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What is disgorgement?

On Behalf of | Apr 10, 2024 | Money Laundering

Disgorgement certainly sounds painful, and it is – at least financially. That’s what an individual or a business can be ordered to do if they’re found guilty of or arrive at a settlement involving fraudulently obtaining assets. 

Generally, the full phrase that’s used in these cases is “disgorgement of ill-gotten gains.” The disgorgement involves paying interest and sometimes also penalties directly to the victims of the fraud to help them recoup the full amount they’ve lost and to make them whole. It’s important to note that disgorgement is separate from any fines and penalties that may be owed to the government.

Who determines the amount of disgorgement, and how is it calculated?

The Securities and Exchange Commission (SEC) typically handles the determination of disgorgement in federal cases. The SEC arrives at the disgorgement figure by calculating how much of an individual’s or company’s profit from the transaction(s) in question was fraudulently obtained (or “ill-gotten”).

This calculation can be complex when there are numerous victims, as is often the case. Therefore, as one court ruled, the calculation doesn’t have to be exact. The court decided that it can be a “reasonable approximation of the profits which are causally connected to the violation.”

Depending on the nature of the case, the amount of disgorgement can run into many millions of dollars. In one of the most famous and expensive cases that arose from the subprime mortgage crisis, a former Goldman Sachs CEO had to pay $550 million in disgorgement after he settled his case with the SEC.

If you’re facing serious charges that could involve having to pay disgorgement, it’s crucial to have experienced legal guidance to protect your rights and help you make the best decisions throughout every part of your case.