The Law Society of BC indemnity fund took a significant hit in having to reimburse over $2 million taken from the trust account of real estate lawyer Russel Sean McDonough, who gambled away his clients’ money.
This was the worst loss for the Lawyers Indemnity Fund (LIF) in five years, spokesperson Christine Tam told Glacier Media, although it does not come close to the historic $40-million loss disbarred lawyer Martin Wirick was responsible for when he facilitated mortgage fraud. (Wirick went to jail for seven years.)
The fund largely handles lawyer negligence claims; in 2022, it paid out $12 million, including $2 million for clients of McDonough, who was recently suspended for seven years following a settlement process with the society.
The fund ultimately draws upon your legal fees, as B.C. lawyers pay $1,800 annually for what amounts to an in-house insurance service.
“LIF takes theft by lawyers very seriously and provides timely and full compensation, including interest, to every victim up to a limit of $300,000. Mr. McDonough cooperated fully with LIF in the identification of and reimbursement to his clients,” the organization stated via Tam.
There is no indication from court records at this time that McDonough faces any criminal enforcement.
Tam said the society refers matters to law enforcement “where we have reasonable grounds to believe the information or documents in our possession are likely evidence of a criminal offence.”
And, “referring matters to the police is consistent with our public interest mandate. We cannot disclose whether a particular matter has been referred to the police.”
According to a Feb. 2 statement from the society, “McDonough admitted he misappropriated trust funds, breached undertakings given on real estate matters, and made false and misleading representations to a client and staff.”
The settlement shows McDonough admitted to withdrawing nearly $8.1 million from his client trust account when he was not entitled to do so, between January 2021 and October 2022. He ultimately paid back just over $6 million.
McDonough told a society trust auditor he had a severe gambling addiction and that he had used the trust funds for gambling.
From April 2005 to October 2022, McDonough worked at a small firm with offices in Surrey, Langley and Vancouver.
On Jan. 1, 2024, McDonough discontinued his membership with the society, which nevertheless pursued an undertaking that McDonough will not engage in legal work for seven years and advise the B.C. society of any application to another law society should he apply for membership thereafter.
McDonough expressed remorse and from November to December 2022 he attended a treatment program.
“He recognized that his conduct caused immense harm to his clients, the firm, his profession, those with whom he worked in transactions with, and his family,” the agreement stated.
McDonough used holdbacks to gamble, ultimately creating a problem he could not hide.
As explained in the settlement: “His pattern was that when he needed funds to gamble with, to make payments to the government on behalf of clients, or to return funds to a client, he would identify a non-resident holdback file and issue a trust cheque to his personal law corporation for the entire holdback amount.
“When a request for funds was received, if the lawyer did not have funds to pay it, he identified another non-resident holdback file and issued a trust cheque to his corporation for the entire holdback amount for that file.
“The lawyer admitted that in every instance involving a non-resident vendor, he was in breach of undertakings imposed upon him by a solicitor or notary public.”
