An average third-year law student will at some point ask an admitted lawyer if the Multistate Professional Responsibility Exam, the passing of which is now mandated in almost all states, is an exam to be feared.

The lawyer's reply usually goes something like this: "Don't worry. The questions are like, 'Your client gives you $200,000 to be used in connection with a real estate transaction. You (a) place it in your client trust account, (b) place it in your operating account, or (c) cash it and go to Las Vegas.'"

Recently, it seems a lot of lawyers are choosing Answer C.

As its name indicates, the client trust account, which nearly every law office has need for, is to deposit monies that belong to clients. It is used for unearned retainer money, for settlement proceeds and for any money used in a client transaction that the lawyer must at some point disburse.

For lawyer Joseph Caputo, a man who by all accounts had a thriving real estate practice in the upscale New Jersey suburb of Summit, it was a fund from which to pay enormous gambling debts. Over a three month period, he wrote himself 58 checks out of his client trust account, totaling $291,350, some of which he had certified by his bank and then faxed to the Trump Taj Mahal casino, so he could continue his gambling.

This past summer, Mark Adelman, who had been a practicing lawyer for only five years, was disbarred for converting at least $ 55,000 of his clients' money for trips to the casino.

Caputo and Adelman must have known that sooner or later they would be caught because their actions were so easily detectable.

Last week, two brothers, both Manhattan lawyers, were arrested and charged by the United States Attorney's Office with one of the more sophisticated schemes for defrauding clients. Mark Virag and his younger brother, Allen, were accused of having their personal injury clients execute two retainer agreements, each of which contained a different method for calculating the attorney's fee. The first agreement set their fee at one-third of the money actually recovered by verdict or settlement. Under the second agreement, the Virags would be paid on a sliding scale, receiving 50 percent of the first $1,000 recovered, 40 percent of the next $2,000, 35 percent on the next $22,000 and 25 percent on any amount recovered over $25,000.

Which agreement the Virags selected to calculate their fee depended on the amount of the recovery in each case. If the client ever questioned it, the signed retainer agreement was available to show that the fee the Virags had taken was indeed the right fee. In dollar terms, it was $ 350,000 wrongfully taken in just over three years.

The switching of retainer agreements to conceal theft is not unprecedented, though. This past June, Robert G. Harley, a lawyer who had practiced for 35 years, was disbarred after he told his client he had lost their original retainer agreement and had the client execute a new one.

Harley was retained in 1987, but back-dated the new retainer agreement to 1984, a time before the law changed to decrease the traditional one-third attorney's fee if the recovery exceeded a certain dollar amount, and incorporated the traditional one-third fee instead of the new, decreased attorney's fee calculation mandated by law. Harley's luck ran out when his client located his own copy of the original retainer agreement, pulled out a calculator and realized that he had been shorted $381,302.84. The client then successfully sued Harley for the money he'd wrongfully retained, and was awarded treble damages.

The funds that public companies abuse are arguably more their own than those that lawyers abuse. Public companies are subject to annual audits, and most privately held companies voluntarily undergo the same before filing their tax returns. Incredibly, there is no wide requirement that an attorney's client trust account undergo any kind of audit. In fact, as a general rule, the only time regulators demand information concerning an attorney's client trust account is when a check drawn on it bounces.

Some states with particularly bad histories of attorneys absconding with client funds, like New Jersey, are pioneering active, random audits of client trust accounts. But only six states have any kind of functioning random audit program.

Since it was instituted 1981, New Jersey's random audit program has alone recompensed clients more than $3.5 million, and disbarred 21 lawyers, one for a $150 gap in his client trust account and one for a gap of $675,376. With the advent of the switched retainer agreement, what might be going undetected?

Matt Hayes began practicing immigration law shortly after graduating from Pace University School of Law in 1994. He founded his own New York City firm in 1997, specializing in immigration law and representing new immigrants in civil and criminal matters. He recently left the practice for the "more normal life" of insurance defense. He lives in Bergen County, N.J.

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