What is Disgorgement?

What is Disgorgement?

Disgorgement is the legally mandated repayment of ill-gotten gains imposed on wrongdoers by the courts. Funds that were received through illegal or unethical business transactions are disgorged, or paid back, often with interest and/or penalties to those affected by the action.

Disgorgement is a remedial civil action, rather than punitive civil action. That means it seeks to make those harmed whole rather than to excessively punish wrong-doers.

Example of Disgorgement

The Supreme Court case of Kokesh vs. SEC ruled that the disgorgement penalty comes with a five-year statute of limitations. In this case, the SEC sued Charles Kokesh, stating that he violated securities law by “misappropriating funds” from a number of businesses. The court ruled in the SEC’s favor.

Kokesh appealed the ruling, stating that the charges were brought more than five years after the accrual of the claims. His appeal was denied, with higher courts ruling that because the disgorgement was remedial, not punitive. Kokesh was then required to return the $34.9 million he earned as a result of misappropriation of the funds from four business development businesses.

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