When the Securities and Exchange Commission (SEC) enforces a civil action against a corporation or an individual found guilty of violating SEC regulations, there's a good chance that some sort of fine will be imposed. The money from these fines goes back to investors who have been victims of securities law violations.

Monetary penalties levied by the SEC fall into two categories: civil money penalties and disgorgements. Civil penalties are usually fines paid by defendants found liable for damages to the state. In the past, civil money penalties went to the U.S. Department of the Treasury, which was apparently negatively affected by the wrongdoing of the party found liable. A civil money penalty is meant to be punitive, and its value will usually be similar to the monetary value of the individual or company's ill-gotten gains.

The second type of penalty is called a disgorgement. This penalty is a remedial civil action meant to restore the funds that were received through illegal or unethical business transactions with interest to those affected by the illegal activities. For example, when Martha Stewart sold ImClone (Nasdaq: IMCL) stock on non-public material information given to her by her broker, she was ordered to disgorge $45,673, the amount that Stewart would have lost had she not made the insider trade.

With the passing of the Sarbanes-Oxley Act in 2002, the courts gave the SEC the ability to distribute disgorgement money (plus interest judged owing on it) and civil money penalties received to the victims of securities law violations through the Fair Funds for Investors provision.

(For more information on white collar crime, see Handcuffs and Smoking Guns: The Criminal Elements of Wall Street and Defining Illegal Insider Trading.)

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  1. Disgorgement

    A repayment of ill-gotten gains that is imposed on wrong-doers ...
  2. Civil Money Penalty - CMP

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  5. Securities And Exchange Commission - SEC

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  6. Civil Rights Act of 1964

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