Disgorgement is a
remedy used in
US securities law. For example, disgorgement of
short-swing profits is the remedy prescribed by § 16(b) of the
Securities Exchange Act of 1934. The second edition of
American Jurisprudence states that: Although not labelled "disgorgement," recovery of profits from the wrongful use of a patent or copyright belonging to another person or entity has a long history in US law. The
US Supreme Court, in
Sheldon v. Metro-Goldwyn Pictures Corp. (1940), stated: In
Kokesh v. SEC (2017), the US Supreme Court unanimously disagreed with the view of the
Security and Exchange Commission (SEC) that disgorgement in the case was remedial but held that disgorgement payments to the SEC in the case were penalties. The decision raised the questions of whether the SEC's power to order disgorgement derives only from statute, which would make congressional action necessary for the SEC to pursue disgorgement orders in federal court, and of whether the amounts awarded should be limited to actual profits gained. After
Kokesh, the SEC has argued in district courts throughout the US that outside
Kokesh in the
statute of limitations context, disgorgement is not a penalty but an equitable remedy. Subsequently, in
Liu v. SEC (2020), the US Supreme Court affirmed that disgorgement awards could be issued as equitable remedies by the SEC but could not exceed the wrongdoer's net profits, as under , and that they should be funds returned to the defrauded investors. Disgorgement is a remedy for violations of the UA
Commodity Exchange Act. The purpose of such a remedy, as in securities cases, is "to deprive the wrongdoer of his or her ill-gotten gains and to deter violations of the law." However, in such cases, the court may order disgorgement only up to "the amount with interest by which a defendant profited from his or her wrongdoing." The December 2017 tax reform law provided that to be deductible, such payments must now be identified in the relevant court order or settlement agreement as serving one of a number of specific purposes, and the appropriate government official must report to the IRS the total amount of the payment and the amount of the payment that constitutes
restitution or the amount paid to come into compliance with law. ==See also==