As the Indian market regulator Securities and Exchange Board of India (SEBI) builds precedents on disgorgement, the US Supreme Court in the month of June placed curbs on the ability of the US capital market regulator to disgorge.
Even as Indian regulators discover the power of disgorgement of ill-gotten gains, the United States late last month moved to limit the amount that can be disgorged by its markets regulator.
As the Indian market regulator Securities and Exchange Board of India (SEBI) builds precedents on disgorgement, the US Supreme Court in the month of June placed curbs on the ability of the US capital market regulator to disgorge.
Earlier, the US market regulator, the Securities and Exchange Commission (SEC) would disgorge the total sales from corrupt activity. Now after a decision by the top American court in June, SEC would be able to disgorge "net" wrongful gains after deducting legitimate expenses. However, the Court upheld the right of the regulator to disgorge.
The fraud case involved a couple who solicited a total of $27 million from foreign investors. The money was collected for a cancer treatment centre which never got built.
The US decision is an interesting one even in the Indian context as regulators increasingly take recourse to disgorgement in several high profile cases, although with variable impact. India's legal framework has taken inspiration from the US laws in the past too on the concept of disgorgement.
Usually, disgorgement is considered a civil remedy, rather than a punitive civil action. An online glossary of finance terms defines the concept of disgorgement as "repayment of ill-gotten gains that is imposed on wrongdoers by the courts. Funds that were received through illegal or unethical business transactions are disgorged, or paid back, with interest to those affected by the action."
SEBI's recent disgorgement direction in the insider trading case involving the Divi's Laboratories CFO is the latest in a string of such attempts at clawback. By pushing for the prepayment of the penalty into an escrow account pending further legal jousting, it has tried to retain some teeth in the matter. Many clawback attempts tend to fall flat in the subsequent legal proceedings.