How a lawyer was left free to steal $1.5 million from clients

John Kotsifas appeared to be a typical suburban lawyer, grinding away his hours handling wills and conveyancing in a small office above a Northcote massage parlour.

At work, Kotsifas could have been cast as Dennis Denuto, but he didn't live like the small-time solicitor from the film The Castle.

Kotsifas owned a $1.8 million mansion in upmarket Balwyn North that was undergoing a lavish renovation. He wore flash suits, sent his children to private schools, holidayed overseas and had the pick of luxury cars.

Warning signs that Kotsifas could be bank-rolling this opulent lifestyle by pilfering from the clients of J Kotsifas & Associates were visible to authorities well before the firm finally collapsed in 2015 - an oversight that raises serious questions about the way the legal fraternity regulates and polices itself.

Allegations of serious professional and financial malfeasance had dogged Kotsifas for years. His disciplinary record was already marred by 10 convictions for bad conduct and he was under active investigation for dozens of other complaints.

Yet Kotsifas was allowed to continue to practise, ultimately stealing more than $1.5 million from dozens of clients before the Legal Services Board finally moved to seize control of his firm.

And Kotsifas is not an anomaly in the legal industry. Rather, he's one of numerous solicitors who have been given second, third and fourth chances by a disciplinary system that appears reluctant to end the career of one of its own.

The troubles

John James Kotsifas was admitted to legal practice in 1993, and for nearly two decades his career seemed typical for a small suburban solicitor.

The trouble appears to have begun in 2012, when Kotsifas was allegedly caught by Justice Clyde Croft misleading the Supreme Court about the validity of documents filed in a lawsuit over a property dispute. The veteran jurist called his behaviour a "wilful disregard of known facts and law which ??? constitutes serious misconduct and a serious dereliction of duty".

Kotsifas was referred for investigation to the Legal Services Board and Commissioner, which are responsible for regulating the legal profession.

But this is an administrative, not a criminal, system. Misleading or deceiving the court can be classified as "professional misconduct", rather than an act of perjury; taking money from a trust account is "causing a deficiency" or "making a withdrawal without reasonable excuse", instead of theft or fraud.

Kotsifas was charged with three counts of professional misconduct and he pleaded guilty. He was ordered by the Victorian Civil and Administrative Tribunal to undertake "professional development" and mentoring.

When sentencing him in December 2014, VCAT senior member Jonathan Smithers said he had the power to suspend or cancel Kotsifas' licence, but baulked at the "devastating effect" that could have on his practice and finances.

Nevertheless, by that time, Kotsifas was already facing prosecution in a second matter, and was under investigation for a third series of complaints about his conduct.

In July 2015, Kotsifas pleaded guilty to seven charges of unsatisfactory conduct and professional misconduct in a second VCAT prosecution, after he was caught mismanaging client money and failing to keep proper financial records. It was not the first time the regulator had identified problems with his trust account practices.

The legal commissioner argued Kotsifas should lose his licence. It was a petition the court disregarded.

Court decisions in other disciplinary matters involving the legal fraternity show there is a reluctance in the system to strip a fellow "officer of the court" of their ability to work, particularly permanently.

Lawyers who have admitted to acts of forgery have received reprimands and fines; incidents of serious and repeat financial misconduct have been punished by multiple suspensions.

VCAT member Gerard Butcher, while saying that protection of the public was the primary role of the tribunal, decided Kotsifas had put "measures in place" to ensure it didn't happen again. He was fined $20,000, and ordered to take another development course and employ an accountant.

"Public protection can be satisfied by ensuring that the measures which have been taken by Mr Kotsifas remain in place and that he achieves a greater understanding of his responsibilities in relation to the conduct of a trust account," Mr Butcher said.

But at the same time VCAT was praising Kotsifas for his expressions of remorse and newfound diligence, Kotsifas was refusing to co-operate with the latest investigation into his conduct, ignoring requests from the regulator for information and documents.

That investigation was launched into new allegations of forgery and misappropriation reported to the LSB and uncovered by audits nearly 18 months earlier.

The end game

One of Kotsifas' last acts as a solicitor appears to have been stealing $10,000 to pay for a marble bath.

The "couture" tub was part of a lavish renovation of his dream home, a project underwritten by pilfering his firm's trust account during the same period in which he had been convicted on 10 charges of bad conduct in two separate court proceedings and was under active investigation for dozens of new matters.

The Legal Services Board has the power to refuse to renew a lawyer's practice certificate or take control of a legal firm when it suspects inappropriate conduct, independent of any ruling by VCAT.

Yet it held back.

Even after Kotsifas' second round of convictions in mid-2015, when VCAT again refused to strip his licence, the board waited more than three months before acting on its own initiative.

Why Kotsifas was allowed to continue to practise is a question Legal Services Commissioner Michael McGarvie said he could not answer because of legislative restrictions governing the board's work.

"What I can say is we put a lot of our resources into identifying risky behaviour," Mr McGarvie told Fairfax Media. "We are acutely aware of our obligations to protect clients and monitor lawyers to ensure they are meeting their ethical and legal obligations.

"When disciplinary proceedings have been filed we sometimes wait for the court to make its decision first."

It wasn't until late October 2015 that the Legal Services Board voted to install an external manager at J Kotsifas & Associates, effectively removing Kotsifas from control of the firm.

The board had decided that Kotsifas was no longer "a fit and proper person" to practise.

But by that time, more damage had been done.

Investigations conducted by solicitor and insolvency specialist Neil Hannan revealed $1.5 million was missing from the firm's accounts, with the funds spent on a "luxurious lifestyle" for Kotsifas and his family.

Mr Hannan found Kotsifas had been taking money right up until the Legal Services Board intervention.

Kotsifas hadn't been subtle. Payments were made directly from the firm's accounts to builders, credit card companies and luxury car financiers.

The investigation also uncovered suspect trust account transactions over several years that went apparently undetected by the mandatory trust account audit that lawyers must undergo every year.

Past Legal Services Board inspectors and his court-mandated mentors and accountants had also missed the fact that Kotsifas' client records were in disarray.

"Mr Kotsifas told me that he worked most of his files from memory and did not keep detailed file notes," Mr Hannan stated in an affidavit.

There have also been allegations that Kotsifas engaged in other acts of malpractice and fraud.

In a separate court proceeding, Kotsifas has been accused of falsely witnessing loan documents and providing legal advice to a couple who say they have never met him.

Mr McGarvie said the Legal Services Board is not permitted to publicly disclose the number of complaints made about Kotsifas or the outcome of those complaints.

Clients found to have lost trust money or property as a result of dishonest or fraudulent behaviour by a lawyer can be compensated through a special fund.

An affidavit filed by a board official in a court proceeding against Kotsifas reported that 37 clients had so far made claims totalling $1.5 million by June 2016.

Some of Kotsifas' former clients say their compensation claims have been languishing without action for more than a year.

"What justice is there when a lawyer fed his own family with your life savings and didn't care about his clients. When is justice served? Never," an alleged victim said.

The fallout

As for Kotsifas, there is apparently little left of his opulent lifestyle.

In 2015, Kotsifas borrowed $573,000 from a loan shark at 30 per cent interest - which doubled if he didn't pay it back within three months - to continue his home renovation. He defaulted and lost the property.

Kotsifas has also been declared bankrupt, owing at least $1.3 million to creditors. In documents filed with his trustee, Kotsifas said he had just $10 to his name. Yet he appears to be renting a four-bedroom home in Balwyn worth $1.2 million.

Kotsifas' suitability to practise law at some point in the future is still technically in doubt.

In April 2017, Kotsifas was convicted in VCAT of a further 39 counts of professional misconduct stemming from that third investigation, but he is still is awaiting sentencing.

The Legal Services Commissioner is seeking to have the tribunal strike Kotsifas permanently from the legal roll, which he is fighting.

Kotsifas did not respond to a request for comment when contact by Fairfax Media.

It is unclear whether Kotsifas has been referred to Victoria Police for potential criminal prosecution for his conduct.

"We work closely with Victoria Police and other agencies where we detect possible criminal behaviour," Mr McGarvie said.

No criminal charges have been filed, according to court records.

The solicitor in this story, John James Kotsifas of Northcote law firm J Kotsifas & Associates, is in no way professionally related to Melbourne solicitor John Andrew Kotsifas of JK Legal Barristers and Solicitors.

cvedelago@theage.com.au