$4M Bitcoin fraud leads to Atlanta attorney’s disbarment

Diana McDonald started spending an investor’s money the day it went into her escrow account
An Atlanta attorney has been disbarred after siphoning more than $1.5 million of investor funds as part of a $4 million Bitcoin fraud scheme. (Dreamstime/TNS)

Credit: TNS

Credit: TNS

An Atlanta attorney has been disbarred after siphoning more than $1.5 million of investor funds as part of a $4 million Bitcoin fraud scheme. (Dreamstime/TNS)

An Atlanta attorney who siphoned more than $1.5 million of investor funds as part of a $4 million Bitcoin fraud scheme has been disbarred by the Georgia Supreme Court.

Diana McDonald, who operated her own law firm, asked the court to accept her retirement in lieu of disbarment, but that request was rejected Tuesday when the court issued a 42-page opinion outlining her multiple violations of the Georgia Rules of Professional Conduct.

“We cannot fathom a punishment less than disbarment,” the court said. “McDonald’s complete disregard for her role as a fiduciary in this transaction (and apparently other transactions) is staggering.”

McDonald said she was a victim of the 2019 fraud scheme in which she acted as an escrow agent for a New York-based client who has since been prosecuted by federal authorities. She said she disbursed the investor’s funds as instructed by the client, and had no agreement with the investor.

McDonald criticized the state Supreme Court for adopting the findings from a State Bar of Georgia investigation “without conducting a fair and complete independent examination of the facts.”

“It was obvious that I had been a victim of a scam and obviously trusted people I should not have trusted,” she told The Atlanta Journal-Constitution. “The Georgia Supreme Court obviously took the easy way out in this case.”

McDonald had admitted that she used the investor’s money intended as payment for 1,000 Bitcoin to repay her friends and family, make loans to other friends, contribute to charity, pay bills and purchase goods and services for herself and her business, the court said.

“McDonald transferred $415,000 to other accounts controlled by her, $25,000 to her sister, and $450,000 to parties involved in her client’s earlier deals,” its opinion states.

In addition, she attempted to wire $1.2 million to a Chinese bank, and ultimately converted more than $1.5 million of the investor’s funds for her own use, the court said.

McDonald, who was not prosecuted in relation to the fraud, got her law degree from Georgia State University and was admitted to the State Bar of Georgia in 1985, records show. A solo practitioner, she did business as both the McDonald Law Group LLC and Law Office of Diana McDonald LLC.

In January 2019, McDonald agreed to receive and hold $4 million in one of her lawyer trust accounts with Wells Fargo Bank, as payment for a client with a history of sham deals. The money belonged to GSR Markets, a large cryptocurrency trading firm, which had been promised 1,000 Bitcoin by McDonald’s client.

GSR never received the Bitcoin it was promised, and repeatedly demanded the return of its funds. While spending the money, McDonald falsely assured GSR and the State Bar of Georgia that the money was safe and the Bitcoin transfer would go through, court records show.

McDonald later admitted that she knew things would “kind of blow up” if she had told the truth, the state Supreme Court said, noting that McDonald started spending GSR’s money the day she received it.

In March 2019, GSR filed a fraud lawsuit against McDonald, her client and Wells Fargo in the federal trial court in Atlanta, having recovered only half of its funds. McDonald had disbursed the remaining $2 million within four days of it being deposited in her account, records show.

She used some of the money to pay the trustee in her husband’s bankruptcy case, and to retain an attorney to represent her in GSR’s suit. As part of her defense in the fraud case, McDonald claimed she was entitled to $440,000 of GSR’s money for services provided to her client.

The State Bar of Georgia concluded that her fee claim was unfounded.

The judge overseeing the fraud case forced McDonald to pay GSR the $414,200 she still had from its $4 million. GSR eventually settled its claims against McDonald and secured a $1.5 million judgment against her client, but is still trying to recoup damages from Wells Fargo, records show.

In a recent filing, GSR told the Atlanta-based federal appeals court that Wells Fargo knew McDonald was conducting fraudulent transactions and failed to stop it.

“Wells Fargo received numerous red flags about McDonald and her (lawyer) trust account well before GSR wired the funds to the account, which would have triggered action by any bank acting with even a minimal amount of diligence,” GSR said. “Even after GSR reported the problems in getting its escrowed funds back, Wells Fargo failed to act timely and responsibly.”

In response, the bank told the appeals court that it owed no duty to GSR, which was not its customer. It said it froze McDonald’s accounts shortly after GSR filed its complaint.

McDonald’s client, Eugene “Hugh” Austin, was prosecuted in New York alongside his son, Brandon Austin, in relation to multiple instances of cryptocurrency fraud through which more than 20 investors lost over $10 million, records show.