When you invest your money, you are taking a great deal on trust. One of the biggest things you have to trust is that the person who is handling your investments is taking their duties seriously. That is why the laws about fiduciary responsibility are stringent. So, just who do these laws apply to, and what can you do if you think that your trust in one is betrayed?
‘Fiduciary’ means a person or organization that owes someone the duties of good faith and trust. It can mean that a person is taking care of someone else in a general sense, but mostly it means that the person is in charge of someone else’s financial situation. Investment fiduciaries in particular are people who are responsible for managing other people’s money. The people who have entrusted their money with that person is called a beneficiary, as in they benefit in a fiduciary relationship. Some examples of a person who has fiduciary responsibility to others are:
- money managers
- corporate board members
- investment corporations
Fiduciary responsibilities are, in essence, about being trustworthy with other people’s money and managing the assets in the best interest of the beneficiary. Here is a partial list of what a fiduciary has the duty to do:
- act fairly
- act in good faith
- be loyal
- disclose fully everything relevant
- keep things confidential
Types Of Breaches In Fiduciary Responsibility
You might be asking yourself what sort of acts would you look for in your fiduciary if you thought there was a breach in responsibility. There are many ways that a fiduciary might break trust. He or she might:
- misappropriate funds
- reap extra profits or have conflicts of interest
- misuse confidential information
- fail to act prudently or neglect their job
- provide bad advice
- misuse their power (e.g refusing to loan credit or release security interest)
- not disclose important information
- steal a business opportunity (e.g buying property that would undermine your investment plans)
There are a few signs that you should keep an eye out for.
- The transaction record is unclear and the responsible party hides the records
- Your assets are mixed in with the fiduciary’s
- You discover conflicts of interest
- The fiduciary fails to oversee the other fiduciaries involved. Even if someone hires an ‘expert’ to manage your money, that someone is still responsible for the outcome.
What Can You Do?
Fortunately, a breach in fiduciary responsibility claim is a business tort. If you can prove that there was a fiduciary relationship (a business relationship where a party has fiduciary duties,) that the fiduciary failed in their responsibilities, and that it caused you harm, you have a case.
Sometimes proving that the actions of the fiduciary was the actual cause of your investment loss is tricky, but there are some situations where you only have to prove that it was a big contributing factor. You might also find it difficult to prove a claim if the fiduciary in question failed to do something important (committed nonfeasance) as opposed to doing something wrong (committed malfeasance.) However, a lawyer can help you line up your claim.
You can sue for damages, and there might be criminal charges to bring if the fiduciary broke a state law. The SEC takes a dim view of people shirking their responsibilities, as does the state of California, so there are special statutes that can be used to win your case.
Aiman-Smith & Marcy specializes in class actions, employment law and consumer fraud. It is a small-medium law firm operating in California. If you feel that there has been a breach in fiduciary responsibility, and it has led to investment losses, contact us. We are a firm that can help.