Lawyer who misappropriated $8M from clients to feed gambling addiction banned from law for 7 years

A Vancouver real estate lawyer who admitted to misappropriating more than $8 million from client trust funds to feed his gambling addiction has been banned from practising law for seven years.

Russell Sean McDonough signed a consent agreement with the Law Society of B.C. last week, admitting to professional misconduct in 34 instances of misappropriation over about 22 months, according to a summary posted online.

It says McDonough admitted he started taking the money from his clients beginning in 2021 after amassing a substantial amount of debt from gambling and exhausting all of his credit sources.

He said he would issue trust cheques to his personal law corporation and then gamble the funds, believing he'd have a "breakthrough" win that would cover both his debts and the trust fund shortfall.

McDonough attempted to explain his thought process in a letter to the law society on April 14, 2023, explaining that his life had become "completely consumed" by gambling.

"I appreciate that my thought processes that resulted in the actions and the conduct itself do not seem rational. However, at the time I was making these decisions, I felt as if I had no other choice. It was true compulsion. Every withdrawal I made from the firm's trust account and every dishonest act was a result of my gambling activity," he said.

McDonough described his conduct as inexcusable and said he intends to be accountable to everyone who was affected.

"I am full of remorse and shame over what I have done. In examining my behaviour to prepare these responses, I was appalled," he wrote.

Missing funds uncovered during audit

McDonough did manage to pay back more than $6 million of the misappropriated funds, but only $308,000 of that was from gambling winnings, according to the summary. The Lawyers Indemnity Fund, which provides liability coverage for lawyers in B.C., covered the remaining $2 million to reimburse the clients.

The law society's summary of events says that McDonough's misconduct was discovered in October 2022 during an audit of his firm's books. He lost his job after the principal of the firm learned about his actions.

McDonough told the law society that his usual pattern of misappropriation involved holdback funds related to property sales by non-Canadian residents.

According to the summary, he said that when he needed money, he would find a non-resident holdback file and write a cheque to his corporation for the entire amount. When a request came for the funds and McDonough didn't have the money to pay it back, he would clear out another holdback file.

In one case, McDonough admitted to doctoring documents to obtain a client's signature, falsely claiming that there was a statutory $50,000 holdback from a recent property sale, so that he could misappropriate the funds.

McDonough was officially diagnosed with a gambling disorder in October 2022, and hasn't gambled since then, the summary says. He attended residential treatment later the same year.

The doctor who diagnosed him told the law society that gambling addiction can "cause an otherwise honest person to misappropriate client funds."

McDonough has been a non-practising lawyer since his misconduct was revealed, and became a former member of the law society as of Jan. 1. He will not be allowed to submit an application for reinstatement with the Law Society of B.C. or any other Canadian law society until Aug. 1, 2030.