What Is Disgorgement?

Disgorgement is a legal remedy that requires a wrongdoer to give up profits they obtained through illegal or unethical conduct. Rather than simply compensating victims for their losses, disgorgement focuses on stripping away the benefits gained from misconduct, ensuring that wrongdoers don’t profit from their actions.

When a court orders disgorgement, it calculates the total profits or benefits the defendant gained through their wrongful behavior. The defendant must then surrender these gains, regardless of whether the victim suffered equivalent losses. The goal is to remove the financial incentive for misconduct and deter future violations.

Disgorgement is frequently used in securities law cases. If someone engages in insider trading or securities fraud, they may be required to disgorge all profits from those illegal transactions, plus interest.

When fiduciaries like trustees, directors, or agents profit from breaching their duties, courts can order them to disgorge those gains. This ensures fiduciaries don’t benefit from betraying the trust placed in them.

In certain contract disputes, particularly where one party has profited unjustly from breaching an agreement, disgorgement may be awarded to prevent unjust enrichment.

Traditional damages compensate victims for their actual losses. Disgorgement, however, focuses on the wrongdoer’s gains. This distinction matters because sometimes a wrongdoer profits far more than the victim loses. Disgorgement ensures the wrongdoer doesn’t keep those ill-gotten gains.

Disgorgement isn’t available in every case. Courts consider factors like whether the wrongdoing was intentional, the nature of the misconduct, and applicable statutes of limitation. Defendants may argue that their profits weren’t directly caused by the wrongful conduct or that calculating disgorgement would be speculative.

Disgorgement serves important policy goals. It removes the profit motive from wrongdoing, deters future violations, and promotes fairness in business dealings. When wrongdoers know they’ll have to surrender their gains, they’re less likely to engage in misconduct in the first place.

If you’ve been harmed by someone’s wrongful conduct and believe they’ve profited significantly, disgorgement might be an appropriate remedy. This is particularly true in cases involving breach of fiduciary duty, fraud, or intellectual property theft. Consulting with an experienced litigation lawyer can help you understand whether disgorgement is available in your situation and how to pursue it effectively. 

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