Sunday, January 20, 2013

Preferred allocation method in investment frauds where a deficiency exists

Boughner v. Greyhawk Equity Partners Limited Partnership (Millenium), 2013 ONCA 26 holds that in the context of an investment fraud the appropriate method for tracing funds where there is a deficiency is the lowest intermediate balance rule or LIBR. 

The rule is described in In re Dameron 155 F.3d at 724 as follows:

[P]ursuant to the lowest intermediate balance rule, if the amount on deposit in the commingled fund has at all times equaled or exceeded the amount of the trust, the trust’s funds will be returned to their full amount. Conversely, if the commingled fund has been depleted entirely, the trust is considered lost. Finally, if the commingled fund has been reduced below the level of the trust fund but not depleted, the claimant is entitled to the lowest intermediate balance in the account. In no case is the trust permitted to be replenished by deposits made subsequent to the lowest intermediate balance

The Court of Appeal holds:

We agree with this analysis. The general rule, and the preferred allocation method, in cases like this is, per Greymac, the LIBR method.

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