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← Series 79: Section 4
Series 79 practice questionmediumSEC Enforcement Actions

A registered representative is found to have committed securities fraud and is ordered by a federal court to disgorge $850,000 in ill-gotten gains. Which of the following statements accurately describes the nature of this SEC enforcement remedy?

  1. ADisgorgement is a criminal penalty imposed as a fine by the Department of Justice.
  2. BDisgorgement is a form of restitution paid directly to investors by the violator.
  3. CAn equitable remedy requiring surrender of unlawful profits, often plus civil penalties✓ Correct answer
  4. DDisgorgement results in automatic imprisonment for the violator regardless of the amount involved.
Explanation

Why C — An equitable remedy requiring surrender of unlawful profits, often plus civil penalties

Disgorgement is an equitable remedy used by the SEC to force violators to surrender profits gained from illegal activity and is often accompanied by additional civil penalties. It is not a criminal fine, and does not automatically result in imprisonment. The trap is confusing disgorgement with criminal or restitution penalties.

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