Self-dealing is a criminal act in New York as well as other states. It entails one person violating their fiduciary duty when carrying out a transaction on behalf of someone else, like a broker hearing about a customer order, placing his own trade to take advantage of it, and then placing the customer’s trade after.
What is self-dealing?
There are many possible examples of self-dealing. Some are complex, like the broker example. Others are more straightforward. Taking out company funds for personal use or using company information for insider training are also examples of self-dealing. A person who is a fiduciary has a legal duty to put their client first, ahead of their own financial interests. Any violation of that is an example of self-dealing.
One of the most commonly prosecuted examples is an advisor or banker who tells their client to make an investment that doesn’t actually fit that client’s best interest but does have a high fee or commission for the advisor. This puts the benefit of the banker or advisor over the client’s financial well-being, which violates fiduciary rules.
Self-dealing has a broad definition that covers many different possible scenarios, and for many of them, the prosecution can be murky because it relies on intentions and attitudes to show guilt. Understanding what the fiduciary duty is and how it works is essential for avoiding self-dealing charges. There are many examples of this act being prosecuted at the individual and company level because sometimes there are policies or managerial practices that constitute self-dealing by a whole business unit or organization that works with clients and customers directly.