LEO: Trust Accounts: Investing the Client's LE Op. 1265
Trust Accounts: Investing the Client's Escrow Funds in
August 14, 1989
You have indicated that Attorney A represents Development Company as well
as a number of real estate purchasers of units of the development. The
Development Company has instructed the attorney to explore alternate,
higher-interest earning methods for investing portions of the clients'
funds held in the trust account so as to defray some of the developer's
cost for interest paid to purchasers on deposits which are unavailable to
the developer. Generally, these are funds that are held in a trust account
between eight and twelve months, for example, as in the case of a
condominium under construction.
You wish to know whether it is ethically permissible for Attorney A to
invest portions of the clients' funds through a Virginia bank, on an
overnight basis, in Repurchase Agreements ("Repos") which are 100%
collatoralized by U.S. Government and Agency Securities, but not "insured"
by the Federal Deposit Insurance Corporation or Federal Savings and Loan
Insurance Corporation as prescribed in Disciplinary Rule 9-102(C). You
believe that the overnight investment feature of the "Repos" will utilize
the excess funds in the clients' trust account to their best advantage.
Disciplinary Rule 9-102(C) provides that the "bank" or "banking
institution" in which an attorney opens a trust account for deposit of a
client's funds must be authorized by federal or state law to do business
in the state of Virginia and its deposits must be insured by an agency of
the federal government. (emphasis added)
In the view of the Committee, the strict language of the rule would not
permit investing clients' funds in an Automatic Investment Management
service as it is not a "bank" account as defined in DR:9-102(A) and (C).
The use of a cash management service which would invest clients' funds in
Repurchase Agreements as an alternative to depositing such funds in "one
or more identifiable bank accounts ... in which deposits are insured by an
agency of the Federal Government" would be improper and violative of the
Code of Professional Responsibility.
Committee Opinion August 14, 1989
See also LE Op. 1417.