was therefore inaccurate, although not
intentionally so. During a routine audit, a substantial trust
account deficit was uncovered in one client account. The
attorney immediately wrote a check to cover the deficit, and
no client suffered harm. The attorney forthrightly accepted
responsibility and has updated his trust account practices.
Iowa Supreme Court Attorney Disciplinary Board (the Board)
charged the attorney with violating Iowa Court Rule 45.2(3)
and Iowa Rule of Professional Conduct 32:8.4(c). The Iowa
Supreme Court Grievance Commission found a violation only of
rule 45.2(3) regarding the failure to reconcile the accounts.
The commission recommended a public reprimand.
our review, we agree with the commission that only rule
45.2(3) was violated and that a public reprimand is
Background Facts and Proceedings.
Smith was admitted to the Iowa bar in 1973 and has practiced
in a law firm in Newton since his admission. Smith is now a
name partner in that firm. He is a seasoned trial attorney
and does a significant amount of transactional legal work.
the firm kept track of its individual client trust balances
using handwritten ledger cards. At some point, it
supplemented the system with an accounting software program.
Smith was responsible for maintaining the firm's client
trust account. He also enlisted the services of an accounting
firm located within the law firm's building. To reconcile
the client trust account, Smith stated his general practice
was to look at ledger cards only for individual accounts he
believed had some activity in the past month.
2013, a representative of the Client Security Commission
performed a regular audit of the client trust account of
Smith's law firm. The auditor found what appeared to be a
negative balance in the trust account of $47, 365.95 as of
August 15, 2012. Through further investigation, the auditor
identified five specific client accounts with issues:
Agro-Ray, L.L.C.; Smith Farms; Smith-Kriegel; Smith-Klaassen;
and an "unknown" account consisting of a single
$11, 000 entry. The main contributor to the August 15
deficit was a negative balance of approximately $46, 000 in
the Smith Farms account.
ledger cards were confusing. Some of the transactions on the
cards were not listed in chronological order. There were also
concerns about possible inaccuracies. Smith's outside
bookkeeper therefore reconstructed the ledgers to clarify the
transactions and the balances. After the ledger cards were
reconstructed, the auditor concluded there had been a
negative balance of nearly $50, 000 in the client trust
account as of April 30, 2013. This deficit was the result of
a negative balance of $48, 700 in the Agro-Ray account that
had not been immediately apparent from the original Agro-Ray
Smith was informed by the auditor of the deficit, he
immediately deposited a check for $50, 000 in the trust
account. Smith's accountant continued to verify and
reconstruct the ledgers. After all the individual client
accounts had been verified and restated approximately two
months later, the auditor determined there was an additional
deficiency of $813.11. Smith wrote a second check to cover
this amount, plus a $100 cushion.
is an entity owned and funded by Smith and two others. It
purchases farmland in Ukraine. The account had two
problematic transfers that each caused deficits at different
times. The first was a $65, 000 transfer in February 2012,
simply labeled "wire transfer-Ken." At the time of
that transfer, the account showed only $600 available. In
March 2012, when the account once again had a positive
balance, another transaction labeled "transfer to
Agro-Ray" produced a $48, 450 deficit. As noted, the
final shortfall at the time of the audit was $48, 700.
other three accounts that the auditor initially identified
also were affiliated with Smith in various ways.
Smith-Kriegel and Smith-Klaassen were used for the sale of
assets out of the estate of Smith's father. Smith and his
sister were the beneficiaries of that estate and the persons
entitled to receive those proceeds. Smith Farms functioned as
the other side of the same coin: an account established so
Smith and his sister could pay estate-related expenses.
additional $813.11 deficit that was discovered later
consisted of discrepancies in six other client accounts.
Smith was not affiliated with those clients.
the first stage of the audit had been completed that
uncovered the $50, 000 deficit, the auditor wrote in an
I reported to you in June that this IOLTA may have a
deficiency of approximately $50, 000.00 and that the attorney
immediately deposited this amount back into the Trust
account. The deficiency centers around real estate
transactions that he is a part of. At or near the time the
deficiency originated, the attorney may have had sufficient
funds of his own to cover the deficiency that were reflected
on other sub-account ledger cards - possibly ...