How Business Disputes Can Escalate into Criminal Investigations
In business, relationships are built on trust—between partners, executives, investors, and clients. When that trust is broken, the fallout can be civil, reputational, or, in some cases, criminal. The challenge? The line between a breach of fiduciary duty and criminal fraud isn’t always clear, especially to the government.
At Simmons & Wagner, we’ve seen firsthand how civil disputes between professionals can suddenly escalate into full-blown criminal investigations. As former Orange County District Attorneys, we know how prosecutors think—and how to protect our clients when business relationships break down.
If you’ve been accused of violating a fiduciary duty or defrauding a partner, investor, or client, understanding the legal distinctions is critical to your defense—and your future.
What Is a Breach of Fiduciary Duty?
A fiduciary duty is a legal obligation to act in the best interest of another party. Common fiduciary relationships include:
- Business partners
- Corporate officers and shareholders
- Financial advisors and clients
- Trustees and beneficiaries
- Lawyers and clients
A breach occurs when the fiduciary:
- Acts in their own interest over the beneficiary’s
- Withholds material information
- Mismanages assets or funds
- Fails to disclose conflicts of interest
- Engages in self-dealing
Most breaches of fiduciary duty result in civil litigation, not criminal charges. These cases are typically handled in civil court and involve financial restitution or removal from a position—not jail time.
When a Civil Breach Becomes Criminal Fraud
What turns a civil breach into criminal fraud is intent. If prosecutors believe you intentionally misled, deceived, or stole from the person you owed a duty to, you could face charges like:
- Wire fraud
- Mail fraud
- Securities fraud
- Embezzlement
- Conspiracy
- Criminal breach of trust
The stakes then shift dramatically—from financial penalties to prison time, asset forfeiture, and career-ending consequences.
Potential Real-World Examples of the Line Blurring
- A startup founder overstates projected revenues to investors.
Civil case? Possibly.
Criminal fraud? If prosecutors believe the projections were knowingly false, yes. - A financial advisor shifts client funds into riskier investments without proper disclosure.
Civil breach? Possibly.
Criminal case? If the intent was to collect higher commissions at the client’s expense, possibly fraud. - A CEO pays themselves a bonus during company distress.
Breach of duty? Perhaps.
Fraud? If records were altered or misleading statements made to the board, yes.
Intent and transparency are the key distinctions.
Prosecutors Love Gray Areas
Federal and state prosecutors often blur the line between aggressive business practices and fraud, especially when:
- There’s pressure from investors or the public
- A company has recently gone bankrupt
- A whistleblower makes accusations
- Civil litigation uncovers questionable conduct
Even if no one reported a crime, prosecutors may still open an investigation based on lawsuits, media reports, or regulatory audits.
How Simmons & Wagner Defend These Cases
We know these cases don’t start with handcuffs—they start with a narrative: someone claiming you acted in bad faith.
Our job is to challenge that narrative at every step, using:
1. Proof of Good Faith
We show that your actions were consistent with your fiduciary obligations—even if the outcome was less than ideal. Business judgment errors are not crimes.
2. Reliance on Advisors
We highlight the fact that you followed advice from accountants, legal counsel, or compliance teams—undermining the idea that you acted with criminal intent.
3. Disclosure and Transparency
If you disclosed risks, conflicts, or limitations, we emphasize this to show you acted in the open—not deceptively.
4. Lack of Personal Gain
Fraud requires motive. If you did not financially benefit from the alleged misconduct, it strengthens your defense.
5. Aggressive Pre-Charge Defense
As former prosecutors, we know how to communicate with agencies like the SEC, DOJ, or state regulators before charges are filed, often steering the matter back toward a civil resolution—or avoiding charges altogether.
Know the Line. Protect Your Reputation.
If you’re involved in a business dispute or fear an accusation of fraud from a partner, investor, or client, don’t assume it’s just a civil issue. The government often sees what it wants to see.
Contact Simmons & Wagner today for a confidential consultation. As seasoned defense attorneys and former prosecutors, we know how to draw the line—and how to keep you on the right side of it.