Self Dealing: What It Means and Why It Matters in Law

Q: Who can be held liable for self-dealing?

Corporate officers, property managers, and nonprofit directors can be held liable for self-dealing.

Q: What are the penalties for self-dealing?

Penalties can include civil damages, fines, and potential imprisonment, depending on the severity of the violation.

Definition & Meaning

Self-dealing refers to situations where an individual, often in a position of trust or authority, uses their role to benefit personally from a transaction that should primarily serve another party's interests. This often occurs in corporate settings, where corporate officers or managers may exploit confidential information to buy or sell stocks or property before such information is made public. In essence, self-dealing undermines the fiduciary duty owed to shareholders or clients.

Table of content

Legal Use & context

Self-dealing is primarily addressed in corporate law and securities regulation. It can lead to civil lawsuits against corporate officers for fraud or breach of fiduciary duty. Additionally, the federal Securities and Exchange Act criminalizes certain forms of self-dealing in securities. Users may encounter self-dealing issues in various legal contexts, including corporate governance, estate planning, and nonprofit management. Legal templates from US Legal Forms can assist users in navigating these situations effectively.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A property manager who hires a maintenance company they own without disclosing this relationship and charges the property owners excessively for services. This constitutes self-dealing because the manager benefits financially from the arrangement.

Example 2: A corporate officer sells company stock based on insider information about an upcoming merger, profiting before the information is publicly disclosed. (hypothetical example)

Relevant laws & statutes

Key laws related to self-dealing include:

Securities Exchange Act of 1934: Prohibits insider trading and self-dealing in securities.
Section 4941 of the Internal Revenue Code: Prohibits transactions between private foundations and disqualified persons.

State-by-state differences

Examples of state differences (not exhaustive):

State	Self-Dealing Regulations
California	Strict penalties for corporate officers engaging in self-dealing.
New York	Requires full disclosure of any potential conflicts of interest.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition	Difference
Insider Trading	Buying or selling stocks based on confidential information.	Insider trading is a specific type of self-dealing focused on securities.
Conflict of Interest	A situation where personal interests could interfere with professional duties.	Self-dealing is a form of conflict of interest that results in personal gain.

Common misunderstandings

What to do if this term applies to you

If you suspect self-dealing in your organization or personal affairs, consider the following steps:

Document any evidence of the self-dealing behavior.
Consult with a legal professional to understand your options and rights.
Explore legal templates from US Legal Forms to address the situation effectively.
If necessary, consider filing a complaint or lawsuit against the offending party.

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Quick facts

Typical Penalties: Civil damages, fines, or imprisonment for severe violations.
Jurisdiction: Federal and state laws apply.
Commonly Involved Parties: Corporate officers, property managers, nonprofit directors.

Key takeaways

Frequently asked questions

What is self-dealing?

Self-dealing is when someone in a position of trust benefits personally from a transaction that should serve another party's interests.