Scenario
This exercise presents a scenario whereby Jane Doe, the president of XYZ Charity, awards a $200,000 service contract to her husband’s for-profit direct mail company. Her husband, Jim Doe, owns 51 percent of the direct mail company while Jane owns the other 49 percent. The contract is awarded without being brought to the attention of XYZ Charity’s board of directors first and furthermore, the contract is billed by the direct mail company at a price premium.
The question is whether or not this scenario exemplifies inurement to the benefit of insiders.
Coach concludes that yes, this scenario shows inurement. Jane uses her position as president to steer a high-dollar contract to a company in which she has substantial ownership. No competitive bids are made on the contract and no attempts are made to seek out alternative service providers. The fact that a price premium also factors in to the scenario unequivocally shows inurement to the benefit of an insider.