White-Collar Crime FAQ: What Is Disgorgement?
Defendants convicted of financial white-collar crimes are often required to give up any illegally obtained profits as part of their criminal sentence. The legal term is disgorgement.
Disgorgement is technically an equitable remedy and not a criminal punishment. The rationale is that individuals and companies should not be allowed to profit from illicit transactions and any proceeds should be returned to their victims.
Disgorgement can also be ordered in civil proceedings brought by the Securities and Exchange Commission. In fact, disgorgement orders by the SEC have been on the rise in recent years, reaching $2.09 billion in 2009.
The amount to be disgorged in a case is supposed to cover only illegally obtained profits. However, in SEC enforcement actions, the agency is only required to make a reasonable approximation of the amounts causally connected to the violation. The burden of proof then shifts to the defense to show that the estimate is unreasonable.
Disgorgement can also be ordered against third parties who did not break the law but nonetheless received ill-gotten gains. Even if a person is not individually liable for a securities violation, the SEC can still order him or her to turn over money.
In many cases, it is possible to successfully challenge or reduce a disgorgement order by showing that some of the profits were obtained through legal business operations. As such, if you face disgorgement proceedings, it is imperative to consult with an experienced and skilled Arizona defense attorney.