Global Knowledge, Extensive Experience.

Understanding disgorgement and when it’s used

On Behalf of | Jun 18, 2024 | White-Collar Crimes |

The term “disgorgement” sounds like something that’s very painful. It certainly can be – financially. 

Disgorgement is a legal remedy that involves returning profits that were obtained through fraudulent methods (often referred to as “ill-gotten gains”) to those who were defrauded or otherwise victimized. The intention is to make these parties whole again, at least as much as possible. That means trying to bring them back to the financial position they would have been in had they not been defrauded.

Disgorgement is separate from fines and penalties that a business or individual found to be responsible or agrees to a settlement for illegal activity are ordered to pay the government. In some cases, incarceration may also be a consequence.

Disgorgement is often ordered for wrongful conduct like insider trading, securities fraud, embezzlement, antitrust violations and violations of the Foreign Corrupt Practices Act (FCPA).

The SEC’s role in disgorgement

The Securities and Exchange Commission (SEC) investigates most of the crimes that involve disgorgement. When it does, it calculates the disgorgement account. This can be a complex calculation – particularly if multiple parties have lost money. While the calculations can’t generally be precise, a court has ruled that the disgorgement amount needs to be a “reasonable approximation of the profits which are causally connected to the violation.”

These disgorgements can go well into the millions of dollars. Sometimes, as occurred with the financial crisis that occurred just over 15 years ago, businesses and top executives individually were ordered to pay disgorgements.

If you’re facing an investigation or allegation that could result in a disgorgement in addition to other penalties and consequences, it’s critical to protect your rights and minimize the damage. Having sound legal guidance is crucial.