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Jacob A. Korn (WSBA No. 28332, admitted 1998), of Seattle, resigned in lieu of disbarment, effective December 1, 2011. While not admitting to the misconduct, Mr. Korn admitted that the WSBA could prove, by a clear preponderance of the evidence, the violations set forth in the Statement of Alleged Misconduct, and that proof of such violations would suffice to result in his disbarment. These violations include failure to properly maintain real estate closing funds, knowingly disobeying an obligation under the rules of a tribunal, failure to properly supervise non-lawyer employees, commission of a criminal act, and violation of a court order. According to the Statement of Misconduct:
Mr. Korn was a solo practitioner in the area of misdemeanor criminal defense. Prior to 2005, Mr. Korn charged clients only flat fees and did not have a trust account. In 2005, Mr. Korn, who had no prior experience in
real estate closings or real estate law, formed “Escrow Company” with one of his clients (Mr. B). Mr. B introduced Mr. Korn to Mr. S (a real estate broker) and to Mr. S’s wife (a mortgage broker). Mr. Korn, Mr. S, and Mrs. B became the governing officers in Escrow Company, which was incorporated in Washington. Mr. Korn was named president with a 20 percent ownership interest, while Mr. S and Mrs. B each held a 40 percent interest. The incorporation application, prepared by Mr. Korn, listed Escrow Company’s place of business as Mr. Korn’s law office in Renton.
After several months, Escrow Company, along with Mr. Korn, moved to a suite of offices in Bellevue. Mr. Korn conducted his misdemeanor practice and his work as president of Escrow Company out of an office in the suite leased by Escrow Company. Mr. B suggested to Mr. Korn that Escrow Company should open an IOLTA trust account using Mr. Korn’s law license, rather than apply for an escrow business license. A major purpose of having Mr. Korn appointed as president of Escrow Company was to use his law license to avoid having to comply with licensing requirements and regulation. On January 9, 2006, Mr. Korn,
along with Mr. S and Mrs. B, opened a lawyer trust account under Escrow Company’s name. All three were signatories on the account. Mr. S and Mr. Korn also opened a business
account for Escrow Company.
Between 2006 and 2008, approximately 300 million dollars was processed through the trust account. Mr. Korn did not supervise Mr. S and Mrs. B, who wrote almost all the checks and wire transfers on the trust account. Mr. S controlled the trust account. Mr. Korn did not review the trust account statements in any detail, supervise Mr. S’s management of the account, or provide any significant legal services to Escrow Company. While serving as president, Mr. Korn learned how to perform escrow closings and conducted between 20 and 30 closings over a three-year period. Escrow Company had several other non-lawyer employees, none of whose activities were supervised by Mr. Korn.
In early 2008, the FBI began investigating Escrow Company, along with two mortgage companies affiliated with Mr. B and Mrs. B. The United States Post Inspection Service (“Inspection Service”) became involved in the investigation and identified at least 69 loan files from different lenders in which the loan application and supporting documentation, which were submitted by the two mortgage companies, included false and fraudulent information. This figure amounted to 87 percent of Escrow Company’s closings reviewed by the Inspection Service.
The false information in the files included misrepresentations in appraisal values and inflating or falsifying the employment histories and income of the purchasers. In many of Escrow Company’s transactions, Mr. S and Mr. B recruited “straw buyers” to “flip” properties, a process which created more transaction fees for Escrow Company and is used to deceive lenders as to the real purchasers. The Inspection Service reviewed Escrow Company’s trust account records and found suspicious payments that were unrelated to the escrow transactions. They also found several files contained multiple HUD-1 settlement statements for the same escrow transaction created for the purpose of deceiving parties as to the true nature of the transaction. An Internal Revenue Service special agent reviewed Escrow Company’s accounts and found numerous disbursements to mortgage companies, over three million dollars in disbursements for “settlement agent fees,” and millions of dollars in personal payments to Mr. and Mrs. S, and to Mr. B. There were also payments that were clearly unrelated to the loan transactions being closed by Escrow Company.
On July 9, 2008, Mr. Korn was personally served with a subpoena duces tecum for his deposition in a lawsuit brought by one of the “straw buyers” against Escrow Company and related entities. The subpoena required
production of two specific escrow files as well as documents in Mr. Korn’s custody. After failing to appear for his deposition, Mr. Korn eventually appeared on July 22, 2008, but did not produce the subpoenaed documents.
Mr. Korn promised to produce the documents the next day, but failed to do so. The presiding judge found Mr. Korn in contempt of court and ordered him to produce “all the documents” identified in the subpoena by August 18, 2008, to purge his contempt. Mr. Korn failed to produce complete escrow files. After a second contempt hearing, the judge instructed opposing counsel to file a grievance with the Bar Association and further ordered terms against Mr. Korn if the remaining documents were not produced that day. Following issuance of that order, Mr. Korn did produce the documents.
After his deposition, Mr. Korn was on notice that Mr. S was using client funds in the trust account for improper purposes, but continued to permit him to manage the account. Escrow Company ceased operations on December 31, 2008. By the end of 2008, Mr. Korn had earned more than $200,000 as an owner of Escrow Company.
On January 27, 2009, a lending institution filed suit against Mr. Korn, Escrow Company, and numerous other parties, alleging that defendants had created a criminal enterprise to defraud lending institutions. In early 2009,
a federal magistrate authorized searches of Escrow Company’s offices. Indictments were issued against Mr. and Mrs. B, Mr. and Mrs. S, and other individuals associated with their companies, who all pled guilty to various
criminal fraud charges and were sentenced to prison terms of varying lengths. Mr. Korn was not indicted with these defendants. On September 2, 2010, Mr. Korn pled guilty to two misdemeanors: willful failure to file tax returns for 2008 and failure to file IRS 1099-S forms, which are required of attorneys responsible for closing real estate transactions. The guilty plea states that both incidents were the result of “willful failure” to comply with U.S. tax laws. Mr. Korn was sentenced to two months in prison and four months’ home confinement.
Mr. Korn violated former RPC 1.14 and current RPC 1.15A(a), requiring a lawyer to ensure that all funds held by a lawyer incident to the closing of any real estate or personal property transaction are held and maintained as set forth in the rules; RPC 3.4(c), prohibiting a lawyer from knowingly disobeying an obligation under the rules of a tribunal except for an open refusal based on an assertion that no valid obligation exists; RPC 5.3(b), requiring a lawyer having direct supervisory authority over a non-lawyer to make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the lawyer; RPC 8.4(b), prohibiting a lawyer from committing a criminal act that reflects adversely on the lawyer’s honesty, trustworthiness, or fitness as a lawyer in other respects; and RPC 8.4(j), prohibiting a lawyer from willfully disobeying or violating a court order directing him or her to do or cease doing an act which he or she ought in good faith to do or forbear.
Kevin M. Bank represented the Bar Association. Mr. Korn represented himself. |