Anyone who follows media stories of high-profile people who are accused of financial and other fraud crimes has likely heard the phrase “disgorgement of ill-gotten gains.” While this may sound a bit old-fashioned, this is a term that is still used by the courts.
Disgorgement is often one of the penalties handed down when someone has engaged in fraudulent activity that has cost others money or other assets. Disgorgement is the repayment to victims (investors, for example) for their losses. This may include interest on those losses.
Note that disgorgement is separate from penalties that someone might be ordered to pay the government. They may be sentenced to prison as well, depending on the severity and nature of the offense in question.
How is disgorgement determined?
Determining the amount of disgorgement due can be a complicated process. That’s particularly true if there were multiple victims or the fraud took place over a number of years. The Securities and Exchange Commission (SEC) typically handles that calculation in federal cases. Calculating the disgorgement amount requires determining how much of an individual’s or business’s profit from a transaction was the result of their illegal activities. This amount is the “ill-gotten gains.”
Sometimes, there’s no way to precisely calculate the amount. A court ruled in one case that the calculation (in this case by the SEC) just needed to be a “reasonable approximation of the profits which are causally connected to the violation.”
Depending on the case, disgorgement amounts can run from thousands of dollars to many millions. One of the largest cases was that of a former CEO of Goldman Sachs. He reached a settlement with the SEC over his company’s role in the subprime mortgage crisis in the lead-up to the larger financial crisis that began over 15 years ago in which he was ordered to pay $550 million in disgorgement and penalties.
Could you be facing the possibility of disgorgement?
If you or your company is facing charges of fraud, it’s important to know that if you’re convicted or reach a settlement, you may be ordered to disgorge a considerable amount of money in addition to hefty penalties and possible incarceration. You have a right to make sure that you’re not paying more than you owe. This is just one reason to have solid legal guidance from the very beginning to help ensure the best possible resolution of your case.
