Likely, you’ve heard the term “disgorgement” or even the phrase “disgorgement of ill-gotten gains. It can be one of the consequences of being found guilty of a federal crime that involves fraudulent activity that has resulted in financial losses for one or more parties.
Disgorgement is a common penalty for white-collar federal crimes often investigated by the Securities and Exchange Commission (SEC) such as:
- Antitrust violations
- Embezzlement
- Foreign Corrupt Practices Act (FCPA) violations
- Insider trading
- Securities fraud
- Tunneling (where a large shareholder or high-level executive redirects company profits to themselves)
Note that penalties and fines paid to the government are intended to be punitive. However, disgorgement is the repayment to those who have lost money or other assets, such investors, business partners, customers and others – often with interest. It’s intended to be remedial. Often, those found responsible for illegal or unethical wrongdoing are required to pay penalties and disgorgement.
How is disgorgement calculated?
The SEC typically calculates the amount of disgorgement due in federal cases. This can be a complicated endeavor – especially if there are many parties who need to be reimbursed for varying amounts. It involves determining how much of the profit gained by the individual or business found guilty of fraud profit resulted from illegal activities. That is the “ill-gotten gains” referenced earlier.
Determining the exact amount for each party can be impossible. However, a court has ruled that the calculation only needs to be a “reasonable approximation of the profits which are causally connected to the violation.”
If you or your company is facing charges of fraud, it’s important to know about the potential for having to pay a large sum in disgorgement as well as penalties. Incarceration is also a possibility if you’re found guilty or reach a settlement, depending on the nature and severity of the fraud.
That’s why it’s critical to get experienced legal guidance as soon as possible if you’re notified that you’re under investigation. This can help you work to achieve the best possible resolution for your case.