Partners within a business have a fiduciary duty to act in the company’s best interest. So, too, do banks toward their customers, attorneys toward their clients, and so forth. When someone acts in their own best interest at the expense of those to whom they owe a fiduciary duty, this is referred to as self-dealing.
Self-Dealing and Fraud
On a corporate scale, self-dealing often involves partners, corporate officers, board members, and the like. They may take advantage of their position in ways that profit them at the expense of their clients, shareholders, employees, etc.
Self-dealing isn’t in and of itself a crime, but it does constitute a breach of fiduciary duty, and as such will likely merit punitive measures in a civil court. However, it is often accompanied by fraud, which is a crime and punishable as such.
Penalties of Self-Dealing
At its very base, self-dealing may result in punitive damages amounting to the losses taken by the principal (the party to whom the fiduciary owes duty) plus any profits made by the fiduciary through their self-dealing activities.
If the instance of self-dealing involves falsification of records, fraudulent use of securities, and so forth, further penalties can be imposed according to the corresponding laws. For instance, Title 18 of U.S. Code Section 1348 imposes a penalty of up to $250,000 in fines as well as up to 25 years in prison for securities fraud.
Examples of Self-Dealing
One example of self-dealing was Bernard Madoff’s Ponzi scheme. This type of scheme takes in money from numerous investors, using assets from new investors to pay returns to their old ones. Madoff’s scheme had run for 17 years before finally coming apart in failing market conditions. He pled guilty in 2009, facing 150 years in prison and forfeiture of roughly $170 million in assets.
Another example occurred several years earlier. Enron, which was an energy company based in Houston, had been using loopholes and faulty reporting to hide massive debts from its shareholders. By 2001, their stock prices had plummeted to below a dollar per share, and the company filed bankruptcy.
A breach in fiduciary duty can harm your business, so it’s important to act quickly if you find yourself (or your company) a victim of corporate self-dealing. Bennett, Weston, LaJone & Turner, P.C. can offer you the legal guidance you need to address this or any other corporate fraud matter.