In re Warhaftig

Attorney Warhaftig (defendant) ran a real estate practice. Warhaftig regularly withdrew money from clients’ trust account balances for himself, expecting to replace the money from fees he anticipated earning through closings for other clients. Warhaftig maintained a separate ledger of anticipated fees, identifying which fees were actually earned and which fell through as a result of transactions failing to close. When a transaction failed to close, Warhaftig would replace withdrawn trust account money with his own personal funds. Warhaftig received advance notice of an unscheduled financial-compliance audit and contacted his accountant. The accountant advised Warhaftig to replace missing trust account funds before the audit. Warhaftig withdrew money from his sons' trust accounts and deposited it into his trust account. The auditor discovered Warhaftig’s trust account withdrawals but could not discern which clients were affected due to the size of Warhaftig’s practice and the ongoing cycling of funds in and out of Warhaftig’s trust account. The compliance audit led to the filing of professional misconduct charges and a hearing before an ethics committee. At the committee hearing, Warhaftig testified that he began withdrawing client trust funds to compensate for financial strains resulting from a decline in his practice, his wife’s diagnosis with cancer, and his son’s need for costly psychiatric treatment. Warhaftig stated that he never caused anyone to lose money as a result of his trust account withdrawals and always covered required disbursements. Warhaftig also testified that he knew it was wrong to withdraw client trust funds without permission but did not feel that he was stealing, because he knew that his recordkeeping system would ensure that no clients were harmed by his conduct. Warhaftig’s case proceeded to review by the Disciplinary Review Board (Board). The Board departed from legal precedent that established disbarment as the mandatory penalty for knowingly misappropriating client funds. Instead, the Board recommended public discipline. The Board distinguished Warhaftig’s case on the premise that Warhaftig had a colorable interest in the funds he withdrew. The Board’s decision came under review by the Supreme Court of New Jersey.