Clinton-based attorney Paul F. Clausen is facing multiple ethics violations filed by the state's Office of Attorney Ethics for allegedly using a trust account to hid income from creditors during a time when he filed for bankruptcy.
CLINTON - A Hunterdon County lawyer is facing multiple ethics violations filed by the state's Office of Attorney Ethics for allegedly using a trust account to hid income from creditors during a time when he filed for bankruptcy.
The violations came to light when TD Bank informed the office that Clauson's attorney trust account was overdrawn by $67.10.
In January, Clauson also received a reprimand from the state Supreme Court for failing to file a lawsuit on behalf of a client and not paying a settlement with the client in a timely fashion.
According to a five-count complaint filed on Sept. 27, an audit by the office revealed 77 occasions when attorney Paul F. Clausen allegedly "withdrew his fees directly from the trust account rather than issuing a check payable to his business account."
The complaint was first reported on Random Notes on NJ Government on Thursday, a website run by New Jersey watchdog John Paff.
State ethics law requires attorneys to deposit and withdraw their fees from an attorney account, rather than from a trust account. The latter is only to be used to hold money for others, such as clients. The office performed an audit on Clauson's accounts from March 1, 2014, to April 23, 2015, according to the complaint.
Attempts to reach Clauson as of Friday morning were unsuccessful.
Clausen's "deposit of his earned and unearned legal fees in his trust account and subsequent cash withdrawals therefrom was intended to insulate (his) personal assets and to attempt to place them beyond the reach of his creditors," it was stated in the complaint.
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According to an analysis of his income in 2014, done during an audit by the office, Clausen, who has been an attorney since 1982, withdrew some 46 percent ($56,040) of his revenue in the form of cash from his trust account.
"Records on file with the court and interviews with creditors confirm that there were numerous attempts to collect on their debts by levying on respondent's personal and attorney business accounts as well as seizing his office equipment and personal vehicle both prior to and during the period covered by the demand audit," according to the complaint.
One client had a default judgement totaling $29,254 against Clauson because he had not filed a personal injury lawsuit on her behalf in 2010. The client tried to levy Clauson's attorney bank account in order to recover the funds, but found the accounts empty, according to the complaint.
In January of this year, Clauson received a reprimand from the state Supreme Court for failing to file the lawsuit. Clauson allegedly agreed to pay the client $25,000 and claimed he had made multiple payments to her prior to a Disciplinary Review Board hearing for failing to file the suit, it was stated in the complaint. It is also alleged that Clauson had stopped responding to his client, resulting in the legal action being taken against him.
"The first payment, in the amount of $1,000, was made in June 2014, after the hearing before the District VIII Ethics Committee," according to the complaint. "The second payment, in the amount of $24,000, was not made until June 4, 2015, after the DRB hearing."
In 2013, Clauson was also given a reprimand for "practicing law while ineligible for failure to pay the annual attorney assessment to the New Lawyers' Fund for Client Protection."
The landlord of the building Clauson was renting an office in also could not collect unpaid rent through Clauson's attorney bank account and seized his 2004 Lexus ES330, selling it at public auction in September 2014, according to the complaint.
Within a month, Clauson allegedly deposited $4,500 as a retainer into his trust account and, on the next day, withdrew "$4,100 from his trust account in the form of cash and deposited it into the bank account of his client, Park Avenue Auto Lot, to be applied as down payment toward the purchase of another car."
According to the complaint, attempts by the landlord to collect rent from April to December 2014 "coincided with respondent withdrawing significant amounts of cash from his trust account on an almost monthly basis."
On Jan. 8, 2015, TD Bank informed the office that Clauson's trust account was overdrawn by $67.10. The audit allegedly revealed the overdraft was caused when Clausen deposited $250 from a case on Jan. 6 and, on the same day, withdrew $250 for fees.
During the April 23 audit, which Clausen was present for, he stated he had never filed for bankruptcy, however, records showed he had done so on Feb. 3, 2015, according to the complaint. Records showed he owed more than $500,000 to creditors. The bankruptcy had been dismissed by the court on April 17 because Clausen had failed to make payments to the trustee and failed to resolve trustee and creditor objections.
Also during the April 23 audit, Clausen denied taking cash withdrawals from his trust account, but bank statements showed "multiple instances during the audit period of respondent taking $100 cash withdrawals directly from his trust account," it was stated.
On Aug. 6, during a continuation of the audit, Clausen reportedly said he took cash from the trust account because his business account had been frequently overdrawn during the audit period. He said he did this to avoid bank overdraft fees charged to his attorney account, according to the complaint.
Clauson also "unequivocally denied having large debts or that he was trying to hide money from anybody. He also stated that there were no liens or garnishments against his business account."
According to the complaint, Clauson failed to list of all of his creditors when he filed for bankruptcy, specifically two personal loans totaling approximately $216,800 given to him in 2011 and 2012. During the audit, he stated he only filed the bankruptcy petition to stop a Hunterdon County Sheriff's sale of his residence.
"The purpose of the bankruptcy code is to afford the honest but unfortunate debtor a fresh start, not to shield those who abuse the bankruptcy process in order to avoid paying their debts," it was stated in the complaint. "Moreover, debtors are not allowed to pick and choose the debts and creditors that they list in bankruptcy."
Craig Turpin may be reached at cturpin@njadvancemedia.com. Follow him on Twitter @NJeditor. Find NJ.com on Facebook.