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This case study assignment is designed to have you apply the main topics from the readings and presentations assigned this week. Each week you will review the case and answer the questions posed based on each week’s content.
Please review the case studies and answer all the questions. Each case study response must be at least one double-spaced page, APA format.
Based on this business structure, what liability does the firm have related to Murdaugh’s mishandling of client accounts?
As a partner of the firm, what will Murdaugh’s personal liability be, if any, based on the business structure?
Please review the case studies and answer all the questions. Each case study response must be at least one double-spaced page, APA format.
Based on your understanding of these white-collar crimes, explain how PMPED could possibly escape being charged with similar charges.
How do you think PMPED could have possibly missed so many cases of fraud impacting clients?
What level of accountability do you think they have to clients of the firm represented by Murdaugh that were victims of the crimes in which he is charged?
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The Legal & Regulatory
Environment of Business 19e
Chapter 14
Business Organizations
Pagnattaro Cahoy Magid Shedd
14-2
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Learning Objectives
• To describe the factors to consider when
deciding on the form of organization
• To contrast the basic organizational forms that
businesses select to conduct business
• To compare the hybrid organizational forms
businesses may utilize to take advantage of
attributes of various basic structures
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Learning Objectives, II
• To describe the authority of agents to act on
behalf of a principal in contracts and beyond.
• To recognize trends in managing
organizations.
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Forms of Business Organizations
• Basic
– Sole proprietorships
– Partnerships
– Corporations
• Hybrid
– Limited partnerships
– S corporations
– Limited liability companies
– Limited liability partnerships
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Number of Owners
• Closely held: Organizations owned by only a
few persons
– Family-owned and family-operated businesses
• Publicly held: Businesses owned by hundreds
or thousands of persons
– Business stock is traded on a public exchange
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pop
QUIZ
pop
QUIZ
pop
QUIZ
Pop Quiz
Which is not a basic form of business
organization?
a. Corporation
b. Partnership
c. Union
d. Sole proprietorship
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Factors to Consider When Selecting
a Business’s Organizational Form
• Cost of creation
• Continuity of the organization
• Managerial control of decision
• Owner liability
• Taxation
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Figure 14.1 – Corporate Form Selection
Factors
Source: Delaware Division of Corporations, Legal Business Structure Table,
https://revenuefiles.delaware.gov/docs/business_structures_table.pdf
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Figure 14.1 – Corporate Form Selection
Factors, II
Source: Delaware Division of Corporations, Legal Business Structure Table,
https://revenuefiles.delaware.gov/docs/business_structures_table.pdf
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Sole Proprietorships
• Least expensive business organization to
create
• Proprietorship’s continuity is tied directly to
the will of the owner
• Sole proprietor is in total control of the
business’s goals and operations
• Owner has unlimited liability for the
obligations of the business organization
• Not taxed as an organization
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Partnerships
• Agreement between two or more persons to
share a common interest in a commercial
endeavour
• Factors while considering the appropriateness
– Creation
– Continuity
– Managerial control
– Liability
– Taxation
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think
TANK
think
TANK
think
TANK
Think Tank
Each partner in a partnership is jointly
and severally liable for claims
against the partnership
a. True
b. False
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Corporations
• Artificial and intangible entity created under
the authority of a state’s law
• Types
– Domestic
– Foreign
– Alien
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Corporations, II
• Creation
– Created by a state issuing a charter upon the
application of incorporators
– Corporation must be licensed to be able to
conduct business in foreign states
• Continuity
– Corporation has perpetual existence
– Shareholder’s death or sale of stock does not
affect the organizational structure
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Corporate Managerial Control
Shareholders
Board Of
Directors
Officers
Employees
Elected
Hired
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Corporation: Liability
• Limited personal liability: Owners are liable
for debts only to the extent of shareholders’
investment in the cost of stocks
• Piercing the corporate veil: Marginalization of
the corporate entity by courts when finding
out that the corporation is being misused
• Alter-ego theory: Used to impose personal
liability upon corporate officers, directors, and
stockholders
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Case 14.1 – Corporations Liability
• Case
– Alli V. U.S.
– 83 Fed. Cl. 250 (2008)
– Federal Claims Court
• Issue
– Dr. Alli and his spouse, property owners, sued the U.S.
Department of Housing and Urban Development
(HUD) for failure to pay housing assistance. These
owners held apartment complexes through BSA
Corporation. Should the court strip away the liability
protection of the Allis’ corporation and pierce the
corporate veil?
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Corporations: Taxation
• Corporations must pay income taxes on their
earnings
• Double tax: Profits taxed at corporate level and
then dividends taxed at individual level
• Methods to avoid double taxation
– Reasonable salaries
– Reasonable expense accounts
– Reasonable loans from shareholders
– Reasonable accumulation of earnings
– Subchapter S election
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Limited Partnerships
• Includes all the attributes of a partnership
• Limited partners: Not responsible for the
debts of the business organization
• General partners: Personally liable for the
organization’s debts
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S Corporations
• Shareholders of certain corporations elect
unanimously so that the organization is
treated like a partnership
• Include all legal features of a corporation
• Shareholders have to account individual
income tax returns for shares of profits or
losses
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S Corporations, II
• Shareholders avoid having a tax assessed on
the corporate income
• Cannot have more than 100 shareholders
• Individuals are eligible to elect under
subchapter S
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Limited Liability Organizations
• Limited liability company (LLC)
– Treated as nontaxable entities
– Owners have more flexibility compared with S
corporation
• Limited liability partnership (LLP)
– Variation of the LLC
– Have characteristics of both a partnership and a
corporation
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Non-Profits
• Must be approved by the IRS
• Created for a specific reason allowed by law
• Must be created for a public purpose and not
to personally benefit owners or members
• Must return any profits made to the
organization to be used for future operations
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Operating the Organization through
Agents
• Roles of a principal, agent, third-party, and
independent contractor
• Contractual liability from an agent’s acts
– The different types of authority: actual, implied
and apparent
– The concept of ratification
• Tort liability from an agent’s acts
– Respondeat superior
• Criminal liability from an agent’s acts
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Case 14.2 – Fiduciary Duties of
Corporate Executives
• Case
– Marchand v. Barnhill
– 212 A.3d 805 (Del. 2019)
– Delaware Supreme Court
• Issue
– When Blue Bell Creameries had a listeria
outbreak, forcing it to recall its product, shut
down production, and lay off employees, did key
executives breach fiduciary duties to
shareholders?
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Deciding on Organizational Form
• Review should be performed in consultation
with advisers
• Factors and costs involved should be
appropriately weighed
• Most suitable form should be selected
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Trends in Management
• Benefit corporation: Combines aspects of
non-profit and profit organizations
– Pursues explicit socially oriented goals
• Continued definition of the nature of
corporate personhood
– Corporations are considered as legal persons
– Corporations and individuals have equal claim to
rights and protections under the law
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Trends in Management, II
• Increased decline in criminal prosecutions for
corporate wrongdoing under deferred
prosecution agreements (DPA)
– Encourages self-reporting and remediation of
illegal acts before a criminal case is commenced
– Could lead to an overly lenient environment for
addressing corporate malfeasance
Page 1
Alex Murdaugh was the benefactor of being born into a South Carolina legal dynasty. For many years, he
rose to local notoriety due to his family’s legacy and his own legal conquests. In fact, Murdaugh was a
partner at the law firm on which his great grandfather founded practicing alongside his father and
brother. From the outside, he had a picture-perfect life – a wife, two sons, a successful career, multiple
homes, wealthy lifestyle, etc.
While there had been many questionable events over the years, the Murdaugh family had remained
unscathed. However, a crack to the foundation of the Murdaugh’s occurred in 2019 which put his family
in the local spotlight, and they faced scrutiny like never before. Murdaugh underage son, Paul, had a
deadly boating crash that occurred while he was heavily intoxicated. Paul was charged criminally, and
the family faced a civil suit for the accident. As a result, the community began to report prior
questionable acts of the family which included an accident that resulted in the death of their maid,
unpaid client settlements of clients, and embezzlement of funds from his law firm.
As the scrutiny heightened and legal proceedings were eminent, Murdaugh’s wife, Maggie, and his son,
Paul, were brutally murdered on the family’s hunting property. As the investigation into the deaths was
initiated, the actions of Murdaugh hit a bizarre level. He plotted his own murder in order to allow his
surviving son, Buster, to collect on a life insurance policy. However, the plot failed miserably, raising
more questions. Murdaugh immediately checked into a rehabilitation facility and admitted to a severe
addiction to opioids. The wheels of justice were in motion for Murdaugh at this point and there was no
stopping the momentum.
Murdaugh was charged, tried and found guilty of the murders of his wife and son. While likely one of
the more publicized cases, this is just one of many legal cases against Murdaugh. In the next five weeks,
we are going to review some of the other cases that are still looming for Murdaugh related to business
law.
Ethics and the law can be intertwined at a minimum standard. Many times, ethics are considered a
higher standard of operating than the law requires. It is a requirement that an organization abide by the
laws, but it is a duty to establish ethical standards in which they, as an entity and their employees, are
held accountable.
During this review of the Alex Murdaugh legal saga, we will look at not only the legal quandary that he
currently faces but also the ethical failures that occurred over time that was not questioned until these
legal woes became too big to turn a blind eye any longer.
When an attorney is sworn into the South Carolina Bar, they take an oath of their responsibilities. Two of
the excerpts of their ethical standards and duties is noted below:
“To my clients, I pledge faithfulness, competence, diligence, good judgment and prompt communication;
and
I will respect and preserve inviolate the confidences of my client, and will accept no compensation in
connection with a client’s business except from the client or with the client’s knowledge and approval;”
Based on this oath, Murdaugh owed a legal and ethical duty to his client. The law firm in which
Murdaugh was associated also had a legal and ethical duty to provide oversight of his actions as he was
an acting fiduciary of the firm. However, both Murdaugh and his law firm failed his clients to ensure
Page 2
they were represented in an ethical manner. As a result of his ethical violations, Murdaugh has been
disbarred from the South Carolina bar. To mitigate their damages, the law firm in which Murdaugh
worked has sued him for his unethical practices also. Below is a summary of the cases pending against
him.
Alex Murdaugh, the disbarred South Carolina lawyer convicted of murdering his wife and son,
was indicted Wednesday on more than 20 counts of orchestrating financial schemes that
allegedly stole millions of dollars from his clients over 16 years.
Among the charges is that Murdaugh defrauded the estate of Gloria Satterfield, the housekeeper
who died at his property in 2018, out of almost $3.5 million, prosecutors say.
The 22-count indictment unsealed by the U.S. attorney’s office for the District of South Carolina
says that Murdaugh, 54, “engaged in three different schemes to obtain money and property
from his personal injury clients” while he was a practicing attorney in Hampton, S.C.
Murdaugh, who was sentenced to life in prison without parole in March for the 2021 murders of
his wife, Maggie, 52, and son Paul, 22, has been charged with counts of conspiracy to commit
wire fraud and bank fraud, and committing bank fraud, wire fraud and money laundering,
according to prosecutors.
Murdaugh admitted during his murder trial that he had created a web of financial crimes that
bilked millions from vulnerable clients of his law practice, saying: “I believe the people I had stole
money from for all of those years trusted me.” Murdaugh, the patriarch of a South Carolina legal
dynasty whose case drew international attention, apologized several times during his testimony
for swindling clients among whom were teenage girls and a quadriplegic man.
“Trust in our legal system begins with trust in its lawyers,” U.S. Attorney Adair F. Boroughs said
in a news release announcing the charges. “South Carolinians turn to lawyers when they are at
their most vulnerable, and in our state, those who abuse the public’s trust and enrich themselves
by fraud, theft and self-dealing will be prosecuted to the fullest extent of the law.”
Dick Harpootlian and Jim Griffin, Murdaugh’s attorneys, said in a statement to The Washington
Post that their client “has been cooperating with the United States Attorneys’ Office and federal
agencies in their investigation of a broad range of activities.”
“We anticipate that the charges brought today will be quickly resolved without a trial,” the
attorneys said.
If convicted of all of the federal charges, Murdaugh faces up to 150 years added on to his life
sentence and fines up to $4.75 million.
Meanwhile, Murdaugh is expected to be deposed in the wrongful-death lawsuit brought against
him by the family of Mallory Beach, a 19-year-old who was killed in a 2019 drunken-boating
accident involving Murdaugh’s boat and his late son, Paul Murdaugh. A South Carolina judge
filed a consent order Monday “granting leave for parties to conduct the deposition” of Alex
Page 3
Murdaugh, which could take place virtually or in person. The lawsuit names other parties,
including Murdaugh’s surviving son, Buster.
Prosecutors in South Carolina say Murdaugh engaged in three separate schemes to bilk his
clients of money and property.
In the first, Murdaugh devised “a scheme to defraud and to obtain money by means of false
pretenses” between at least September 2005 and September 2021, according to the indictment.
He allegedly routed and redirected his clients’ settlement funds to personally enrich himself in
several ways, including by sending settlement funds to his accounts without proper disclosure,
and collecting attorney’s fees on fake or nonexistent annuities.
In the second alleged scheme, from around July 2011 until at least October 2021, Murdaugh
conspired with his banker, Russell Laffitte, to commit wire fraud and bank fraud, prosecutors say.
Laffitte collected more than $350,000 in fees in his role as personal representative or conservator
for numerous personal injury clients of Murdaugh’s.
“As part of the scheme, the indictment alleges Murdaugh directed law firm employees to make
settlement checks payable to ‘Palmetto State Bank.’ The checks were then delivered to Laffitte,
whom Murdaugh directed to use the settlement funds for Murdaugh’s benefit,” prosecutors
wrote. “The funds were used to pay off Murdaugh’s personal loans and for personal expenses
and cash withdrawals.”
Lafitte was convicted in November on six federal charges, including conspiracy to commit wire
and bank fraud, and committing bank fraud and wire fraud. He is awaiting sentencing.
In the third alleged scheme, prosecutors say Murdaugh set up a bank account presented as a
legitimate corporation for structuring insurance settlements between May 2017 and July 2021.
The indictment says Murdaugh funneled stolen personal injury settlements through an account
named “fake Forge” to conceal his fraud efforts.
It was during this scheme, prosecutors say, that Murdaugh defrauded Satterfield’s estate and his
insurance carriers after she died. Murdaugh recommended that the housekeeper’s estate hire an
attorney to represent the estate and file a claim against Murdaugh to collect from his
homeowner’s insurance policies. Murdaugh’s insurance companies settled the estate’s claim for
$505,000 and $3.8 million, the indictment says. Then, Murdaugh and the attorney allegedly
“conspired to siphon settlement funds, disguised as ‘prosecution expenses,’ for their own
personal enrichment.”
“The indictment further alleges that Murdaugh directed the Beaufort attorney to draft checks
totaling $3,483,431.95 made payable to ‘Forge,’” prosecutors say. “Murdaugh then deposited
the checks into his ‘fake Forge’ account and used the funds for his own personal enrichment. The
estate did not receive any of the settlement funds.”
Eric S. Bland, the Satterfield family’s attorney, tweeted that the federal charges against
Murdaugh amounted to “a great day for justice in South Carolina.”
“While it is said that Lady Justice is blind, she is not a sucker,” he wrote. “Bottom Line — Cant
run or hide from justice.”
Page 4
Murdaugh claimed during his trial that bad land deals and an addiction to opiate pills fueled a decadelong cycle of borrowing and spending by him that battered his family’s finances. His attorneys
have framed his alleged financial shadiness in recent court filings as being representative of “a bleak and
dispiriting story of a man brought to his knees by a crippling drug addiction, who also had the financial
means and knowledge to effect great financial harm upon others to feed that addiction.”
Contracts are an important tool in businesses and are the foundation of a lawyer’s relationship with their
clients. Contracts ensure that all parties understand and have confirmation of what they are agreeing to,
and to ensure there is no room for misrepresentation. Additionally, because the terms are outlined
clearly, there is legal accountability if a contract is not performed by one or more of the parties.
Attorneys generally enter into contracts with each of their clients as a representative of their firm.
Additionally, the attorneys also enter into contracts with their firms to agree to the terms of employment
and the expectations of how their cases are to be handled and managed as a member of the firm. This
was no different for Alex Murdaugh; he had a contractual obligation to each of his clients as well as his
firm.
The law firm that the prominent Murdaugh family helped start is now suing Alex Murdaugh.
In court documents filed Tuesday in Colleton County, the PMPED law firm is suing Murdaugh for
actual damages “together with punitive damages in an appropriate amount” after claiming
Murdaugh used money from clients and the firm for his own personal use.
A specific dollar amount was not mentioned.
According to the court filing, Murdaugh was covertly stealing the funds and putting them into a
Bank of America account in the name of “Alexander Murdaugh d/b/a Forge,” which was a
fictitious entity.
The lawsuit alleges Murdaugh put the account in that name to avoid detection, knowing the
longstanding relationship the firm had with Forge Consulting LLC in Columbia.
According to the court documents, the firm began investigating on September 2 after finding a
suspicious check on Murdaugh’s desk.
It was the following day that Murdaugh was confronted with the information PMPED learned,
and he admitted to taking the funds. The lawsuit reads that Murdaugh was asked to resign, and
he submitted his resignation that afternoon.
PMPED says it has reimbursed all client trust accounts who have suffered a loss due to
Murdaugh’s actions. But the firm says it may learn about additional losses.
“As a result of Alex Murdaugh’s conduct in breach of the contract, PMPED has suffered
damages,” the lawsuit reads. “These include but are not limited to monies paid by PMPED to
Page 5
protect clients’ interests and to fully discover the improper actions of the Defendant as well as
any additional monies that may have to be paid in the future for Alex Murdaugh’s conduct.”
Jim Griffin, one of Alex Murdaugh’s lawyers, responded to the lawsuit on Wednesday.
“This is a very sad development,” he said. “Alex holds every member of the Peters, Murdaugh,
Parker, Eltzroth, Detrick law firm in very high esteem. He has pledged his full cooperation to the
firm.”
As you can see Alex’s firm has now initiated action for his breach of contract to the firm which created
significant liability for them to each of Murdaugh’s defrauded clients.
Peters, Murdaugh, Parker, Eltzroth, and Detrick, PA (PMPED) was the law firm in which Murdaugh was a
partner and his great grandfather founded. The firm was set up a Professional Association (PA) business
structure. A Professional Association is a business entity that is available to organizations offering
professional services like accounting and law firms. Professional Associations have all of the benefits of a
Limited Liability Corporation (LLC), but it is taxed as a corporation.
When a company has employees that act on their behalf or during the normal course of business to
conduct their job duties, the employer becomes a respondeat superior. This doctrine states an
employer is responsible for the actions of its employees performed during the course of their
employment.
This is a key reason for companies (or firms) to develop and implement policies and train employees on
the expectations and requirements. It is unknown what, if any, policies existed at PMPED or if attorneys
or employees received any training.
Referenced Articles:
https://www.washingtonpost.com/nation/2023/05/24/alex-murdaugh-federal-charges-stealing-millions/
https://www.greenvilleonline.com/story/news/2022/07/13/alex-murdaugh-news-officially-disbarred-scsupreme-court/10044376002/
https://www.cnn.com/2021/10/06/us/alex-murdaugh-sued-former-law-firm/index.html
https://www.wjcl.com/article/alex-murdaugh-pmped-lawsuit/37886606
https://abc7chicago.com/alex-murdaugh-fraud-case-news/12938583/
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The Legal & Regulatory
Environment of Business 19e
Chapter 13
Criminal Law and Business
Pagnattaro Cahoy Magid Shedd
13-2
Page 3
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Learning Objectives
• To recognize the basic terms and procedures
relevant to criminal conduct
• To explain Fourth, Fifth, and Sixth Amendment
rights
• To identify the elements of specific crimes
• To understand the far-reaching impact of
criminal behavior as the same acts can give
rise to both civil and criminal liability
Page 4
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Crimes
• Wrongs against society
– Criminal law punishes wrongdoers who affect the
ownership of property
– Federal and state penal codes define criminal acts
and omissions
• White-collar crime: Any illegal offense that
occurs in a business or professional setting
– Committed to harm the business or for personal
gains
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Table 13.1 – Examples of White-Collar
Crimes
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Felony
Indictment
Grand Jury
Fine or
Imprisonment
Misdemeanor
Information
Gov’t Charge
Fine Or
Jail
