Breach Of Fiduciary Duty

 

Bill is the employer for XXX website design private limited, he is stationed in Canada with subsidiaries in India, China, and Singapore. Bill traveled to his subsidiaries quarterly for staff meetings and team buildings.

 

Just a day before his trip to Singapore, Bill received a call from Jackson, which is his existing client for e-commerce website design and maintenance. Jackson informed Bill that another website design company from Singapore had emailed him with very special rates, 30% different from what Bill is charging him!

 

This information sounds normal as there are always competitors providing the same business and undercut pricing to convert customers to their company. Bill did not take it too seriously and thinking that Jackson is trying to ask for more discounts, and Bill proceed his business trip to Singapore

 

Jackson was upset as Bill had misunderstood his intention, looking at the business relationship, Jackson replied to that marketing email and asked for a formal quotation and the quotation was received a day later. Jackson was shocked to see that quotation! The descriptions on that quotation were exactly word for word and the same as the first quotation he had received from Bill two years ago! Jackson did not feel good about this and had decided to confront Bill about this incident, he forwarded the quotation to Bill and mentioned: "Did you have another company with the name of YYY website design Private Limited"?

 

While Bill is in Singapore, he was too busy with his meetings and team-building with the Singapore staff, Bill happily announced the yearly wage increments and yearly bonus scheme. On the last day of his trip, Bill decided to read his email to clear some backlogs before going to his next subsidiary. Bill was shocked to see what Jackson had emailed him! Bill hesitated but kept clam to think what to do? 

 

Bill had decided to extend his stay in Singapore without informing the team, he has decided to perform a covert investigation into this matter, he started his investigation from his hotel and contacted some local fraud investigators to work out a plan.

 

Over the weekends, investigators led by Bill went back to the office to install hidden CCTV cameras and digital forensics investigators were involved to perform forensics images of all the computer storage media. 

 

The entire investigation was performed at the investigator's forensics laboratory and results reviewed that a similar quotation was found on five desktop computers belonging to the sales director, sales executive, two website designers, and the marketing director. Digital forensics also identified that an external USB hard drive was connected to the sales director's desktop, and the investigator had now identified one prime subject and four sub-subjects.

 

More information was discovered from the CCTV camera footage that night when the sales director and a woman came back to the office at midnight and accessed the sales director's desktop. It was also discovered that the owners of the YYY website design Private Limited were two females and both were identified as the sales director's wife and the marketing director's wife.

 

An urgent company meeting was called and the team was shocked to see Bill returned, the investigators interviewed the sales director and the marketing director separately about the incident, however, both directors argued that there was no clause mentioned in the employment contract that their family members were not allowed to start a similar business! Both directors were unhappy and tender their resignation letters and left the company.

 

The investigator conduct interviews with the rest of the staff, two website designers have admitted that they are helping the two directors as a part-timer and are willing to be witnesses to the incident.

 

Of no choice, Bill decided to employ local solicitors to understand the legal compliance and obligations, now the investigation team led by Bill involved commercial investigator, digital forensics examiner, and litigation lawyers, the entire team work together and suggested to apply a search and seizure court order to perform evidence collection at both the subject's premises and also the YYY website design Private Limited office. 

 

Within two days, a court order known as the Anton Pillar Order was approved to conduct search and seizure at the subject's premises. A police report was also lodged against the four subjects.

 

To prevent subjects from destroying the evidence, three teams of investigators were formed to concurrently serve the court orders at three locations. Computer equipment and storage medias found at the premises were seized by the digital forensics examiner, further examination of the seized computer storage media shown that both subjects were stealing XXX website design private limited customer database, website design templates, and operational data for the past four years, the investigation results also discovered that 25% of Bill's customers had been converted to YYY website design Private Limited. Certified public accountant estimated the financial losses to be USD300,000 across the last four years.

 

The Verdict

Both subjects returned a total of USD250,000 and negotiated with Bill not to sue them in court. The commercial crime unit had stepped in to continue with the investigation.

 

Lesson Learned

From this case, we can identify the gaps for such business models, if you are operating a similar business model, consider the following methods to minimize future business risks:

 

1. Install CCTV cameras (not hidden) at your remote subsidiaries, these cameras will form the physical security for the business to prevent internal fraud and external intruders.

 

2. Install a bio-metrics door entrance system, this will keep records of employees in and out of the office and it could be used as part of key performance indicators (KPI) or formed part of evidence should there be an incident.

 

3. Build good relations and have regular conversations with your customers, you will get good feedback to improve your business.

 

4. Get a local contract lawyer to review employment agreements for each subsidiary to ensure it complies with the local law. Is the Non-Disclosure Agreement (NDA) and the Non-Competition Clause (NCC) important to your business?

 

5. Review your current business processes, policies, and procedures.

 

6. Consider purchasing the Fidelity Guarantee insurance which is a policy to indemnify the Insured employers for the loss of property or money sustained as a direct result of acts of theft, dishonesty, and fraud by an employee in the course of employment. Check with your insurance company if there is such insurance in your country.

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