Fiduciary relationship exists between investor and adviser.

The fact that in some cases Deloitte dismissed negative information because it was outweighed by contrary information may have been bad judgment but did not sustain a securities fraud action.

The U.S. Court of Appeals for the Seventh Circuit ruled that an investment adviser owed a fiduciary duty to his client in giving investment advice.

Plaintiff Patricia Burdett retained Robert Miller, a CPA and a professor of accounting at North-western University, for advice on investing her substantial yearly income. She specifically wished to minimize taxes on the income. Miller advised her to invest in various tax shelters controlled by three of his acquaintances. He did not inform her these shelters were the group's first venture, the investment units would be unmarketable and her investment in two of the units represented one-third of the total investment in the project. Miller also didn't provide a prospectus or any other written information. All of the investments failed, and Burdett lost approximately $200,000.

The district court ruled Miller had violated a fiduciary duty to Burdett by giving her deliberately misleading investment advice. It defined a fiduciary duty as the duty of an agent to treat his principal (in this case, Burdett) with the utmost candor, care, loyalty and good faith.

On appeal, the Seventh Circuit agreed a fiduciary duty arose in this case. The court cited the facts that Miller cultivated a relation of trust with Burdett over a period of years, Miller held himself out as an expert and Burdett was an inexperienced and unsophisticated investor.

The court said Miller could have protected himself from being deemed a fiduciary by explaining the investments to Burdett, by furnishing her with a prospectus and by advising her to seek an additional opinion before she invested. He had taken none of those steps. Consequently, a fiduciary relationship existed between the parties. (Burdett v. Miller, 957 F.2d 1375)