The New York State Lawyers’ Client Protection Fund serves as a crucial safeguard for individuals who have lost money due to the dishonest actions of attorneys. Established in 1982, the fund has a significant history of providing restitution, having disbursed a cumulative total of $270 million to nearly 9,500 recipients. Its operations are funded primarily through a portion of the biennial attorney registration fees, specifically $60 out of the $375 fee, ensuring that no taxpayer dollars are utilized. The fund adheres to a maximum payout of $400,000 per claim, a cap that its board of trustees set over a decade ago.

A deep-seated and persistent issue that has increasingly challenged the fund is the theft of client escrow funds by unscrupulous lawyers, particularly prevalent in downstate New York. For more than two decades, managers of the fund have consistently highlighted a loose system within downstate real estate transactions that facilitates such dishonesty. This problem has grown to an alarming degree, with payments related to stolen escrow money now exceeding $100 million over the fund's history. Gabriel Huertas, the executive director of the fund, emphasized that escrow-related theft remains one of the most significant sources of losses. In fact, an analysis by Newsday revealed that stolen escrow money by downstate lawyers now accounts for the overwhelming majority of the fund’s payouts, with over 85% of all claims paid out in 2024 relating to real estate stolen funds, a stark increase from 50% in 2004.

The unique nature of real estate transactions downstate significantly contributes to this vulnerability. Unlike other parts of the state where brokers typically draft contracts and hold nominal escrow fees, downstate attorneys often draft residential real estate contracts and hold substantial portions—sometimes 10% to 20% of closing costs—in escrow accounts. This concentration of funds in attorney-controlled escrow accounts, coupled with lax oversight, creates fertile ground for embezzlement. Long Island attorneys, in particular, account for a disproportionate share, representing more than a quarter of all payouts in the fund's history, totaling over $70 million across 2,500 cases, making it the judicial district with the most attributed cases.

The Lawyers’ Client Protection Fund is currently grappling with a financial squeeze, facing both a fixed income stream and escalating demands from increasingly complex and large-scale fraud cases. While the fund historically reimbursed over 90% of valid claims from 1999 to 2021, including five years of full repayment, the last three years have seen a significant shift. Reimbursements have dropped to just over two-thirds of valid claims, with only 94% and 93% of claims fully reimbursed in the two most recent available years—a notable departure from the previous 30-year trend where less than 97% of claims were fully reimbursed in consecutive years. By the end of 2024, the fund's cash on hand was less than $12 million, with nearly $14 million in pending claims, raising concerns about its long-term capacity, despite assurances from executive director Huertas that it remains "healthy."

The personal toll of these thefts is immense. Andrew Combs, chairman of the Woodhaven-Richmond Volunteer Ambulance Corp., experienced this firsthand when Garden City lawyer Daniel L. Boldi embezzled $640,000 from the group's escrow account, intended for a new building. Although the fund reimbursed the maximum $400,000, it left a devastating quarter-million-dollar deficit. Boldi, who ultimately stole $6.2 million from 52 clients, was sentenced to up to 12 years in prison. Similarly, Floral Park lawyer Terrance Dougherty embezzled $1.7 million from at least 32 clients, including working families and a church, to fuel his drug and gambling addictions. Jason Gentile, whose mother was a victim, articulated the profound betrayal, stating, "He betrayed that trust in the most devastating way." Another case involved West Hempstead lawyer David Frankel, who stole nearly $6 million, with the fund reimbursing $2.8 million to seven of his clients in 2024.

Despite two decades of consistent warnings and recommendations from the Lawyers’ Fund for Client Protection to the New York State Bar Association and lawmakers, little apparent action has been taken to address the escrow fund problem. Experts, including Peter V. Coffey, an ethics lawyer and escrow expert, highlight that "nobody’s come up with a good answer." The fund has proposed several solutions to mitigate escrow theft, including prohibiting ATM card withdrawals from escrow accounts, empowering courts to restrain problematic attorneys from accessing their escrow funds, enacting state laws for automatic disbarment of attorneys who intentionally steal escrow funds, and incorporating fiduciary responsibilities into the state bar exam. These proposed changes aim to tighten the system and enhance client protection.

The fund's capacity to meet its obligations is further strained by its fixed funding mechanism and payment cap. The $60 portion of the attorney registration fee, which fuels the fund, has remained unchanged for decades, despite a failed legislative attempt in 1999 to raise it to $100. Critics like Coffey argue that the government is "ripping off the system" by allocating only 16% of the total registration fee to the fund, when it was originally envisioned to receive all of it. Furthermore, the $400,000 maximum payout per claim, while adjusted from $300,000 in 2015, falls short of its inflation-adjusted value, which would be at least $555,000 today. Increasing the fund's share of the registration fee is seen as a crucial step to bolster its ability to fully reimburse victims and adapt to the increasing scale of fraud.