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Breach of Fiduciary Duty and its Risks

A breach of fiduciary duty can bring considerable harm to a corporation. Fiduciaries have access to sensitive financial information of a company. They are expected to take their position seriously, and act with the utmost of integrity and good faith. However, they don’t always live up to such expectations.

Obligation of Fiduciaries

Fiduciaries are those to whom a corporation provides access and control of its finances. These can include directors, representatives, and advisors such as investment bankers. Given the nature of fiduciaries, they are held to a high expectation of moral integrity. They are legally obligated to be ethical and avoid choices that may damage the business. Often such individuals must possess licensing and insurance, but a corporation might also foolishly relegate such responsibility to an individual who is not screened properly.

Breaching Fiduciary Duty

A breach may occur in a number of ways. Insider trading is perhaps the most commonly recognized, but least understood. This is because certain forms of insider trading are actually legal. However, passing information about a pending corporate action that is likely to affect value of stock certainly is not. An unscrupulous fiduciary may be convinced to pass along such information for monetary gain. Also, he might work in consort with a rival company to undermine the corporation as the action approaches. Either way, the company can suffer enormous financial loss.

Another form of breach is constructive fraud. Unlike insider trading, this does not entail a criminal act; nonetheless, it can cost the corporation a great deal. Constructive fraud is committed when a fiduciary conceals information that places him in a position of financial advantage at the cost of the corporation.

Seeking Remedy

Remedy for breach of fiduciary duty can be both criminal and civil. Often a breach becomes a matter for the criminal courts, and the individual responsible may face severe penalties, including prison.

As a civil case, remedy for breach of fiduciary duty can include both economic injury and damage to the company’s reputation. It can also include mental anguish. At times exemplary damages are awarded in a civil action as well.

On Business Litigation

Business litigation involves all legal conflicts, controversies and issues related to business relationships and operation. Trying to deal with complicated legal matters on your own takes you away from other essential tasks, and you are less likely to obtain a satisfactory result than if you retained a qualified legal expert.

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