Randall Lane most likely did not break the regulation by accepting $6 million at Forbes. He should be sued

A Forbes spokesperson told Fortune: “When this undisclosed conflict of interest was brought to our attention, we examined the situation closely and took the appropriate action immediately. We will not comment further per company policy regarding the confidentiality of personnel information and other considerations. We have a strong editorial leadership team in place, including Kerry Lauerman, Executive Editor, Forbes, who is overseeing editorial operations in the interim. Forbes remains focused on delivering trusted journalism and world-class storytelling across our platforms.”

A  faithless servant doctrine

But the more interesting question, legally, isn’t whether Forbes was justified in firing Lane. It’s whether Lane broke any criminal law, and the answer, according to one employment attorney, is probably not. What he likely violated is a New York common-law doctrine dating back more than a century that requires employees to remain loyal to their employers.

Richard Friedman, an employment attorney who negotiates contracts and separation agreements for executives, said Forbes was within its rights. “I believe he was properly terminated, based on what I’ve read,” Friedman said.

Friedman said Forbes’ employee handbook—which, according to the Times, requires staff to seek permission before engaging in outside business activities and bars personal gain from company relationships—likely functions as a binding contract. “Employee handbooks have been upheld as contracts because the consideration is the ongoing employment,” he said.

But Friedman said Lane’s obligations to Forbes didn’t depend on any handbook at all. “Employees owe fiduciary duties to their employers,” he said, “wholly apart from written policies contained in employee handbooks or otherwise.”

Friedman pointed to New York’s “Faithless Servant” doctrine, a common-law theory on the books for over 140 years that allows employers to recover compensation from employees found to have acted disloyally. Courts, he said, have found disloyalty “can cover a wide range of conduct, including fraud, gross negligence, embezzlement, misappropriating trade secrets, and other behavior viewed as detrimental to the company, as well as making material misstatements or omissions with respect to the company’s financial posture.”

How far back that recovery can reach has varied from case to case. “Under the faithless servant doctrine, employers will sometimes take the position that the entire compensation paid to the employee from the inception of employment is subject to clawback,” Friedman said of the doctrine that was invoked as early as in two court cases dating from 1885 and 1886. “In other cases, employers have only sought disgorgement of the compensation paid during the period of disloyalty.”

Friedman said the danger of a payment such as the one made to Lane is that it could impact, or create the appearance of impacting, the decisions an executive makes vis-à-vis the person or entity that made the payment. “If I’m expecting to receive or have received a substantial payment such as $6 million from a business partner of my employer, I may choose to increase the contractual relationship with that company,” he said. “I may choose to award it a lucrative contract without soliciting bids, I may choose to pay them a higher fee than the market requires, or I may choose to be more generous with that company when allocating revenue between the two companies.”

“You can only have one master. If I’m an employee, I owe my duty to my employer.” Lane, he said, “owed his duties exclusively to Forbes, as opposed to Forbes and also his apparently good friend Shook.”

A gift, or a business expense?

“It would appear that Forbes has a written policy which requires Lane to seek permission to accept the offered payment,” Friedman said. He sketched out what that disclosure could have sounded like: “Listen, I’ve had this long-standing friendship for 13 years with Shook. He’s offered to make a substantial gift to me. I think it’s very generous of him and unnecessary, but I certainly would appreciate it, and I don’t see any impropriety. But I wanted to let you know in advance and hopefully confirm that I can accept the gift.”

Of course, Forbes could have declined the request. If Lane had complied and Forbes said no, he wouldn’t have gotten the $6 million, but he still would have his job.

The detail that most complicates Lane’s account, in Friedman’s view, is how the payment came to light in the first place. “The PE firm apparently contacted Forbes and said we just found a $6 million payment to one of your senior people on the accounting records of the company we just bought,” Friedman said.

That points to where the money actually came from. “If the payment was on the accounting records of the company, it was presumably deducted as a business expense and therefore not a personal gift by Mr. Shook,” Friedman said. He also noted that a payment of that size carries its own tax consequences regardless of how it’s characterized. “There are tax ramifications to gifts,” he said. “I can’t give you $6 million without incurring a tax liability.”

Forbes probably won’t sue

Despite the range of legal theories available, Friedman doubts Forbes will actually bring a case. “Forbes presumably terminated Mr. Lane for cause,” he said. “My guess is that it will not sue him to avoid ongoing publicity of an embarrassing situation.”

Would Lane have any legal room to push back on the firing himself? That would depend on whether he had an employment contract with deferred compensation at stake. “If Mr. Lane believes he is entitled to deferred compensation, he might sue Forbes and allege his conduct doesn’t constitute cause within the definition in some agreement he signed,” Friedman said, “but I think that would be a very challenging argument to prevail on based on what has been reported.”

If Forbes did sue, Friedman said the claim would likely combine four theories: “that Lane violated the company’s written policy or policies, that he breached his contract with Forbes by violating the employee handbook, that he breached his fiduciary duties as an employee or possibly as an officer of the company, and that he violated the faithless servant doctrine, all by entering into an undisclosed personal financial transaction with a business partner of his employer.”

The harder problem would be settling on damages. Discovery, Friedman said, might reveal that “the payment didn’t just arrive at his doorstep, so to speak, without any prior discussion.” If it turned out Lane and Shook had discussed the payment years before it was made, Forbes could seek to amend its complaint to claw back Lane’s compensation from whenever those discussions began.

A familiar story

Lane’s own writing depicts a similar story, when, in a 2021 Forbes piece about Donald Trump’s decades-long fixation with his net worth ranking, Lane recalled an episode from early in his career: “When I was a $27,000-a-year cub reporter on The Forbes 400, the largest strip-mall developer in Texas, the late Jerry J. Moore, offered me a six-figure p.r. job ‘with lots of golf’ if I would only nudge his number closer to billionaire status.” 

Lane’s history with this dynamic goes back further still. Before joining Forbes, he ran Doubledown Media, the company behind Trader Monthly and Dealmaker, and produced The Players Club, a short-lived financial magazine for professional athletes backed by Lenny Dykstra, the former Mets and Phillies outfielder. Lane later wrote about Dykstra in his 2010 book, “The Zeroes,” reporting that Dykstra had secretly taken $250,000 in stock from a company in exchange for touting it to his TheStreet.com subscribers, and had hidden the arrangement under his brother-in-law’s name to obscure the conflict from the public. The New York Daily News chronicled this at the time.

Reached for comment, Dykstra said he hadn’t spoken to Lane in years. “It was a long time ago, like 25 years or so,” Dykstra said, declining to comment on Lane’s situation at Forbes.