Fiduciary duties come up in a large range of situations. A fiduciary relationship is common in trusts, for agents (e.g., a broker), and especially in corporate structures. When a fiduciary breaches their fiduciary duties, it can leave you with financial harm and potentially even a case against the fiduciary. But how do you identify and look out for fiduciary mismanagement?
Common signs of mismanagement include sudden drops in accounts, suspicious activity, suspected self-dealing or conflicts of interest, and repeat transaction fees. The context of the fiduciary duty might change what signs you need to look for.
Call the fiduciary litigation attorneys at Heyman Law Firm today at (410) 305-9287 to discuss your case.
Self-Dealing and Conflicts of Interest
One of the most important aspects of a fiduciary duty is that the fiduciary must put their principal’s needs first and look out for their best interests. Self-dealing and conflicts of interest often breach that duty.
Identifying Self-Dealing
Self-dealing occurs when the fiduciary uses their position to enrich themselves. This could involve something like taking an excess fee for carrying out their role as a fiduciary. Often, close review of documents and records can show these issues.
Identifying Conflicts
Conflicts are often harder to identify because it might not be clear that the fiduciary has an interest in the issue. For example, a fiduciary might push investments or assets into a venture they have a share in, but you might not be aware of that interest until it comes up in conversation or the fiduciary lets something slip to you.
In many cases, conflicts are not as clear and obvious as a rug pull, but that also happens.
Waiver
If the fiduciary disclosed a potential conflict and the principal or corporation consented to go forward anyway, then this issue might have been waived. You might have simply forgotten or lost records of a waived conflict, which could throw a wrench into any potential claims of breach of duty.
Sudden Drops in Account Balance
Keeping a close eye on accounts is never a bad idea. While you may trust your fiduciaries to watch these things for you, noticing a sudden dive in account balance is often a sign that something is wrong.
Sometimes this just means a lot of assets had to be moved at once, and it might not be an issue – but it is certainly a red flag worth looking into further, just in case.
Unreasonable Investments
This is perhaps the most literal example of mismanagement. For a fiduciary to take good care means vetting investments and managing the risk to their principal. Investments may be unreasonable risks if
- There is a known history of lost return.
- The investment is experimental or unusual.
- You have already rejected this or similar investments in the past, and they went forward anyway.
- The investment had signs of obvious fraud that the fiduciary missed or ignored.
Churning
Some fiduciaries take fees per transaction, which can result in churning.
What is Churning?
Churning happens when a broker or similar fiduciary who takes a transaction fee initiates extra transactions so they can get more money from the additional transactions.
How This is Mismanagement
Even if the transactions they are making are good, reasonable transactions, the fact that they are making so many with the goal of taking extra transaction fees is what makes it mismanagement. This puts the fiduciary’s needs over the proper management of their principal’s accounts.
Often, clever people committing churning will try to mask or hide their churning with reasonable transactions, making it more difficult to prove that they did anything in bad faith.
Context Matters
Some of these issues might not appear in every situation. For example, a trustee of a trust fund or a corporate officer might not be able to commit churning because they take no transaction fees for management; those kinds of signs and symptoms of fiduciary mismanagement would only occur with something like a brokerage account.
Allow our fiduciary litigation lawyers to go over your accounts or records to look for signs of fiduciary breach in your specific context.
How Do You Bring a Claim for Fiduciary Breach and Mismanagement?
Taking these steps is vital to preserving your interests when you suspect mismanagement.
Call a Lawyer
First and foremost, if you see any of these red flags and suspect you might be the victim of fiduciary mismanagement, call our lawyers right away. We can begin investigations and potentially help you set up a new fiduciary or other agreements to immediately halt further harm.
Then we can get to work holding the fiduciary responsible for their breach.
Identify Breach of Duty
Fiduciary duties range from duties of disclosure and loyalty to general prudence. All in all, a fiduciary must typically use the utmost care to put the principal’s or the business’ needs above their own, and to carry out their best interests.
If they do not, we can identify how they breached that duty and file a claim.
Identify Damages
You must show damages to win most lawsuits. This means showing what your money or business would have looked like if it was managed properly. We can use various metrics to determine what “should have” happened in the alternate universe where there was no mismanagement.
Showing past growth and the effect of any other relevant economic factors can help show that the growth or management trend changed, and how it should have progressed without this mismanagement.
Prove Causation
You have to tie what the defendant did wrong to the damages you suffered. Without this, the fiduciary can claim it was just random market effects or other unavoidable causes.
Go to Court or Settle
Many of these cases need to go to court if the fiduciary refuses to settle or pay damages. If they do settle, we can end the issue through a settlement. Never sign without having us review the offers on the table.
Call Our Fiduciary Litigation Lawyers
Contact Heyman Law Firm’s fiduciary litigation attorneys at (410) 305-9287 to discuss your potential case.