Thursday, April 21, 2016

Oilfluenza, Affluenza, and Disgorgement

Life Magazine Ad (1962)
Oilfluenza is the Affluenza of the oil industry (The Greatest Murder Mystery in Human History).

On the heels of a recent Dredd Blog post about who should administer the process of dealing with mass-murder, I wanted to mention that in addition to imprisonment or execution, there are additional remedies which address potential financial repercussions, in addition to criminal repercussions, in the wake of depraved-heart-murder (Will This Float Your Boat - 12).

For example:
"Disgorgement ... A remedy requiring a party who profits from illegal or wrongful acts to give up any profits he or she made as a result of his or her illegal or wrongful conduct. The purpose of this remedy is to prevent unjust enrichment."
(Legal Information Institute). Remember that, in addition to charging exorbitant prices for their Earth poisoning product, the oil industry receives 'freebees' from the people's treasury:
Most Americans should know by now that Republicans despise ‘entitlements’ that they errantly consider is anything Americans receive; even if it is theirs to begin with. They hate the idea of retired Americans receiving their Social Security and Medicare after paying into them their entire working lives, and they hate Americans working at slave-wage jobs receiving nutrition assistance because they earn too little to survive. What they do not hate, and indeed fight ferociously for, are taxpayer-funded entitlements that go to corporations in the form of tax loopholes and particularly entitlements for the oil industry in the form of subsidies.
(Oil Industry Benefits From $5.3 Trillion in Subsidies Annually, emphasis added; cf. this and this). The court would decide, during disgorgement remedy proceedings, what the actual dollar value of subsidies and entitlements ends up being.

Here is some additional detail:
As noted by the FCPA Blog earlier this week, disgorgement has quietly become a potent and heavily relied on aspect of the SEC's FCPA enforcement strategy in recent years. So what is disgorgement exactly and how is it calculated?

Disgorgement is an equitable remedy authorized by the Securities Exchange Act of 1934 that is used to deprive wrong-doers of their ill-gotten gains and deter violations of federal securities law. The Act gives the SEC the authority to enter an order “requiring accounting and disgorgement,” including reasonable interest, as part of administrative or cease and desist proceedings (SEA of 1934).

As an equitable remedy, disgorgement is technically not intended as a tool to punish, but instead as a vehicle for preventing unjust enrichment. The SEC is therefore only permitted to recover the approximate amount earned from the alleged illicit activities (disgorging anything more would be considered punitive).

In calculating disgorgement, the SEC is required to distinguish between legally and illegally obtained profits. The first step in such calculations is to identify the causal link between the unlawful activity and the profit to be disgorged. Once this causal link is established, the SEC may assert its right to disgorge illicit profits that stem from this wrong-doing. Because calculations like these often prove difficult, courts tend to give the SEC considerable discretion in determining what constitutes an ill-gotten gain by requiring only a “reasonable approximation of the profits which are causally connected to the violation” (SEC v. Happ). Once the SEC satisfies this relatively low threshold, the burden shifts to the defendant, who must rebut the causal connection.

Rebutting an SEC calculation can prove difficult in practice where a violation leads seamlessly to the formation of a contract or a long-term business deal. For example, if a defendant who secured a series of lucrative contracts after an improper payment to a foreign official is unable to break the causal chain between the improper payment and the ongoing contracts it secured, it may be possible for the SEC to disgorge future, as yet unrealized, profits. Courts have recognized, however, that the disgorgement of such gains cannot be without limit and that, at some point, the continuum between a violation and profits becomes too attenuated to be feasible.
(What Exactly is Disgorgement?, emphasis added). In other words, the cost of bringing Oil-Qaeda to justice would be covered in a just case, which leaves out the Fifth Circuit (A Case of Big Oil vs. Climate Change, 2).

Just sayin' ...

The next post in this series is here.


  1. Disgorgement certainly has clawed back some hefty amounts but it's the 'corporations' that 'pay' it back-more of a compensatory approach. A good start. What needs to evolve but quick is an analogous punitive scheme that makes tampering with or destroying the biosphere a 'beyond heinous act' with suitable sentences if convicted so fierce that not even the psychopaths would risk it. If people can appreciate that a soot covered city surrounded by billowing smoke stacks means 'progress' in the 1940's (Chicago)they'll be an easy 'sell' for keeping the air, water and life systems in good shape. It's all in the 'presentation."
    Top disgorgements
    Thanks Dredd! Your work is terrific!

  2. "New Campaign Calls For Polluters ‘To Pay For What They Break’" link

  3. Oil-Qaeda prepares for battle (link).