Alex Murdaugh: From lawyer to fraudster

The following article was originally published in The Montreal Lawyer and has been re-published with consent.

Alex Murdaugh, once a renowned personal injury lawyer in the U.S., has put a definitive end to his family’s legacy in South Carolina’s 14^th Circuit District. While Murdaugh has become notorious for the murder of his wife and son, the various federal financial crimes he has committed have been somewhat overshadowed.

According to the press release from the U.S. Attorney’s Office, District of South Carolina, dated April 1, 2024, Murdaugh has been sentenced to 40 years in prison for 22 federal financial crimes, including conspiracy to commit wire fraud and bank fraud, bank fraud, wire fraud, and money laundering. He has also been ordered to pay $8.8M USD in restitution to his victims.

While the murders have been the subject of focus in various made-for-TV documentaries, there are important lessons that can be learned from the financial crimes committed. This article aims to shine a light on the case, including some of the key schemes undertaken by Murdaugh.

Key schemes

• Diversion of client settlement funds
• Diversion of insurance settlement funds for personal use
• Diversion of payments from other law firms intended for Murdaugh’s own law firm

Case background

Alex Murdaugh was heir to a legal dynasty as he followed in his family’s footsteps, serving as an attorney for the 14th Circuit Court. However, in 2023 he found himself in the very same court room where he was convicted for killing his wife and one of his sons. He pleads not guilty, but state prosecutors argued he shot the pair at close range with a rifle and shotgun. Prosecutors said in court that he murdered his wife and son to distract from his misdeeds and gain sympathy.

He conceded he had lied several times to investigators, citing a long-standing addiction to prescription painkillers that made him "paranoid." After less than three hours, a jury found him guilty on all charges. He also separately faced a wave of financial charges, including allegations he embezzled millions from the family-founded law firm at which he was a partner.

Diversion of client settlement funds

Palmetto State Bank

Murdaugh’s law firm had trust accounts set up to hold client settlement funds in Palmetto State Bank, a small, local bank in South Carolina. Murdaugh took advantage of his personal and familial ties to Russell Laffitte of Palmetto State Bank and Laffitte in turn took advantage of his position at the bank to assist Murdaugh. With Laffitte’s help, Murdaugh was able to divert funds from clients’ trust accounts without their approval.

In one case, Murdaugh served as the personal injury lawyer for two sisters that survived a car crash. With Laffitte appointed as conservator of the multi-million-dollar settlement received by the sisters, Murdaugh was able to divert over $1M from their settlement. Funds from other client accounts at Palmetto State Bank were then used to cover up the funds missing from the sisters’ trust account. It is interesting to note that as of December 2024, Laffitte is scheduled to be back in court, facing multiple state charges filed against him.

Forge

When clients of Murdaugh’s firm opted for structured settlements instead of lump-sum settlements, they often worked with third parties to set up structured settlement plans. One such entity was Forge Consulting, LLC in Atlanta, Georgia. Murdaugh set up a phony bank account named “Richard A. Murdaugh Sole Prop DBA Forge,” which was meant to appear to be related to the true Forge Consulting entity, which legitimately provided services to Murdaugh’s law firm. Over the span of approximately four years, Murdaugh instructed paralegals to issue cheque payments to Forge, which were allegedly part of structured settlements for client accounts. In fact, millions of dollars were being diverted to the account opened by Murdaugh for his personal use.  

Diversion of settlement funds

After Murdaugh’s housekeeper died under what was apparently considered suspicious circumstances on his property, he instructed her surviving family members to file a claim against him so they could collect on his insurance policy. One of Murdaugh’s friends acted as the personal injury lawyer in the case and the estate was ultimately awarded a $4.3M USD settlement. However, the housekeeper’s heirs were not aware of the settlement and did not receive the proceeds as Murdaugh was able to divert most of the insurance settlement for personal use.

Diversion of funds intended for Murdaugh’s law firm

Murdaugh worked on a case with one of his close friends from law school, who worked at another firm in South Carolina. The pair ultimately won a $5.5M USD settlement for their client. When it came time for Murdaugh’s firm to receive their portion of the legal fees, Murdaugh requested that the cheque be made payable directly to him for the portion of attorney fees.

How did Murdaugh get away with the schemes?

• Trust/long-term relationships both within his own law firm and at other institutions
• Position and power at his family’s law firm (lower-level staff such as paralegals feared being reprimanded or losing their jobs if they raised questions about Murdaugh’s conduct)
• Lack of appropriate internal controls at the law firm (no review, no reconciliation of accounts, single signature rather than dual signature)

Do you suspect your firm or clients have fallen prey to potential fraud — or want to reduce the risk of this happening?

• React in a timely manner
• If uncertainties or suspicions arise, whether due to potential internal or external fraud, it is vital to have a qualified and experienced team, including forensic accountants to investigate and to help reduce fraud risk in the organization.
• Ensure proper anti-fraud controls are in place and perform periodic reviews and updates to such controls (such as proper segregation of duty with related oversight, regular reconciliations, whistleblower hotline)
• Perform periodic forensic audits
• Raise awareness through education
• Review insurance policies for potential fraud coverage