We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

In Finance, what is Disgorgement?

Mary McMahon
By
Updated: May 16, 2024
References

Disgorgement is the repayment of illegally obtained funds. Financial regulators such as the Securities and Exchange Commission (SEC) in the United States are responsible for determining the amount of funds acquired via illegal means for the purpose of issuing a court order mandating the repayment of the funds to the victims. In addition to coming up in a finance context, disgorgement can also come up in other legal cases where someone is convicted of engaging in illegal activities that resulted in profits.

Under the law, disgorgement is a remedy, not a punishment. It is intended to make good on the wrong by compensating people for their losses. People subjected to a disgorgement order must generally pay interest in addition to returning the funds, in a reflection of the fact that the people who were scammed or swindled lost out on opportunities to invest the funds legitimately and earn interest or other returns.

In addition to being required to disgorge the funds, the convicted party may also be required to pay a punitive fine like a civil money penalty (CMP). The amount of the fine varies depending on the case and the decisions made by a judge. The establishment of fines is designed to create clear consequences for people who make illegal profits, so that there is a strong incentive to avoid illegal activity. In large cases, a judge may opt to make an example of a company or individual by levying very heavy fines in addition to the disgorgement.

The process of determining the amount that the convicted party must repay is a complicated one. Companies and individuals who make illegal profits usually go to great lengths to conceal the amount of those profits and to cloak them in legitimacy. Investigators and regulators must first distinguish between legal and illegal profits, and then track down the full amount of the illegal profits. The funds are commonly disbursed into a trust managed by a person who is responsible for processing claims made by victims and making periodic payouts.

In some regions, tax law allows companies to claim disgorgement on their taxes, although they cannot claim punitive fines. It is advisable to receive the advice of a trained accountant to get information about how to report disgorgement and additional penalties on the books and how to handle them for tax purposes. Tax authorities will scrutinize tax claims carefully and it is important to confirm that information is stated clearly and accurately.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
Share
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.