We have discussed disgorgement here in the past. It is a financial remedy often used by the used by Securities and Exchange Commission. Individuals or companies are ordered repay illegal profits to those the SEC has determined were defrauded through criminal actions like insider trading and embezzlement.
Although disgorgement has long been recognized as an authority the SEC has, a case this year before the U.S. Supreme Court (SCOTUS) involved the question of what the SEC must show in order to seek disgorgement through the courts.
The case before the court
The case involved a man who was ordered by a California court to repay over $3 million along with interest to those he defrauded through various means, including a “pump-and-dump” scheme that involved penny stocks. While he admitted to violating the law, he claimed the SEC hadn’t proven that his actions had caused financial harm to anyone.
So does the SEC have to prove this financial harm before it can order disgorgement in addition to fines and other penalties? Attorneys for the government argued that it wasn’t necessary. In a rare unanimous decision, SCOTUS agreed that the SEC does not have to prove “pecuniary” or financial harm to use this remedy.
The ruling
Justice Neil Gorsuch, who wrote last month’s opinion, said in part that “a showing of pecuniary loss is not required before an investor may qualify as a victim of an offender’s wrongdoing entitled to compensation.” He referenced a case from many decades ago when he noted that “the plaintiff whose legally protected interest had been invaded was entitled to the defendant’s gain from that wrongful conduct even without showing pecuniary loss.”
Allegations of complex financial crimes require experienced legal guidance to navigate. The stakes can be extremely high, both criminally and civilly. It’s never too early to reach out for support, perhaps especially because this area of law never remains “still” for long.
