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What Is Fiduciary Fraud?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 23 November 2016
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    Conjecture Corporation
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Fiduciary fraud is a legal term that applies in a situation where there is a breach of the trust reposed in a fiduciary who occupies such a position of trust in respect to the management of the finances of the client. This sort of breach often occurs in situations where some individuals or organizations have been appointed to manage the financial interest of the client. When a client does something in an intentional manner that amounts to a mismanagement or misappropriation of the finances or assets of the client, the person of institution is said to have committed fiduciary fraud.

An example of fiduciary fraud can be seen in situations where people invest their money in deals that they think are legitimate only to find out that the so-called financial or investment company is a fraudulent front for tricksters who convert the money of the investors to their own personal purposes. Such fake financial houses and financial institutions are legally guilty of financial fraud due to the fact that the people who placed their money with them as a form of investment did so with the understanding that the money would either yield dividends or some other form of financial returns. The failure of the financial institutions to properly safeguard the money of their clients as well as the deliberate conversion of their money establishes the breach of trust reposed in them.

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For a case of fiduciary trust to be established, the person making the allegation must show that the person who is alleged to have committed the fiduciary fraud had a trust relationship with the client. The client must also show that the person deliberately misappropriated the funds that legitimately belonged to him or her. Such a client must also prove that he or she suffered a specific type of financial loss due to the action of the fraudulent fiduciary.

The reason why it is necessary for the client to establish a deliberate breach of trust on the part of the fiduciary is due to the fact that such a person might not be guilty of fiduciary fraud if he or she acted with the best intentions and diligence in the matter. Where this is the case, the loss suffered by the client might be attributed to circumstances beyond the control of the fiduciary. If the client is able to establish fiduciary fraud, he or she may be able to claim compensation from the fiduciary in the form of damages.

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