What Is a Sweetheart Deal?

A sweetheart deal is an agreement of any type that generally consists of one party presenting another party with a proposal so attractive and potentially lucrative that it is difficult to turn down. Sweetheart deals tend to be secretive in nature and controversial. In many cases, they can be unethical and disadv🃏antage those who are not privy to📖 them.

Understanding a Sweetheart Deal

Numerous types of business 澳洲幸运5官方开奖结果体彩网:transactions can be termed sweetheart deals. They may occur for a variety of reasons and are subject to different interpretations. When one uses the term sweetheart to describe a deal, it often implies that something unethical or fishy i🅰s afoot. For e꧃xample:

• It could refer to all manner of 澳洲幸运5官方开奖结果体彩网:insider trading—the buying or selling of a 澳洲幸运5官方开奖结果体彩网:public company's stock by someone who has non-public, material information about it.
• It may also describe an authority responding to an entity that has done something dishonorable with a slap-on-the-hand or look-the-other-way approach, rather than dishing out due punishment.

In other cases, a sweetheart deal can denote an arrangement in which someone gets something that’s to their advantage only after agreeing to give something else up. The term may also convey an agreement between two organizations that offers advantages to both, but which is unfair to competitors or another 澳洲幸运5官方开奖结果体彩网:third party.

A 澳洲幸运5官方开奖ꦦ结果体彩网:mer❀gers and acquisitions (M&A) transaction, or an attempt to lure a new executive with bonuses and perks, for example, might be sweet for the key players because they can get substantial buyout packages. However, other interested parties could suffer in the process, including many lower-level employees, if the deal were to lead to a 澳洲幸运5官方开奖结果体彩网:restructuring program and the laying off of staff.

Criticism of Sweetheart Deals

A sweetheart deal can be, but isn't always, bad for shareholders. These arrangements can be very costly to execute with steep legal fees and the like. In other words, if a company uses its money to fund the deal instead of putting its shareholders’ interests first, the investors it has a 澳洲幸运5官方开奖结果体彩网:fiduciary duty to repr🍸esent and protect could♓ take a financial hit.

Other than discovering that the company they're invested in has been spending money on questionable endeavors without a reasonable explanation and 澳洲幸运5官方开奖结果体彩网:full disclosure, shareholders also could suffer a loss if the market reacts badly to the deal, and the 澳洲幸运5官方开奖结果体彩网:stock price falls.

Such developments can lead things to turn nasty. A company's 澳洲幸运5官方开奖结果体彩网:board of directors is obliged to act in the best interest of its shareholders, so if a sweetheart deal that it helped to orchestrate (or at least voted in f♋avor of) is unethical and not in the interests of the majority of♐ investors, legal action may be taken. 

Real-Life Example of a Sweetheart Deal

Early in 2017, the press learned that Rep. Tom Price (R-GA), President Donald Trump’s nominee for secretary of the U.S. Department of Health and Human Servic🙈es (HHS), the nation’s regulator of pharmaceuticals, got a discounted deal on stock from an Australian biotechnology firm seeking U.S. 澳洲幸运5官方开奖结果体彩网:Food and Drug Administration (FDA) approval for its new drug.

Innate Immunotherapeutics needed to raise money. But instead of 澳洲幸运5官方开奖结果体彩网:issuing stock in the open market, it offered a sweetheart deal to a couple of sophisticated U.S. investors, selling nearly $1 million in discounted shares to two American congressmen who had the potential to advance Innate Immuno’s interests. 

Former Rep. Christopher Collins (R-NY), who also happened to own about 20% of Innate Immuno, also sat on a key health subcommittee. These congressmen investors paid 18 cents per share for a stake in a company whose value at the time had risen rapidly to more than 90 cents and was climbing higher. Ultimately, on paper, these buyers realized a greater than 400% profit.

The sweetheart portion of this deal 𝕴is obvious becܫause it:

1. Skirted normal procedures
2. Contained grave conflicts of interest
3. Solicited industry insiders, who also were well-placed politicians
4. Benefited (greatly) only a handful of people at the top

The Bottom Line

The term sweetheart deal may seem romantic, but it's far from it. It is commonly used to refer to agreements that benefit one party, usually a company or person with considerable power while disadvantaging another one—often the general public. Although these agreements are often considered unethical, they aren't necessarily illegal.