What Are Fiduciary Duties? Going Public Attorneys

Fiduciary Duty-Going Public Attorneys

A fiduciary duty exists where trust and confidence is placed in another. Fiduciary duties arise in many different contexts in securities matters and the going public process. Fiduciary duties also arise from a written agreement that authorizes another to act as the grantor’s agent. The existence and scope of a fiduciary duty is based on the nature of the relationship between the parties.  Securities attorneys, auditors, brokers and investment advisors, investment companies and public companies are fiduciaries. Breach of fiduciary duty claims in securities matters most often arise from broker-dealer activity.

When a broker recommends an investment, the broker-dealer has a duty to:

  • Understand the nature of the investment’s risks, rewards, and strategy before recommending the investment to its client;
  • Make only suitable recommendations to its client based upon the investor’s objectives, needs, and circumstances;
  • Furnish information to the client that would be material to the client’s decision about the recommendation; and
  • Be truthful and not misrepresent or omit material information.

These fiduciary duties exists at the time the broker recommends a transaction to an investor. Courts have found that a non-discretionary broker-investor relationship, without more, does not create a duty to continually furnish the client with information about the recommended investment. Under some circumstances, courts impose ongoing fiduciary duties on broker-dealers if:

  • The investor is inexperienced such as an person that has never employed a broker-dealer, and completely relies upon the expertise and knowledge of the broker-dealer. Under these circumstances, it is assumed that the broker-dealer held a high degree of direction and control over the person’s investments.
  • The broker-dealer and investor have a personal relationship or social trust and the investor is relying on the relationship in accepting the recommendations of the broker; or
  • The broker-dealer assumes actual control over the account.

Fiduciary Duties and Public Companies

All corporations all owe fiduciary duties to shareholders and their investors. In a corporation, its board of directors is responsible for the management of the company’s business. In managing the affairs of the corporation’s business, directors most often function in a supervisory role and delegate day-to-day matters to officers of the corporation typically the Chief Executive Officer or President. Directors and officers are fiduciaries and owe fiduciary duties to  the stockholders of the company. As a result, decisions by the officers and directors must be in the best interests of the stockholders. This includes provide complete and accurate information about company matters in a timely manner to the corporation’s shareholders and investors.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Going Public Lawyers
Brenda Hamilton, Going Public Lawyer
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855