Legal Definitions - disgorgement

Disgorgement is a legal remedy that compels an individual or entity to surrender any profits they gained through illegal or wrongful conduct. The primary goal of disgorgement is to prevent unjust enrichment, ensuring that no one benefits financially from their unlawful actions, thereby making such conduct unprofitable.

• Scenario: Insider Trading

  An executive at a pharmaceutical company learns confidential information about an upcoming drug approval before it's publicly announced. Knowing this news will significantly increase the company's stock price, the executive secretly buys a large number of shares. After the announcement, the stock price surges, and the executive sells their shares for a substantial profit.

  Explanation: In this situation, the executive profited from an illegal act (insider trading). A court could order disgorgement, requiring the executive to give up all the profits they made from those stock sales, effectively stripping them of any financial gain from their unlawful use of confidential information.

• Scenario: Deceptive Marketing

  A supplement company launches an aggressive marketing campaign, making false claims about its product's ability to cure a serious illness, despite lacking scientific evidence. Many consumers, misled by these claims, purchase the product, generating millions of dollars in sales for the company.

  Explanation: The company gained significant profits through wrongful and deceptive marketing practices. A court or regulatory body could order disgorgement, compelling the company to return the profits directly attributable to the misleading campaign, ensuring they do not benefit from their fraudulent claims.

• Scenario: Breach of Fiduciary Duty

  A financial advisor, entrusted with managing a client's investment portfolio, secretly steers the client's funds into a high-fee, low-performing mutual fund managed by a company in which the advisor holds a hidden ownership stake. The advisor receives a large commission and a share of the management fees from this arrangement, which is not disclosed to the client.

  Explanation: The financial advisor profited personally from a breach of their fiduciary duty to act in the client's best interest. Disgorgement would require the advisor to surrender the undisclosed commissions and fees they received as a result of this conflict of interest and self-serving investment decision.