Fiduciary misconduct

A fiduciary is an individual who is legally obligated to act on behalf of another person, and to act in the best interests of the person even if those interests conflict with the interests of the fiduciary.  The fiduciary relationship is one of trust.  Indeed, the Latin root for the word fiduciary is fidere, which means “to trust.”

 

A fiduciary can be a layperson, a professional fiduciary, or an entity such as a bank.  A personal representative of an estate, a trustee of a trust, a conservator or guardian, an individual holding a durable power of attorney over another person’s finances, a broker…these are examples of a fiduciary.

 

Because a fiduciary relationship is a legal relationship, the fiduciary owes various enforceable duties to the person.  While the specific duties of a fiduciary will be spelled out in the legal document establishing the fiduciary relationship, all fiduciaries owe duties of due care, loyalty, confidentiality, and to act in good faith.  If a fiduciary oversees another person’s finances or property, the fiduciary is obliged to guard the person’s assets and manage assets prudently, refrain from commingling assets with outside assets, and provide accountings.  

Unfortunately, fiduciaries frequently violate their positions of trust, particularly if the individuals they assist are financially or legally unsophisticated or vulnerable to unprincipled behavior.

 

A fiduciary can breach his duties in a number of ways:

 

  • Misappropriate or steal funds

  • Manage assets recklessly or negligently

  • Fail to provide required accountings

  • Conduct transactions that raise a conflict of interest between the fiduciary and the person

  • Perform self-serving acts

  • Fail to keep the person informed; lack of transparency

  • Commingle entrusted funds with outside funds

  • Behave in a manner that is disloyal to the person

  • Collude with one beneficiary to the detriment of another beneficiary

  • Allow a co-fiduciary to breach his duties

It’s worth noting that financial accountings usually lie at the core of fiduciary misconduct and fraud investigations.  The existence, size, and scope of a fiduciary’s misdeeds are usually ascertained from a forensic examination of the fiduciary’s financial activities and accountings.  A fiduciary who flatly refuses to provide required accountings or provides dilatory or incomplete accountings raises troubling questions.  Equally troubling is a fiduciary who maintains only selective records or who records transactions in a way that creates confusion and complexity as a means of discouraging others from asking hard questions.  In these instances, whatever accounting the fiduciary might ultimately produce may look convincing but should be treated skeptically.

 

There are a number of remedies available if fiduciary misconduct is proven.  In instances where the dispute springs from a misunderstanding or miscommunication, an accounting and explanation prepared by an independent third party can be helpful.  In more serious circumstances it may be appropriate to have the fiduciary removed.  Restitution may also be available.  A fiduciary can be held liable for actual losses or decreases in value of the assets he managed, compelled to disgorge profits he made as a result of his breach, and held liable for profits that would have been received but for the breach.

 

We can help 

 

Fiduciary misconduct can be financially and emotionally devastating, especially for vulnerable individuals, seniors, and those who would not otherwise recover financially without receiving restitution.  We specialize in resolving complex allegations of fiduciary misconduct, particularly where high-conflict family dynamics exist.  We work closely with legal counsel, families, and other interested parties by providing:

 

  • Forensic investigative analyses

  • Litigation discovery assistance

  • Accounting reconstructions

  • Determinations of financial impact of fiduciary misconduct on entrusted assets

  • First and final accountings that accurately and comprehensively reflect the actions of a fiduciary