Personal liability for investment officers over fund losses
NEW YORK – A decision by the New York Appellate Court could ease the way for legal actions against investment advisers, according to George Mazin, a partner in the financial services group of law firm Dechert in New York. The first department of the NY Appellate Division decided in June that corporate officers of an investment adviser can be personally liable for losses suffered by a fund they advise, for breach of fiduciary duty, even if such a claim lies outside the fiduciary agreement.
"The New York Court's decision increases the potential for tort claims for fiduciary breach outside the advisory contract. Often, investment management agreements have sweeping limitations on the duties of the manager under the contract, but the court now says that contractual limitations do not preclude tort claims. An investment manager is a fiduciary and owes fiduciary duties to its client beyond its express obligations under the contract. "But the question remains to what extent can an investment manager protect itself by limiting tort claims based on a breach of fiduciary duty through waivers or limitations in the contract?" asks Marzin.
The decision means a fiduciary duty is not only discharged by fulfilling a contract, but a fiduciary relationship can develop in the parties' ongoing conduct, and could require performance of more than just contractual duties. It also makes breach of fiduciary duty a tort, rather than just breach of contract, and officers can be held personally liable for tortuous behaviour on the job.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Hong Kong derivatives regime could drive more offshore booking
Industry warns new capital requirements for securities firms are higher than other jurisdictions
Will Iosco’s guidance solve pre-hedging puzzle?
Buy-siders doubt consent requirement will remove long-standing concerns
Responsible AI is about payoffs as much as principles
How one firm cut loan processing times and improved fraud detection without compromising on governance
Could one-off loan losses at US regional banks become systemic?
Investors bet Zions, Western Alliance are isolated problems, but credit risk managers are nervous
SEC poised to approve expansion of CME-FICC cross-margining
Agency’s new division heads moving swiftly on applications related to US Treasury clearing
ECB bank supervisors want top-down stress test that bites
Proposal would simplify capital structure with something similar to US stress capital buffer
Clearing houses warn Esma margin rules will stifle innovation
Changes in model confidence levels could still trip supervisory threshold even after relaxation in final RTS
BlackRock, Citadel Securities, Nasdaq mull tokenised equities’ impact on regulations
An SEC panel recently debated the ramifications of a future with tokenised equities