Disgorgement is a court-ordered remedy that forces someone who broke the law to give up the profits they earned from doing it. It is not a fine and not compensation to victims in the usual sense; it is an equitable remedy built on the idea that nobody should keep money earned by breaking the rules. When people ask what disgorgement means in a legal setting, the short answer is this: the wrongdoer ends up financially where they would have been had they followed the law, no better and, under current Supreme Court doctrine, no worse. The 2020 decision in Liu v. SEC fixed the ceiling at the defendant’s net profits.1Supreme Court of the United States. Liu et al. v. Securities and Exchange Commission
How Disgorgement Differs From Fines and Restitution
Three remedies regularly show up in the same enforcement case, and they are easy to mix up. A civil monetary penalty is punishment. It scales to the severity of the violation and can run well beyond whatever the defendant actually made. Restitution looks at the victims. It measures what they lost and tries to make them whole, which might be more or less than the defendant’s gain. Disgorgement sits in between. It measures the defendant’s profit from the misconduct and takes exactly that amount back.
That focus on the defendant’s gain is why disgorgement works even when individual victim losses are hard to trace. An insider trader who made $2 million on illegal tips owes $2 million in disgorgement whether or not regulators can identify each investor on the other side of the trades. The approach is useful in securities enforcement, where thousands of market transactions make traditional damages math impractical.
A single case can carry all three remedies at once. A defendant may face disgorgement of illegal profits, a civil penalty layered on top, and a restitution order for identifiable victims. What disgorgement alone cannot do is exceed net profits. Push past that line and the remedy becomes punishment, which is the boundary the Supreme Court reinforced in Liu.1Supreme Court of the United States. Liu et al. v. Securities and Exchange Commission
How the Amount Is Calculated
Calculation starts with the total revenue the defendant pulled in from the illegal activity. The agency bringing the case carries the initial burden of showing how much money came in. The defendant then gets a chance to prove legitimate business expenses that should be subtracted. What is left is the net profit, and that is the disgorgement figure.
The Supreme Court nailed down this approach in Liu v. SEC, holding that an award “that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief” permitted under federal securities law.1Supreme Court of the United States. Liu et al. v. Securities and Exchange Commission Before Liu, some courts ordered defendants to surrender gross revenue with no deductions, which effectively converted disgorgement into a penalty.
Defendants who kept bad records fare worse. Courts routinely resolve doubts against the wrongdoer, on the logic that someone who ran a fraud with sloppy books should not profit from the resulting ambiguity. Financial experts typically dig through transaction and accounting records to separate the income tied to the misconduct from legitimate earnings.
When Courts Order Disgorgement
Disgorgement comes into play when illegal conduct produced a measurable financial gain. A handful of violations account for most of the orders you will see.
- Insider trading. Trading on material nonpublic information generates profits that would not exist if the rules had been followed. The SEC seeks disgorgement of both gains on profitable trades and losses avoided by selling ahead of bad news.2SEC.gov. Disgorgements (Audit 311)
- Accounting fraud. Inflating earnings or hiding liabilities props up a stock price artificially, letting insiders sell shares at that inflated value. The gap between the inflated price and the real value is the disgorgeable profit.
- Foreign bribery. Companies that bribe foreign officials to land contracts face disgorgement of the profits from those contracts, often alongside criminal penalties.3United States Department of Justice. Justice Manual 9-47.000 – Foreign Corrupt Practices Act of 1977
- Unregistered securities offerings. Selling investment products without proper registration brings in money the issuer was not allowed to collect. The category has grown as regulators pursue crypto platforms and token sales. In its complaint against Coinbase, the SEC sought disgorgement of what it described as billions of dollars in revenue from operating as an unregistered exchange and broker.4U.S. Securities and Exchange Commission. SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency
- Deceptive marketing of securities. Selling misrepresented investment products generates revenue that would not have materialized had buyers known the truth.
Which Agencies Can Seek Disgorgement
Not every federal regulator can ask for disgorgement. The authority depends on the statute each agency enforces, and recent Supreme Court rulings have narrowed the field.
Securities and Exchange Commission
The SEC is the heaviest user of the remedy. Its authority is now spelled out in Section 21(d)(7) of the Securities Exchange Act of 1934, which says that “in any action or proceeding brought by the Commission under any provision of the securities laws, the Commission may seek, and any Federal court may order, disgorgement.”5Office of the Law Revision Counsel. 15 USC 78u – Investigations and Actions Congress added that explicit statutory authority in the National Defense Authorization Act for Fiscal Year 2021, ending years of debate about whether disgorgement was merely implied.
Commodity Futures Trading Commission
The CFTC uses disgorgement to go after fraud and manipulation in futures, options, and swaps markets. Its authority comes from the Commodity Exchange Act, and federal courts have consistently upheld disgorgement in CFTC enforcement actions.
Federal Trade Commission
The FTC’s disgorgement power shrank sharply in 2021. In AMG Capital Management LLC v. FTC, the Supreme Court unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.”6Supreme Court of the United States. AMG Capital Management LLC v. Federal Trade Commission Section 13(b) only authorizes injunctions. The FTC has turned to other tools since, including civil penalties under its penalty offense authority, but its direct ability to disgorge profits from deceptive businesses is far more limited than it was before 2021.
Department of Justice
The DOJ pursues forfeiture rather than disgorgement in criminal cases, taking property and proceeds tied to the crime. The economic effect is similar: the defendant loses the benefit of the illegal conduct. The DOJ also requires disgorgement or forfeiture as a condition of corporate settlements, particularly in Foreign Corrupt Practices Act cases.3United States Department of Justice. Justice Manual 9-47.000 – Foreign Corrupt Practices Act of 1977
How Long Regulators Have to Sue
Disgorgement claims come with deadlines. The general federal limitations period for civil penalties is five years from the date the claim first accrued.7Office of the Law Revision Counsel. 28 USC 2462 – Time for Commencing Proceedings In 2017 the Supreme Court held in Kokesh v. SEC that SEC disgorgement counts as a “penalty” under that statute, bringing it inside the five-year window.8Supreme Court of the United States. Kokesh v. Securities and Exchange Commission
Congress responded in the 2021 National Defense Authorization Act with a longer window for the most serious cases. The SEC now has up to 10 years to bring a disgorgement claim when the underlying violation involved scienter, meaning intentional or knowing misconduct.5Office of the Law Revision Counsel. 15 USC 78u – Investigations and Actions For violations that do not require intent, five years still applies. The same legislation tolls the clock while a defendant is outside the United States, closing a loophole some fraudsters had used to wait out the deadline from abroad.
What a Disgorgement Order Actually Costs
A disgorgement order rarely stops at the principal. Courts add prejudgment interest to account for the time value of money the defendant held illegally. Under SEC rules, interest accrues from the first day of the month after the violation through the last day of the month before payment, pegged to the IRS underpayment rate and compounding quarterly.9eCFR. 17 CFR 201.600 – Interest on Sums Disgorged On a long-running fraud the interest alone can run into the millions.
Taxes make the bill worse. Defendants sometimes assume they can deduct a disgorgement payment because they already paid taxes on the money when it came in. The tax code says no. Section 162(f) broadly prohibits deductions for amounts paid to a government entity in connection with a violation of law. A narrow exception exists for amounts that qualify as restitution, but the court order or settlement has to specifically identify the payment as such, and the IRS has taken the position that disgorged funds deposited into the Treasury’s general account do not qualify.10Federal Register. Denial of Deduction for Certain Fines, Penalties, and Other Amounts A defendant who earned $5 million illegally, paid taxes on it, then disgorged it, usually cannot recover those taxes.
Where the Money Goes
Disgorged funds take one of two paths. When identifiable victims exist, the SEC can set up a Fair Fund to route the money to harmed investors, combining disgorgement with any civil penalties collected in the same case into a single pool for victims.11U.S. Securities and Exchange Commission. SEC Rules on Fair Fund and Disgorgement Plans A fund administrator processes claims and distributes payments. When victims cannot be located, or when the cost of mailing small checks to thousands of people would consume the fund, the money goes to the U.S. Treasury. Either way, the defendant does not keep it.
The Liu decision left an unresolved tension here. The Court said disgorgement must be “awarded for victims” to remain equitable, yet depositing unclaimed funds in the Treasury does not obviously serve specific victims. Lower courts are still working out when Treasury deposits satisfy that standard and when they cross the line out of equity.