licensees have a duty to properly hold, manage and account for money held in trust on behalf of clients, and sometimes on behalf of others. (California Rules of Professional Conduct, rule 4-100.) When the balance in an licensee's client trust account falls below the amount required to be held on behalf of a client, a conversion of funds has occurred. If the conversion occurs due to a willful act of the licensee, then the licensee has violated rule 4-100(A), regardless of the licensee's explanation.
A misappropriation occurs when the conversion of client funds involves dishonesty by the licensee or when the conversion results from the licensee's reckless or grossly negligent management of the client trust account. In addition to violating rule 4-100(A) of the Rules of Professional Conduct, a misappropriation of client funds also violates Business and Profession Code section 6106 (act involving moral turpitude) and almost always results in severe discipline, including possible disbarment.