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Penalties for Breach of a Fiduciary Duty

In the business world, owners and officers are entrusted with incredible powers over the business’s assets. To keep those with the power to bring about great benefit or great harm to a business accountable, the law imposes on them a fiduciary duty. 

This duty requires these individuals to act in the best interests of the business and not to abuse their positions for personal gain. For example, an owner cannot use information about a business deal being worked out with another company to undercut the business for their own gain.

Take a closer look at the penalties for breach of a fiduciary duty under New York law.

Consequences of a Fiduciary Duty Breach in New York

Unfortunately, not all individuals given control over a company’s assets exercise that control for the company’s success. Violating fiduciary duty can result in a loss of revenue or other assets to the business, an advantage being given to a competitor or other similar consequences that threaten the well-being of the business.

When this trust is violated, the person who violated the duty can face severe penalties, including:

Loss of Position of Authority and Trust

First, having proven themselves untrustworthy in some way, the person who breached the fiduciary duty can expect to be removed from their position of authority. 

Even when the one who violated their fiduciary duty is retained and the breach determined to be accidental, most businesses would not place a person back in a position where they can cause similar harm again.

A reduction in pay will likely accompany this removal, as they will no longer hold the responsibilities they once did. Any perks they enjoyed by being an officer or having held a position of trust will likewise be lost.

Civil Prosecution

The company may bring a lawsuit against the one who breached their fiduciary duty and attempt to recover the amounts lost from the responsible party. 

Similarly, if the individual embezzled funds from the business and used those funds to purchase cars or real estate, securing a lien on that property and then selling that property may be a way for the business to recover some of its losses while depriving the responsible party of the fruits of their fiduciary breach.

Criminal Prosecution

In some instances, the conduct that constituted the breach of the fiduciary duty is also a criminal act. For instance, embezzlement is not only a breach of one’s fiduciary duty, but also a crime. 

Unlike civil prosecution, which is initiated and pursued by the company itself, criminal prosecutions are initiated by a prosecutor and can continue even if the company states it does not wish to press charges. 

Depending on the nature of the breach and the associated crime, a criminal prosecution could end with the person serving a prison sentence, being placed on probation, being ordered to make restitution to the company, or having to perform community service.

Fiduciary Duty Is a Powerful Obligation Worth Protecting

A fiduciary duty represents a significant amount of trust that a business places in a particular individual. New York law imposes serious consequences for violating this duty and causing harm to the business that placed its trust in that person.

If you suspect that an officer or other high-level executive at your business has taken advantage of their position and caused harm to the business, do not put the matter off. It’s vital to speak to an experienced Nassau County business law attorney from Kohan Law Group as soon as possible. 

The sooner you take action, the sooner any damage done to your business can begin to be repaired. Contact us to schedule a consultation with a skilled Long Island business law attorney today.

The information provided in this blog post is for educational purposes only and is not intended to constitute legal advice. It is essential to consult with a qualified attorney regarding your specific situation and circumstances.