A Bounced Escrow Check Was an Alarm Nobody Heard.

The new case begins with a missing signal

Reuters reported on September 10 that Albert Togut, the court-appointed Chapter 7 trustee of Kossoff PLLC, sued JPMorgan in the U.S. Bankruptcy Court in Manhattan. The complaint alleges that the bank knew Kossoff was commingling and misappropriating client money and nevertheless failed to prevent, stop, or report the conduct. The trustee's sharpest allegation concerns a check from a client account that bounced in 2015. He contends the report required by New York's banking rule was never made and that an investigation then would have stopped the scheme.

Those are the trustee's allegations, not findings. JPMorgan had not publicly responded when Reuters published its report. Bank liability may turn on facts and legal questions that are not yet developed in public, including the account's designation, the instrument and available funds, the bank's reporting records, causation, defenses, and whether the trustee may recover the claimed losses under the asserted causes of action. It would be irresponsible to convert a complaint into a verdict.

Kossoff's own criminal case is different. He pleaded guilty in December 2021 to one fraud count and three grand-larceny counts and was sentenced to as much as 13 and a half years in prison. Reuters reports that prosecutors accused him of taking more than $14.6 million from at least 35 people and companies. The new civil case asks who, beyond the lawyer who stole the money, had a defined role in a system built to detect a shortage before more clients were harmed.

New York made the bank part of the warning system

Attorney trust accounts are not ordinary business checking accounts with a more dignified name. New York Rule of Professional Conduct 1.15 requires lawyers to preserve client and third-party property, keep it separate from the lawyer's own property, maintain specified records, and account for funds. Part 1300 adds an external control. Attorney special, trust, and escrow accounts may be maintained only at banking institutions that have agreed to provide dishonored-check and overdraft reports.

The reporting trigger is deliberately mechanical. When a properly payable instrument is presented against an attorney special, trust, or escrow account with insufficient available funds, the bank must report the event. The rule applies whether the bank ultimately honors the instrument or dishonors it. The report must identify the institution, lawyer or firm, account, dates, and amount of the overdraft, and it must be mailed to the Lawyers' Fund within five banking days.

The timing matters in this case. The current rule was broadened effective April 1, 2021 to cover overdrafts even when a check is paid. In 2015, the reporting trigger was narrower: checks returned for insufficient funds. The Lawyers' Fund's own explanation of the change confirms that the earlier bounced-check rule had existed since 1992. The trustee alleges a check actually bounced in 2015, not merely that the account dipped below zero under today's expanded standard.

The next step is equally important. The Fund holds the report for ten business days so a bank can withdraw one caused by inadvertence or mistake. A later deposit that cures the shortage is expressly not a reason to withdraw it. After the hold, the Fund forwards the report to the appropriate attorney disciplinary committee for whatever inquiry or action that body considers appropriate.

That sequence respects both urgency and fairness. An insufficient-funds event does not establish misappropriation. Bookkeeping errors, bank mistakes, deposited items that have not cleared, and other innocent explanations exist. The system does not impose discipline automatically. It preserves the signal, allows genuine errors to be identified, and moves the question to an institution that is not controlled by the account holder.

A cure can restore the balance without explaining the shortage

The rule's refusal to treat a later deposit as a cure for reporting purposes is not bureaucratic stubbornness. Replacing missing money answers one question: whether the account is presently funded. It does not answer why the account was short, whose money supplied the replacement, whether client ledgers agree with the bank balance, or whether another account now bears the loss.

That distinction matters inside law firms as much as it matters to banks. A negative balance that disappears the next morning should not disappear from management's attention. Nor should an unreconciled difference, an unexpected transfer between client matters, a check issued before a deposit clears, a stale check, a negative client ledger, or a payment to an unfamiliar recipient. Some exceptions will be innocent. Controls exist because innocence should be demonstrated through records rather than assumed from the return of a positive balance.

Trust-account supervision fails when the same person can create the transaction, explain the exception, move replacement funds, and close the inquiry. Seniority does not solve that concentration of authority. Reputation does not solve it. A partner who controls the client relationship and the money can be harder to question precisely because the firm has organized itself around trust in that individual.

The appropriate response is not to make every disbursement slow or to presume dishonesty. It is to make exceptions visible to someone with both independence and authority. Three-way reconciliation should compare the bank statement, trust-account journal, and total of individual client ledgers. Disbursements should be tied to a matter and authorized purpose. High-risk transfers and changes to payment instructions should receive separate review. The person reviewing should see the underlying records, not merely a representation that the account reconciled.

Complaint-driven oversight arrives after someone recognizes the loss

The New York City Bar's Professional Discipline Committee recently examined the state's trust-account oversight mechanisms. It identified two common detection tools already used in New York: insurer notices to settlement claimants and bank reports of dishonored checks or overdrafts. It also described the structural limit. In New York, trust-account audits generally begin after a client complaint or a disciplinary committee's receipt of a bank report. If neither signal arrives, the system may remain quiet.

The committee argues for proactive auditing. Its report says the First and Second Judicial Departments have rules authorizing random audit programs but have not implemented them. It reviews programs in other states that examine bank records, client ledgers, journals, reconciliations, and related controls. In February 2026, the City Bar noted that legislation had been introduced in New York to establish a random audit program for law-firm financial accounts.

Reasonable lawyers can disagree about cost, selection, confidentiality, privilege, staffing, and whether random audits are the best use of disciplinary resources. A poorly designed program could become expensive theater or punish technical mistakes without improving client safety. But the policy problem is real. Complaint-driven oversight often requires a client to know that money is missing, understand that the problem may be professional misconduct, and reach the correct regulator. Dishonored-check reporting is one of the few automatic signals that does not depend on the victim understanding the system.

That is why the allegation in the JPMorgan case matters beyond one bank and one convicted lawyer. If the trustee proves that a report required in 2015 was not sent, the failure would not be a paperwork defect at the edge of the story. It would be the loss of the independent trigger New York chose to compensate for the limits of complaint-driven enforcement. Whether that loss legally caused $18.5 million in damages is a question for the case. Whether the trigger matters should not be.

Client protection needs more than confidence in the lawyer

Legal practice depends on trust, but trust-account systems should not depend on confidence alone. The client often cannot see the ledger, the bank cannot see the legal entitlement behind every transfer, and a disciplinary authority cannot investigate a problem it never learns about. Protection therefore has to be distributed. The firm keeps matter-level records and reconciles them. The bank reports a defined exception. The Lawyers' Fund routes the report. The grievance committee decides whether inquiry is warranted. Clients receive accounting and notice. Each participant sees only part of the picture, so each must perform its narrow role.

Law-firm leaders should test that chain before a shortage occurs. They should confirm that every trust account is properly titled and identified to an approved institution; that the institution's records classify it correctly; that statements and exception notices reach more than one responsible person; that reconciliation is timely and reviewed; and that a bounced item cannot be quietly cured by the person whose conduct created it. Firms should also know who contacts outside ethics counsel, the bank, the insurer, disciplinary authorities, and affected clients when records reveal a genuine problem. The governing duties and disclosure decisions will depend on the jurisdiction and facts, but improvisation is a poor control for client money.

The trustee's lawsuit may succeed, fail, settle, or narrow substantially. It should not be used to declare banks the general supervisors of lawyers. Part 1300 gives banks a much more precise responsibility: transmit a defined signal from a specially designated account. The discipline system then decides what the signal means.

A bounced escrow check is not proof of theft. It is proof that the early-warning system has work to do. The disturbing question in the Kossoff story is not merely how one lawyer could betray so many clients. It is how long a protection system can remain silent when its alarm has already been pulled.

The trustee's allegations against JPMorgan are unproven, and the bank had not publicly responded as of Reuters' September 10 report. This article describes New York's general trust-account framework and is not legal advice about a particular account, report, claim, or disclosure obligation.