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Seven Self-Dealing Patterns Regulators Monitor Closely, Sigma Journal

Understanding Self-Dealing: Key Patterns and Implications

What are the seven self-dealing patterns that regulators frequently observe? These patterns reveal critical insights into corporate governance and potential conflicts of interest.

By Sigma Research·May 17, 2026·12 min · 2,592 words

Self-dealing rarely arrives wearing a name badge.

Self-dealing red flags: 7 patterns regulators watch

The interesting thing about self-dealing is not that it exists. Human beings have been helping themselves since records began. The interesting thing is how often it leaves a paper trail that is both mundane and fatal: a compensation committee that did not really negotiate, a related-party note filed late, a valuation memo that reads like fan fiction, a board minute that says everyone was independent when everyone plainly was not.

For regulators, self-dealing cases are attractive for a simple reason. They sit at the intersection of disclosure, fiduciary duty, market abuse, and accounting. One set of facts can support several theories at once. For investors, these cases matter because they are rarely isolated. A company willing to transfer value quietly to insiders is often willing to smooth earnings, bend disclosure timing, or treat minority holders as a rounding error.

This article sets out seven patterns that recur in enforcement actions and court cases. The list is not a moral taxonomy. It is a practical one. These are the structures, disclosures, and approval failures that repeatedly draw scrutiny from the SEC, AMF, ESMA-era MAR enforcement in Europe, the FCA in the UK, and courts applying corporate law standards in places like Delaware.

Why regulators care, even when the amounts look small

A self-dealing transaction can be tiny in absolute terms and still matter. The amount is not the whole story. Regulators care because conflicted transactions reveal whether a company has functioning internal controls and whether public disclosures can be trusted.

Process is often the first offence

In enforcement practice, the first crack tends to be procedural. Was the conflict identified? Did the interested person recuse themselves? Was an independent committee formed? Did the board obtain third-party pricing or fairness analysis? Were the terms benchmarked against market alternatives? If the answer to several of these is no, the case starts to write itself.

The SEC’s related-party disclosure framework under Regulation S-K Item 404 is a good example. It does not outlaw related-party transactions. It requires issuers to disclose material transactions involving directors, executive officers, significant shareholders, and their immediate family members, where the amount exceeds the threshold and the person has a direct or indirect material interest. The policy logic is plain. Investors can tolerate a conflict more readily than they can tolerate a hidden one.

Under the EU Market Abuse Regulation, the focus is somewhat different but adjacent. Persons discharging managerial responsibilities, and persons closely associated with them, must notify transactions in the issuer’s securities, subject to thresholds and timing rules. That does not solve self-dealing by itself, but it gives regulators a map of who traded, when, and around what information environment.

Disclosure failures are rarely lonely

A cheap asset sale to a founder’s vehicle may also create false or misleading financial reporting if the company books the transaction as arm’s length. A below-market equity grant may also misstate compensation expense. A selective disclosure episode may sit alongside insider dealing concerns. Self-dealing cases travel in packs.

Market	Regulator	Rule	Deadline	Notes
US	SEC	Regulation S-K Item 404 and Exchange Act reporting	Periodic disclosure; Forms 3, 4, 5 have separate deadlines	Related-party transactions must be disclosed when material and above threshold; insider ownership changes are separately reported.
FR	AMF	MAR Art 19	T+3	PDMRs and closely associated persons must notify transactions in issuer securities within three business days; French company law adds related-party approval rules for certain conventions réglementées.
EU	National competent authorities under ESMA framework	MAR Art 19	T+3	Disclosure of managers' transactions is harmonised, but company-law treatment of related-party transactions remains partly national.
UK	FCA	UK MAR and Listing Rules related-party provisions	T+3 for PDMR dealings	Premium-listed issuers face additional related-party transaction requirements, including sponsor and shareholder protections in some cases.

Disclosure timing is harmonised in part, but the governance treatment of conflicted transactions still depends heavily on local company law.

Pattern 1: Below-market grants and sweetheart compensation

The cleanest self-dealing pattern is also one of the oldest. Insiders receive equity, options, loans, or other compensation on terms a genuinely independent board would not have approved.

Cheap options, backdating, and the fiction of market pricing

The classic American example is options backdating. During the 2000s, the SEC pursued a series of cases involving grants dated to low points in the share price, creating instant paper gains while disclosures suggested ordinary at-the-money awards. The legal theory varied across cases, but the core issue was straightforward: management and boards represented one thing to investors and did another in the grant paperwork and accounting.

Backdating is a particularly useful case study because it shows what regulators look for beyond the headline misconduct. They examine grant-date documentation, board and committee calendars, email trails, valuation assumptions, and compensation expense recognition. If the formal approval date and the economic grant date do not match, or if grants repeatedly cluster at local price troughs without a credible process explanation, suspicion is not exactly irrational.

Loans and perks dressed up as ordinary remuneration

Sweetheart compensation is not limited to stock options. Insider loans, personal use of corporate assets, consulting arrangements for relatives, retention bonuses tied to no measurable service, and severance packages negotiated by interested directors all fit the pattern. Again, the issue is not that executives are paid. It is whether the terms are market-based, independently approved, and properly disclosed.

A useful investor question is whether the board’s compensation committee appears to negotiate or merely notarise. If a committee relies entirely on management-prepared comparables, ignores peer medians when they are inconvenient, or approves bespoke side letters without clear rationale, the governance risk rises sharply.

Pattern 2: Related-party purchases and sales that make little commercial sense

Many self-dealing cases are just ordinary corporate transactions with one awkward feature: the counterparty is linked to management, a director, or a controller.

Asset transfers at suspicious prices

The red flag here is not merely a related party. It is a related party plus terms that fail a basic smell test. A company buys a property from a director’s vehicle above appraised value. It sells a valuable subsidiary to the founder’s family office at a discount. It leases office space from an executive’s spouse on premium terms. Each transaction may be explainable in isolation. Repetition is what turns anecdote into pattern.

In the US, SEC disclosure rules and exchange governance standards require boards to have procedures for reviewing related-party transactions. In France and other civil-law jurisdictions, company law often imposes approval and reporting requirements for regulated agreements with insiders. The details vary, but the principle does not. A conflicted transaction must be surfaced, reviewed, and justified.

“Independent” valuations that are not independent enough

Regulators and courts pay close attention to valuation work in self-dealing cases. Was the adviser truly independent? What assumptions drove the model? Were comparable transactions cherry-picked? Did management steer the process toward a preselected outcome? A fairness opinion is not a magic amulet. If the inputs are compromised, the paper shield dissolves quickly.

For minority investors, this is where the practical warning lies. The presence of a fairness opinion should lower concern only if the process around it appears robust: independent committee, broad mandate, alternative bids considered, and clear disclosure of methodology.

Pattern 3: Opportunistic issuances, buybacks, and capital raises around insider interests

Capital structure decisions can become self-dealing when insiders influence timing or terms to favour themselves over the company or minority holders.

Dilutive issuances to friendly hands

One familiar pattern is a private placement to insiders or friendly investors at a discount, often justified by urgency. Sometimes urgency is real. Sometimes it is a management preference for keeping control while avoiding a broader process. Regulators and courts ask whether the issuer explored alternatives, whether pricing reflected market conditions, and whether disinterested directors approved the deal.

Controllers can use discounted issuances to consolidate power. Even if the company receives cash, minority holders may suffer if the terms are unnecessarily dilutive or if the process was designed to exclude competing financing options.

Buybacks that support insiders more than shareholders

Buybacks are not inherently suspect. They become suspect when they are timed or structured to solve an insider’s problem. For example, a company repurchases shares from a founder or related vehicle on terms not available to others, or launches a programme while insiders possess material non-public information and governance controls appear weak.

The legal treatment is fact-specific, but the analytical framework is simple. Who benefited disproportionately? What information did decision-makers have? Was the company’s rationale documented before the transaction, or discovered afterwards in the legal defence?

Pattern 4: Issuer-funded exits and rescues for insiders

This pattern is less glamorous than a takeover battle and often more revealing. The company uses its balance sheet to clean up an insider’s personal mess.

Personal liabilities quietly migrated onto the issuer

Examples include the company guaranteeing an executive’s debt, buying impaired assets from a related party, extending payment terms to a director-owned customer that no third party would receive, or funding litigation settlements that primarily benefit insiders. Sometimes these arrangements are buried in footnotes. Sometimes they are described in language so antiseptic that one suspects a lawyer has been paid by the adjective.

These cases attract scrutiny because they invert the normal direction of corporate benefit. The company is supposed to serve shareholders collectively, not function as a private support vehicle for management.

Going-private and squeeze-out contexts

Issuer-funded exits also arise in controller transactions. A controlling shareholder may seek to take a company private using structures that shift risk or cost onto the target. Delaware case law is especially instructive here. Courts focus intensely on process: whether an independent special committee was empowered, whether minority approval was required, and whether negotiations were real rather than ceremonial.

The lesson for public-market investors is not that every controller deal is abusive. It is that process quality determines whether a conflict is constrained or merely documented.

Pattern 6: Round-trip structures and circular money flows

When a transaction is too ugly to present directly, it sometimes returns wearing a different hat.

The affiliate in the middle

A company sells an asset to an apparently independent buyer, who then resells it to an insider affiliate. Or an insider-funded entity “invests” in the company using money that originated with the company through loans, guarantees, or prepaid contracts. Circularity is a favourite feature in enforcement narratives because it suggests intent. Honest transactions can be messy. Fraudulent ones are often needlessly elaborate.

Accounting and disclosure become central here. If the issuer records revenue, gains, or financing proceeds without adequately reflecting the related-party nature or recourse structure, the case broadens quickly.

Revenue and balance-sheet cosmetics

Round-trip arrangements can also be used to flatter financial statements while transferring value. The company books sales to an insider-linked distributor, extends generous terms, and later absorbs the losses through side agreements. The market sees growth. The insider sees liquidity or compensation. The company sees, eventually, an enforcement file.

For investors, one practical clue is a mismatch between reported transaction form and economic substance. If cash appears to move in circles, if counterparties are hard to map, or if footnotes describe guarantees and side letters in unusually dense prose, caution is warranted.

Pattern 7: Board approval mechanics that exist on paper only

This final pattern is less cinematic than a secret side deal, but it may be the most predictive. The board process is formally compliant and substantively hollow.

Independence that does not survive daylight

Regulators and courts are not impressed by labels. A committee called “independent” is not independent if members have financial ties, family relationships, or career dependencies that compromise judgment. Nor is recusal meaningful if the interested executive effectively runs the process from the hallway.

Minutes matter here. So do calendars, drafts, and adviser engagement letters. Did the committee meet more than once? Did it have authority to say no? Did it hire its own counsel? Were alternatives discussed? Was management excluded from key negotiations? The difference between a real process and a decorative one is usually visible in the documents.

Boilerplate disclosure as a red flag

Investors should treat generic disclosure with suspicion when the transaction is unusual. If a proxy or annual report says a related-party transaction was reviewed under company policy but provides little detail on pricing, alternatives, or recusals, that is not comfort. It is often evidence that the issuer wants the legal benefit of saying “policy” without the inconvenience of showing work.

This is also where enforcement actions become teachable. Agencies repeatedly allege that issuers had policies on paper, but failed to identify covered relationships, failed to route transactions for review, or failed to update disclosures after facts changed. A policy that no one uses is a museum piece.

What documented enforcement teaches investors

The common thread across documented cases is not villainy of a particular style. It is the collapse of arm’s-length discipline. Once that discipline weakens, insiders can extract value in many forms: cheap equity, favourable financing, asset transfers, selective exits, or informational advantages.

The red-flag checklist that actually helps

A workable checklist is short:

Map the relationships. Identify directors, officers, controllers, family ties, and controlled entities.
Test the economics. Compare price, timing, and terms with market alternatives.
Read the process. Look for independent committee authority, recusals, and external advice.
Check the disclosure clock. Were filings timely under the relevant regime, including MAR Article 19 where applicable?
Follow the cash. Watch for guarantees, side letters, circular funding, and issuer-funded cleanups.
Compare narrative with accounting. If the transaction is arm’s length in prose but related-party in substance, the risk is obvious.
Watch for repetition. One odd deal may be noise. A series is usually culture.

Why this matters beyond any single filing

Self-dealing is a governance signal with long half-life. Companies that tolerate one conflicted transaction often display the same weaknesses elsewhere: inattentive audit committees, poor controls over disclosures, overmighty founders, and boards that confuse loyalty with supervision. The market may ignore these issues for a while, especially in rising sectors or founder-led stories. Regulators are less sentimental.

If there is a dryly comic element here, it is that many cases could have been prevented by the sort of administrative competence no one celebrates on earnings calls. Maintain a related-party register. Route transactions through a real review process. Document recusals. Obtain external pricing. File on time. It is not a heroic programme. It is merely governance.

The practical next step for investors is equally unromantic. Build a repeatable review of related-party disclosures, insider transaction reports, and board-process language across annual reports, proxies, and regulatory filings. The open question is not whether self-dealing exists. It is which public companies still treat conflict management as a drafting exercise rather than a control function.