“Disgorgement” is one of those terms that most people first hear when they’re facing the possibility of having to pay it. It’s commonly used in the context of “disgorgement of ill-gotten gains.”
Disgorgement is ordered by a federal agency (usually the U.S. Securities and Exchange Commission) when an individual or business has engaged in fraudulent activity that caused financial losses for one or often multiple parties.
Generally, these are federal offenses investigated by the SEC, such as:
- Securities fraud
- Antitrust violations
- Embezzlement
- Insider trading
- Foreign Corrupt Practices Act (FCPA) violations
- Tunneling (where someone wrongfully redirects company profits to themselves)
It’s important to note that disgorgement is separate from any penalties and fines that a business or a person may have to pay the government as part of the punishment for committing a federal offense that involves fraud. Disgorgement is the repayment of funds (typically along with interest) to investors, partners, customers or others who have suffered financial losses due to the fraudulent activity.
How is disgorgement calculated?
The SEC typically calculates how much disgorgement is appropriate for each of the parties who has suffered harm. This can be a complex calculation, and the amounts may have to be a reasonable approximation rather than a specific amount. The U.S. Supreme Court has also weighed in with some limitations placed on disgorgement in recent years.
If you or your company is facing charges of fraud (or even if you’re under investigation), it’s crucial to get experienced legal guidance as early as possible to protect your rights and work to seek the best possible outcome for your case.