Disgorgement is defined by Black's Law Dictionary as "the act of giving up something on demand or by legal compulsion". Disgorgement is a remedy or penalty used in U.S. securities law; for example, disgorgement of short-swing profits is the remedy prescribed by § 16 of the Securities Exchange Act of 1934. American Jurisprudence, Second Edition states that: Although not labelled "disgorgement," recovery of profits from the wrongful use of a patent or copyright belonging to another person or entity has a long history in US law. The Supreme Court in Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390, 399-400, stated: In Kokesh v. SEC, 137 S. Ct. 1635, the US Supreme Court unanimously disagreed with the SEC’s view that disgorgement in that case was remedial, holding that disgorgement payments to the SEC in that case were penalties. The decision raised the question of whether the SEC's power to order disgorgement derives only from statute, and therefore congressional action would be necessary for the SEC to pursue disgorgement orders in federal court, and whether the amounts awarded should be limited to actual profits gained. Following Kokesh, the SEC has argued in district courts throughout the US that outside of the Kokesh the statute of limitations context, disgorgement is not a penalty but is instead an equitable remedy. Subsequently, in Liu v. SEC, the Supreme Court affirmed that disgorgement awards could be issued as equitable remedies by the SEC, but they could not exceed the wrongdoer's net profits as under, and should be funds returned back to the defrauded investors. Disgorgement is a remedy for violations of the U.S.'s Commodity Exchange Act. The purpose of such a remedy, as in securities cases, is "to deprive the wrongdoer of his or her ill-gotten gains and to deter violations of the law". However, in such cases, the court may only order disgorgement up to "the amount with interest by which a defendant profited from his or her wrongdoing". Disgorgement payments to the SEC have for decades been considered completely equitable and compensatory, and therefore deductible under the US Internal Revenue Code. The December 2017 U.S. tax reform law provided that to be deductible, such payments will have to be identified in the relevant court order or settlement agreement as serving one of a number of specific purposes, and the appropriate government official must report to the IRS the total amount of the payment as well as the amount of the payment that constitutes restitution or the amount paid to come into compliance with law. The new law adds Section 6050X, which requires the government to file an IRS information return setting out any amount paid in a suit or agreement, to or at the direction of, the government in relation to the violation of any law, which must set forth any amount that constitutes: any amount that constitutes restitution or remediation.
