Directors and Officers Can be Liable for Fraud

Directors and officers of a corporation are protected from liability under the business judgment rule. This legal doctrine provides leeway to those in charge of running a company. Because of the business judgment rule, a court will not question the business decisions that directors and officers make provided that they act in good faith, in the best interests of the corporation, with reasonable due diligence, and not to enrich themselves at the expense of the company.  However, in order for these corporate insiders to be protected, they must actually live up to the legal obligations they have to the organization. 

When fraud occurs, this intentional deception is not acting in good faith and it is not in the best interests of the corporation. As a result, directors and officers can be liable for fraud. Accusations of fraud are very serious, and those who are accused of fraud, as well as those who are making accusations, need to be represented by a qualified and experienced legal professional. The Southern California business law attorneys at Brown & Charbonneau, LLP can provide assistance to directors and officers accused of wrongdoing as well as to shareholders who believe that corporate insiders have acted inappropriately. Call today to learn more about how an attorney can help you.

Directors and Officers Can be Liable for Fraud

Those who are harmed by the fraud committed by directors and officers of a corporation may file a lawsuit to recover compensation for losses. Typically, many such lawsuits arise when shareholders file litigation on behalf of the company that has been harmed by the actions of the corporate officers or directors. Cases involving shareholders suing company insiders on behalf of a business  are referred to as shareholder derivative lawsuits.

In order for a shareholder to prevail in a shareholder derivative case, the shareholder has the burden of proving that the directors or officers did something wrong or failed to fulfill a legal obligation to the business. Directors and officers can be liable for fraud in any situation where they intentionally acted to mislead the public, their investors, or anyone else with a material interest in their honesty.   For example, if a director or an officer intentionally obscured the truth about the company’s financial situation, this could be an example of a situation where the directors and officers can be liable for fraud.  The shareholder must show that the actions of the director or officer were a breach of good faith or a breach of the fiduciary duty that the corporate insiders owed to the organization.

Shareholder derivative cases and other claims seeking to hold company insiders liable for wrongdoing can be very complicated. Often, expert witnesses such as forensic accountants may need to testify in order to paint a thorough and accurate picture of the inappropriate actions.  Brown & Charbonneau, LLP can provide skillful, cost-effective legal representation in cases where accusations of fraud are made. Call today to schedule a consultation with our expert business litigation lawyers and learn more about when directors and officers can be liable for fraud. 714-505-3000