What is disgorgement?
Securities and Exchange Board of India (Sebi) Sebi ordered Reliance Industries last week to pay back Rs 447 crore along with an annual interest of 12% dating back to November 2007 till the date of payment, which would amount to a total penalty of around Rs1,300 crore. The board issued a disgorgement order against the company on charges of fraudulent trading in its erstwhile unit, Reliance Petroleum. The company was trading in the RPL stock in November 2007, before the company was merged with RIL. The regulator said Reliance had made unlawful gains through manipulative trade patterns. This is the biggest disgorgement case thus far in terms of monetary value.
What is disgorgement?
When a person or entity in the securities market makes a profit by fraudulent means, a ‘disgorgement’ order is issued to repay those gains to affected investors with interest.
Who has the authority to ask companies or people to disgorge ill-gotten money?
It is the capital market regulator Sebi. Until 2013 Sebi’s powers to issue disgorgement orders had been questioned on the grounds that the Sebi Act did not expressly provide this right to it. In 2013 an amendment was made to the Sebi Act to indicate that it has always had the power to direct any person or entity to repay profits or repay averted loss through unjust transactions.
Is disgorgement the same as forfeiting money?
No, it differs from actions like forfeiture and impounding of assets or money in that it is an impartial remedy and not a penal or even a quasi-penal action. Unlike damages, it is a method of forcing a defendant to give up the amount by which he or she was unjustly enriched.
Have disgorgement cases returned money to investors?
Yes. The most landmark amongst them was a spate of cases against large group of financiers who manipulated their powers to corner more shares in 21 initial public offerings between 2003 and 2005, including those of Yes Bank, IDFC, Suzlon and Jet Airways. SEBI found that these financiers, using stock operators had made multiple applications through benami accounts to get more shares than those allotted to them. Post investigation and orders by the Supreme Court, more than 80% of the scam-hit investors have been fully compensated according to media reports.
What is disgorgement?
When a person or entity in the securities market makes a profit by fraudulent means, a ‘disgorgement’ order is issued to repay those gains to affected investors with interest.
Who has the authority to ask companies or people to disgorge ill-gotten money?
It is the capital market regulator Sebi. Until 2013 Sebi’s powers to issue disgorgement orders had been questioned on the grounds that the Sebi Act did not expressly provide this right to it. In 2013 an amendment was made to the Sebi Act to indicate that it has always had the power to direct any person or entity to repay profits or repay averted loss through unjust transactions.
Is disgorgement the same as forfeiting money?
No, it differs from actions like forfeiture and impounding of assets or money in that it is an impartial remedy and not a penal or even a quasi-penal action. Unlike damages, it is a method of forcing a defendant to give up the amount by which he or she was unjustly enriched.
Have disgorgement cases returned money to investors?
Yes. The most landmark amongst them was a spate of cases against large group of financiers who manipulated their powers to corner more shares in 21 initial public offerings between 2003 and 2005, including those of Yes Bank, IDFC, Suzlon and Jet Airways. SEBI found that these financiers, using stock operators had made multiple applications through benami accounts to get more shares than those allotted to them. Post investigation and orders by the Supreme Court, more than 80% of the scam-hit investors have been fully compensated according to media reports.
