NYS lawyers keep stealing clients' real estate deposits. A state fund that pays back victims isn't keeping pace.

A little-known state fund that exists to reimburse money stolen by unscrupulous lawyers is accepting fewer claims and sometimes making only partial repayments as giant fraud cases become more challenging in New York.

Managers of the fund have warned for more than two decades about one specific issue: a loose system for downstate real estate transactions that enables dishonest lawyers to steal clients’ escrow funds. But with little apparent action, payments in those cases have now surpassed $100 million over the fund's history.

"The fund has consistently highlighted escrow-related theft because it remains one of the most significant losses," Gabriel Huertas, executive director of the fund, said in a letter to Newsday.

Despite 20 years of warnings and amid soaring property prices, stolen escrow money by downstate lawyers now triggers the overwhelming majority of the fund’s payouts. And while traditionally the fund has reimbursed all or nearly all of what it deems to be legitimate losses, a growing share of victims are getting only some of their money back, a Newsday analysis found. 

At the crux of the problem, experts say, is the fact that real estate transactions are undertaken differently downstate, with more money in escrow. Lawyers here tend to draft up the contracts for residential real estate and take 10% or even 20% of closing costs to hold in an escrow account.

Long Island attorneys account for more than a quarter of all payouts in the fund's history, over $70 million across 2,500 cases, according to Newsday's analysis of the fund’s data. No judicial district in the state had more cases attributed to its lawyers than Long Island.

Two of the three attorneys responsible for the fund’s biggest payouts this past year were Long Island lawyers who embezzled client escrow funds.

One of them, Garden City lawyer Daniel L. Boldi, took $640,000 from a volunteer ambulance group, the Woodhaven-Richmond Volunteer Ambulance Corp., which had put the money in escrow and was planning to use it toward a new building.

But then the group's chairman, Andrew Combs, learned from a newspaper article that Boldi had been charged with stealing $700,000 of escrow money from two of his clients. It left him concerned about the nonprofit's money, as he tried to track down its status and how he could get it back.

By the time Boldi was sentenced to up to 12 years in prison, prosecutors found the Long Island lawyer had stolen $6.2 million from 52 of his clients. The state fund would go on to reimburse $1.6 million to 26 clients of Boldi’s last year.

It reimbursed Combs’ ambulance group $400,000 — the maximum amount it pays out for a claim. But that left a quarter-million-dollar hole, with no foreseeable way to recoup.

"My head wanted to explode," Combs said. "You were trapped in the system that you had no control over."

My head wanted to explode. You were trapped in the system that you had no control over.

— Andrew Combs, Woodhaven-Richmond Volunteer Ambulance Corp.

Boldi’s defense attorney, Michael R. Franzese, had said his client’s judgment had been compromised by a cocaine and alcohol addiction.

Huertas, the head of the fund, declined to answer questions until meeting with the fund’s board and later provided a written response to detailed questions.

In September, Newsday asked for data by claim from the fund, but it denied the request, citing regulations that leave its records sealed and confidential.

In his response, Huertas said the changes in reimbursement "reflect exceptionally large thefts committed by a very small number of lawyers."

He also said that the fund "remains healthy and able to meet its obligations."

‘Nobody’s come up with a good answer’

The Lawyers’ Fund for Client Protection began in 1982 and is funded with a sliver of attorney registration fees. In the fund’s history, it has awarded about $270 million to wronged clients of over 1,300 lawyers across more than 9,000 cases.

From 1999 to 2021, in most years it reimbursed over 90% of valid claims, including five years in which the entirety of the claims were paid back. But in the last three years, the fund reimbursed just over two-thirds of valid claims.

The fund also tracks how many of the valid claims are reimbursed in whole. It’s been 30 years since the fund had two consecutive years in which it fully reimbursed less than 97% of its claims. The last two years available: 94% and 93% of claims, respectively, were fully reimbursed.

This comes despite the fact that the fund has discretion when evaluating claims and typically rejects most claims it receives.

By the end of 2024, the fund's balance was less than $12 million cash on hand and nearly $14 million in pending claims.

The regulations state that the board’s trustees, when determining a claim, shall consider, among other things, "the amount of money available and likely to become available to the fund for the payment of claims, and the size and number of claims that have been or are likely presented." 

But Huertas said the fund "does not consider available cash when determining approvals or award amounts." He added, "all claims are strictly evaluated under the fund’s regulations."

Differing escrow practices

The claims the fund does pay out almost always are for real estate transactions gone wrong, and nearly always on Long Island and elsewhere downstate.

The process behind the escrow down payments is different in other parts of the state — where brokers tend to draft the contract and hold a relatively nominal fee in escrow. In 2024, out of the $11.6 million the fund paid out, only $2,000 was attributed to lawyers upstate.

The result has been that for 20 years — year after year and often in nearly verbatim language — the lawyers’ fund has recommended to the New York State Bar Association and lawmakers to study and address the problem of stolen escrow funds downstate.

In its 2004 report, the fund said the issue of escrow theft was responsible for half of its awards that year.

In 2024, the fund said over 85% of all the claims paid out that year were regarding real estate stolen funds.

Over those two decades, the cost of stolen escrow funds has tripled — and the fund was still asking for the bar to study the issue and for lawmakers to come up with a solution. 

Anne Reynolds Copps and Peter V. Coffey are co-editors of "Escrow Accounts," which is the definitive book on the issue by the New York State Bar Association.

"It's just a very difficult thing," Reynolds Copps said. "It’s been a problem that the real estate section of the bar keeps hitting over and over."

"So far nobody’s come up with a good answer," she added.

The losses can be crushing for victims.

In November, Floral Park lawyer Terrance Dougherty was sentenced for embezzling $1.7 million from at least 32 clients. The victims included working families and a church as he fueled his drug and gambling addiction, Newsday previously reported.

"He was living it up while his clients faced having nowhere to live," Nassau County District Attorney Anne Donnelly said in a statement at the time of sentencing.

Jason Gentile spoke to the court on behalf of his mother, Ellen, about the case.

"When I hired Terrance Dougherty as my attorney, I placed in him the trust any client should be able to place in their lawyer — that he would protect my interests, guide my home sale and uphold the law," Gentile said.

"Instead," Gentile added, "he betrayed that trust in the most devastating way."

Financial squeeze

Two realities are squeezing the fund: a fixed cap on the money coming in and a limit on the size of payments going out.

The money comes almost entirely from lawyers’ $375 registration fee, paid every two years, of which $60 goes to the fund, as set in state law and unchanged for decades.

The last time legislation was proposed to increase the amount the fund receives was in 1999 and it called to raise the amount to $100, according to a review of state bills filed. The sponsors of the legislation are no longer alive.

Coffey, a longtime ethics lawyer and escrow expert, said the system was originally set up to have all the attorney registration fees go to the fund. But under state law, the money was split up and the fund gets 16% of the fee.

"There’s no question the government is ripping off the system," Coffey said.

There’s no question the government is ripping off the system.

— Peter V. Coffey, lawyer and escrow expert

The fund also has a cap on the maximum it will give out for a claim to a client, $400,000, which is set by its board, as opposed to by the State Legislature.

The current limit went into effect in 2015, when it went up from the $300,000 that had been in place since 2000. The value had come close to adjusting for inflation — $415,000 in 2015 equaled $300,000 in 2000.

If the cap were once again in effect adjusted for inflation, the cap today would be at least $555,000.

"If they’re having trouble meeting their commitment to reimbursing lawyers or clients, certainly the answer is to up the amount of money from the $375 [registration fee] that goes to the lawyers’ fund," Coffey said in an interview.

For victims, recovery can be slow and sometimes incomplete.

A decade ago, a West Hempstead lawyer, David Frankel, was convicted of stealing nearly $6 million from his clients.

The fund in 2024 reimbursed seven clients of Frankel’s a collective $2.8 million. Previously the fund had reimbursed $100,000 to one client.

‘At a loss’

Experts said that when money goes into an escrow account, it is the lawyer and not the client who can access it. They can withdraw the money, but it is intended for the purpose for which the lawyer had been entrusted to use the money.

The fund has recommended some solutions to the escrow problem: prohibition of ATM cards to be used for withdrawals from escrow accounts; ability for courts to restrain attorneys deemed a public threat from use of their escrow accounts; state law that automatically disbars an attorney who intentionally steals escrow funds; the state bar exam should test for knowledge of a lawyer’s fiduciary responsibilities.

Combs is both thankful for the fund and frustrated.

He said he has been a part of the Queens ambulance organization for 50 years and was chairman when its headquarters had to be vacated because a neighboring building fell into disrepair and damaged their building.

The organization sold its building, but because of its nonprofit status, Combs said, the state Attorney General’s Office required it to put the proceeds into an escrow account, to be held until it could be used to purchase a new building.

Since the money disappeared, the group has partnered with another volunteer ambulance group in a different neighborhood, leaving a hole in the service it once provided and a lack of funds to do much about it.

"We’re still at a loss," Combs said. "What other alternatives do we have?"