Is Breach of Fiduciary Duty a Crime?

Whether or not a breach of fiduciary duty is a crime depends on the facts of the situation, the intent behind the actions taken and whether the conduct violates criminal statutes in addition to civil law. In many cases, breaches of fiduciary duty are resolved through civil lawsuits. However, certain behaviors can expose fiduciaries to criminal charges. 

A fiduciary advisor is legally required to provide advice and recommendations that put your interests first.

What Is a Fiduciary Duty?

A fiduciary duty is a legal obligation requiring one party to act in the best interest of another. 

Common fiduciary relationships include those with financial advisors, trustees, executors, corporate officers and partners in certain business arrangements. In each of these relationships, the fiduciary is expected to prioritize the interests of the client, beneficiary or shareholders. The existence of a fiduciary duty depends on the nature of the role and any governing laws, rather than personal intent.

Per the Securities and Exchange Commission (SEC), fiduciary obligations include duties of loyalty and care. ¹ The duty of loyalty requires fiduciaries to avoid conflicts of interest and self-dealing. The duty of care requires them to act prudently, competently and in good faith when making decisions on behalf of others.

While registered investment advisors are fiduciaries, broker-dealers generally are not. Nonetheless, the SEC expects broker-dealers to identify and address conflicts of interest. ²  

What Constitutes a Breach of Fiduciary Duty?

A breach of fiduciary duty occurs when a fiduciary fails to meet the legal obligations tied to their role. This may involve actions or omissions that harm the interests of the person or entity the fiduciary is serving. Not every mistake qualifies as a breach, but conduct that falls below accepted standards may raise legal issues.

Examples of actions that may violate fiduciary obligations include misusing funds, failing to disclose conflicts or making decisions that benefit the fiduciary at the expense of the client. In financial relationships, breaches often involve improper investment choices or undisclosed compensation arrangements. The key factor is whether the fiduciary acted contrary to the beneficiary’s interests.

Conflicts of interest and self-dealing are common sources of fiduciary breaches. A fiduciary who profits personally from a transaction without proper disclosure may be in violation of their duty. Even if financial harm is not immediately apparent, undisclosed conflicts can still constitute a breach.

Failure to act in the client’s best interest is another common issue. This may include neglecting responsibilities, ignoring instructions or failing to monitor assets appropriately. Whether the breach leads to civil liability or criminal exposure depends on the nature and intent of the conduct.

Breach of Fiduciary Duty: Criminal vs. Civil

The Department of Justice (DOJ) explains that not every breach of fiduciary duty results in criminal fraud, and that criminal prosecution requires evidence of fraudulent intent or misconduct beyond a mere breach. ³

In most cases, breach of fiduciary duty is treated as a civil matter rather than a criminal offense. Civil cases typically focus on compensating the harmed party rather than punishing the fiduciary. This distinction is central to understanding the answer to is breach of fiduciary duty a crime.

For example, a common example of a breach of fiduciary duty is a failure to follow procedures. These cases are usually resolved through lawsuits seeking monetary damages or other remedies.

Criminal charges, however, generally require a higher level of intent.

A breach may become criminal when the conduct involves intentional wrongdoing or violations of criminal law. Courts and prosecutors look for evidence that the fiduciary knowingly engaged in unlawful behavior. In these situations, the breach extends beyond a failure of duty into criminal misconduct.

Circumstances that may elevate a breach of fiduciary duty to a criminal matter include:

• Fraud, embezzlement and intentional misconduct: Knowingly misappropriating funds or deceiving beneficiaries may result in criminal charges.
• Misrepresentation or concealment of material facts: Deliberately hiding information to obtain financial gain can trigger criminal liability.
• Abuse of authority involving financial harm: Using fiduciary authority to exploit or harm beneficiaries may result in criminal prosecution.

Examples of Fiduciary Duty Breaches in Financial Settings

Investment advisors may breach fiduciary duties by recommending products that generate higher commissions while disregarding client objectives. Failing to disclose conflicts or steering clients toward unsuitable investments can expose advisors to liability. Whether such conduct is criminal depends on intent and deception.

Trustees mismanaging trust assets is another frequent example. This may include improper distributions, failure to diversify investments or misuse of trust funds. These cases are often handled in civil court unless fraud or theft is involved.

Corporate officers may breach fiduciary duties by prioritizing personal gain over shareholder interests. Insider transactions, misuse of corporate assets or misleading disclosures can lead to legal action. In severe cases, these actions may result in criminal charges.

What to Do If You Suspect a Breach of Fiduciary Duty

If you suspect a breach of fiduciary duty, the first step is to gather relevant documentation. This may include account statements, contracts, disclosures and correspondence. Clear records help establish whether a fiduciary violated their duties.

Seeking legal or professional advice may make sense if misconduct is suspected. Attorneys can assess whether the behavior rises to the level of a breach and whether civil or criminal remedies may apply. Financial professionals can also help evaluate the impact on your broader financial plan.

Reporting options vary depending on the situation. Regulatory agencies, courts or professional oversight bodies may be involved. Remedies may include financial recovery, removal of the fiduciary or regulatory sanctions, depending on the circumstances.

Bottom Line

So, is breach of fiduciary duty a crime? In most situations, it is a civil matter resolved through lawsuits and financial remedies rather than criminal prosecution. However, breaches involving fraud, intentional misconduct or abuse of authority may lead to criminal charges. The distinction depends on intent, behavior and the laws involved. Because fiduciary relationships play a central role in financial decision-making, working with trusted fiduciaries and qualified financial professionals can help reduce the risk of misconduct and protect your financial interests.

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