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Are you guilty of self-dealing?

California, like every other state throughout the nation, considers self-dealing by a fiduciary to be an illegal act punishable at a criminal level. The very purpose of assigning a fiduciary is to avoid conflicts-of-interest. One of the main types of conflict of interest is self-dealing. In some instances, self-dealing is pretty straight forward – you are either guilty of it or you are not. In others, however, the act is not so obvious. FiduciaryNews.com shares a few ways in which you or someone you know may be guilty of self-dealing.

The first way is the most obvious. If you were to steal from a principal, you would be guilty of the ultimate self-dealing transaction. Theft can occur in a number of ways. For instance, you may move assets from one holding account to another, transfer real property into your own name or by releasing monies from a brokerage account to a third party. You may also be guilty of theft if you use your client's money to build stocks for yourself.

A lesser form of self-dealing (but a form of self-dealing all the same) is gifting or selling assets or money to yourself. For instance, you may buy something from the principal for far less than fair market value, or you may sell the principal's property to a third-party for less than what it is worth and then pay that third party only slightly more than for what you sold it.

You also may be guilty of self-dealing if you pay yourself an excessive amount or in an improper way. The law requires principals to pay their fiduciaries a fair amount, but if he or she does not, the fiduciary does not have a right to pay him or herself the difference between fair pay and actual pay without the principal's knowledge.

You may also cross the line between innocent actions and self-dealing if you are a commissioned broker and you begin to offer advice. In such a case, the commissions create a conflict of interest.

You should not use the information in this post as legal advice. It is for purely informational purposes.


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