Bishop Presents Insider Trading in Nonprofit Corporations at Seton Hall

Carter G. Bishop (Suffolk) presented Insider Trading in Nonprofit Corporations at Seton Hall as part of its Faculty Colloquium Workshop Series.  Here is the abstract:

Insider self-dealing scandals affect both for-profit and nonprofit corporations (the latter the entity choice of approximately 80% of § 501(c)(3) entities). Statutory exculpation for even gross negligence has eviscerated state law fiduciary duty of care liability in both the for-profit and nonprofit sector. Consequently, absent board self-dealing, the only board liability for oversight failures after Disney and Stone involve systemic abdication - not really an appropriate standard for nonprofit corporations since many board members volunteer and/or are donors and so do not attend. Therefore, I propose several "federalism" changes to the § 4958 excess benefit rules to (i) extend the § 4941 private foundation self-dealing absolute prohibitions to public charities (both exempting only reasonable compensation of insiders); (ii) increase the initial tax on the self-dealer to 50% of the transaction amount (not the excess) or some similar significant deterrent level; and (iii) require more trustworthy information on the Forms 1023 and annual 990 by requiring some Sarbanes-Oxley measures such as audited financial statements to an independent audit committee and an independent compensation committee to set reasonable compensation. I would exempt small charities from these requirements because of cost.