Investigation details embezzlement at Sumner title company

Investigation details embezzlement at Sumner title company


Receiver's report highlights $2.5M shortcoming; a luxury boat buy and a 13-month delay in reporting bank error.

By Sam Claycombe
Nashville Post

7/30/2009 7:53 AM — Documents filed with the Sumner County Courthouse this week reveal how Chris Forsythe, owner of bankrupt Forsythe Title & Escrow, may have stolen as much as $2.5 million from his clients.

The report, filed by court-appointed receiver John McLemore, accuses Forsythe of embezzling funds from his company’s escrow account, a trust fund that holds clients’ money until transactions are completed.

Forsythe Title had seven regional offices that at one time handled around 250 real estate closings a month. The McLemore account states that Forsythe told his staff he was making one electronic transfer from the escrow account into the operating account each week to save time. Instead, he would wrap the week’s checks with a rubber band and write a contrived total on the top check.

The report said the true total and the contrived total were often similar: For instance, if the true total was $15,234.56, the contrived total might be $22,234.56. No one ever questioned the amounts written on the top check in each bundle.

“He was making it appear that the weekly withdrawal from the escrow account was legitimate,” said McLemore.

Over time, Forsythe got tired of bundling and started making false withdrawals by electronic transfer, added McLemore. Eventually, Forsythe’s escrow account went into overdraft several times because he took too much money out of it for personal use.

“Overdrafting should never happen because anyone who operates an escrow account has a buffer amount to prevent it,” stated McLemore.

Real estate title companies are not required to register their escrow accounts with a third party such as a professional organization or a government agency. In fact, the only escrow accounts that must be registered are those of attorneys.

“If our escrow account went into the negative just $5, we would have to sit down and explain what caused it and why with state officials,” said McLemore, an attorney with Garfinkle McLemore & Walker.

Escrow account abuse is not new in Tennessee. Barry Stokes of the former 1Point Solutions used a 401(k) and cafeteria plan escrow account to steal $19 million from 30,000 victims.

Both men went into overdraft at some point during their schemes, but because no agency was notified, they were able to continue without explaining the cause of the discrepancy. According to McLemore — who has also worked on the Stokes case — closer oversight of escrow accounts would help prevent the kinds of white-collar crimes in which they are used.

McLemore’s report says Forsythe continued siphoning money from his firm’s escrow account until 2007, when Lawyers Title Insurance, the underwriter for his company, learned of the funding shortage and decided to investigate. The Jacksonville-based national firm eventually filed suit in January 2008 and has since paid almost $3 million to those affected by the disappearance of Forsythe funds.

One of the more revealing facts of the case is that Chris Forsythe took 13 months to identify a bank error that left him $660,000 short. McLemore believes he waited so long to report the error because he did not want anyone assisting with bank account reconciliations.

According to bank statements, on April 2, 2003, Forsythe transferred $75,500 from his company’s account to his personal bank account. On the very same day, he borrowed additional money to buy a luxury boat.

Over the course of the investigation, the receiver shared information with the U.S. Attorney’s Office and the Sumner County District Attorney. Neither office has filed charges to date and neither would comment on this case while their investigations are still active.

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