What is Malfeasance?
Malfeasance is the legal term for intentionally doing something that is illegal.
How Does Malfeasance Work?
Let's say John Doe is Jane Smith's broker. John really wants to keep Jane Smith as a client, and he is in charge of her managed account, which means he can buy and sell for her account without her prior approval.
John decides that he wants to increase the returns in Jane's account, so he gets a tip from his buddy, Jake Johnson, who is the CFO of Company XYZ and who tells him that Company XYZ is about to be acquired by Company ABC. John takes this piece of insider information and buys 10,000 shares of Company XYZ for Jane's account. As expected, the stock price of Company XYZ soars 50% after Company ABC announces its acquisition plan five days later. Jane's account makes $200,000.
John has intentionally done something illegal (trade on insider information) that he knows could harm Jane if caught. This is malfeasance.
Why Does Malfeasance Matter?
Malfeasance is a term often connected to political figures, and it is hard to prove.