Disgorgement is an equitable remedy designed to strip a wrongdoer of profits obtained through illegal or improper conduct, restoring the status quo rather than punishing the defendant. Unlike compensatory damages, which measure the victim's loss, disgorgement measures the defendant's gain. The remedy is rooted in the principle that no one should be permitted to profit from their own wrong.
The doctrine is most prominent in U.S. securities enforcement, where the Securities and Exchange Commission routinely seeks disgorgement against insider traders, Ponzi-scheme operators, and issuers of fraudulent offerings. In Kokesh v. SEC (2017), the U.S. Supreme Court held that SEC disgorgement constitutes a "penalty" subject to the five-year statute of limitations in 28 U.S.C. § 2462. In Liu v. SEC (2020), the Court further limited the remedy, ruling that disgorgement is permissible under 15 U.S.C. § 78u(d)(5) only when it does not exceed a wrongdoer's net profits and is awarded for victims. Congress responded in the National Defense Authorization Act for Fiscal Year 2021 by amending the Securities Exchange Act to explicitly authorize SEC disgorgement and extend the limitations period to ten years for scienter-based violations.
Disgorgement also appears in:
- Antitrust enforcement, where the U.S. Federal Trade Commission has occasionally pursued ill-gotten gains, though its authority was narrowed by AMG Capital Management v. FTC (2021).
- Foreign Corrupt Practices Act settlements, where companies frequently disgorge profits tied to bribery schemes.
- Common law restitution and breach of fiduciary duty cases, including in the United Kingdom under Attorney General v. Blake (House of Lords, 2001), which permitted disgorgement for breach of contract in exceptional circumstances.
For policy researchers, disgorgement raises debates about deterrence, double recovery, and whether stripping profits is truly "equitable" or functionally punitive — a distinction with significant consequences for due process, tax treatment, and the availability of jury trials.
Example
In 2020, the U.S. Supreme Court in Liu v. SEC capped SEC disgorgement at a wrongdoer's net profits and required that funds generally be returned to harmed investors.
Frequently asked questions
A fine is punitive and paid to the state regardless of gain; disgorgement is calibrated to the wrongdoer's actual profits and is traditionally framed as equitable, though Kokesh v. SEC (2017) treated SEC disgorgement as a penalty for limitations purposes.
Keep learning