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Disgorgement is a common term in developed markets across the world, though for most market participants in India it is a new thing. Disgorgement means repayment of illegal gains by wrongdoers. Funds that were received through illegal or unethical business transactions are ‘disgorged’, or paid back, with interest to those affected by the action. It is for the first time in India that the capital markets regulator, SEBI has passed this order of
disgorgement; internationally it is the civil courts that have this mandate along with the markets regulator.
Disgorgement is a ‘remedial’ civil action, rather than a ‘punitive’ civil action. In the US, individuals or companies that violate Securities and Exchange Commission regulations are typically required to pay both civil money penalties and disgorgement. Civil money penalties are punitive, while disgo-rgement is about paying back profits made from those actions that violated securities regulations.
Interestingly, disgorgement payments are not only demanded of those who violate securities regulations. In the US, anyone profiting from illegal or unethical activities may be required to disgorge their profits. The money disgorged from the violating parties is used to create a ‘Fair Fund’–fund for the benefit of investors who were harmed by the violation.