You may have heard the term “disgorgement of ill-gotten gains.” It sounds like something from another time, but it can be a legal consequence of getting assets through fraudulent means.
If someone is ordered to disgorge profits, it means they must return them to the parties they belong to, along with interest. The purpose of disgorgement is to make the victimized parties “whole” again to the degree possible.
Disgorgement is separate from fines and other types of penalties that may be ordered if a business or individual is found to have engaged in fraudulent actions. Monetary fines are typically paid to the federal government. Sometimes, incarceration may be one of those penalties.
What kind of offenses most commonly warrant disgorgement?
The Securities and Exchange Commission (SEC) is the federal agency that typically investigates the types of criminal offenses where disgorgement is most often ordered and determines the amount of disgorgement. These offenses include:
- Embezzlement
- Foreign Corrupt Practices Act (FCPA) violations
- Insider trading
- Securities fraud
Calculating disgorgement can be a complicated process – particularly if numerous parties (for example, investors) have lost varying amounts of money. It’s been determined that since these amounts often can be calculated exactly, the amount needs to be a “reasonable approximation of the profits which are causally connected to the violation.”
Sometimes, as was the case during the financial crisis of 2008, both businesses and executives in those businesses must pay disgorgements. Depending on the extent of the fraud or other illegal activity, amounts can total in the millions of dollars.
Being ordered to disgorge profits that were allegedly fraudulently obtained can be financially devastating. Of course, as noted, this is just one of the penalties an individual and/or their business can face. That’s why it’s critical that anyone who suspects or knows that they’re under investigation by the SEC or other regulatory agency get experienced legal guidance as soon as possible.