Securities - Investment Advisor Forced to Disgorge Irrespective of his Loss

In the case of SEC v. Seghers, the Fifth Circuit determined that an investment advisor who lost his own investment while engaging in fraud still had to pay disgorgement.

The case alleged that an investment advisor knowingly provided inaccurate information to a hedge fund. The complaint also alleged that he failed to disclose errors to the hedge fund, which affected the fund's value.

After trial, the jury found the defendant liable for fraud, and the court imposed an injunction and a civil penalty. However, the court refused to order disgorgement of ill gotten gains, reasoning that, because the investment advisor had lost his own money in the fraud, he did not realize an unjust enrichment.

On appeal the Fifth Circuit held that the district court erred and that the investment advisor was unjustly enriched by the scheme. The court reasoned that profits obtained through a fraudulent scheme are ill gotten games, even though such profits are later lost by the wrongdoer.