Self Dealing Law & Legal Definition

Self-dealing, in the context of stock market transactions, refers to using secret "inside" information learned by being, or communicated from, an official of a corporation to buy or sell stock or property wanted by the corporation before the information becomes public. Shareholders can sue corporate officers who engage in self-dealing for fraud. The federal Securities and Exchange Act makes self-dealing in securities a crime.

Self-dealing may occur in a variety of situations, when a person benefits or attempts to benefit from a transaction carried out on behalf of another, For example, self-dealing may occur by a property manager, who conceals ownership of an "outside" company it hired for property maintenance and repairs, and which substantially overcharges for these services. Or a property manager may misappropriate the reduction in property taxes it negotiates for the building, and, in addition, use the rents it collects for its own purposes before depositing them in the owners' account.

Section 4941 of the tax code prohibits most transactions between a private foundation and a "disqualified person." A disqualified person covers a broad group of people, including, among others, officers, directors, trustees, and substantial contributors.  It also includes the spouses, ancestors, descendants and entities owned to a defined extent by any of the individuals listed above.

Prohibited transactions include sales, leases, loans, exchanges and certain forms of compensation, transfer of any income or assets from the foundation to a disqualified person or for the disqualified person's use or benefit; or agreeing to pay a government official with foundation assets.