So to my mind the closest analogies are found in that rich vein of cases involving "restitution between consecutive victims of the same fraud", the classic facts being successive borrowings on forged security, with proceeds of the subsequent borrowing being used, in part, to repay the prior lender; when the truth comes to light, the most recent victim sues the most recently repaid victim in restitution, claiming to have traced his money into defendant's hands -- all just as happened here. And the typical case is resolved by a dispute about whether the defendant gave value, inasmuch as the claim he surrendered was worthless, etc etc, very much like last week's exchange between Lionel and Eoin. The US cases I refer to are typified by Associates Discount v. Clements, 321 P.2d 673 (Oklahoma 1958), and Nat'l Shawmut v. Fidelity Mutual, 61 N.E.2d 18 (Mass. 1945), but there are a great many of them.

My reaction to all these successive-fraud cases is that there is something artificial and anomalous about finding unjust enrichment of one fraud victim and the expense of another, at least in any case where we would conclude that the plaintiff and defendant are identically situated vis-a-vis the swindler: you cannot even say the defendant has been enriched unless you can say "he had already lost his money without knowing it," and this is unsatisfactory because it is arbitrary and question-begging. (I discuss this at greater length in my recent article in 83 Calif. L. Rev. 1191, 1234-36.) I think this means that unless we can come up with a technique for splitting losses between identically situated victims, the loss lies where it falls, not because the defendant has a particularly convincing claim to be a b.f.p. (for reasons Lionel advances inter alia), but because plaintiff cannot convincingly show dft's unjust enrichment.

Of course, in many comparable situations there is an effective loss-splitting mechanism in the form of bankruptcy. For me the important rule of Cunningham v. Brown (the original Ponzi case), 265 U.S. 1 (1923), is that we do not allow b.f.p. defense to an earlier fraud victim who was lucky enough to get his money out ahead of the general crash because bankruptcy, and equity generally, seek to give similar treatment to persons similarly situated. This means that you can neither resist nor assert constructive trust in bankruptcy where the result is to afford preferential treatment to a claimant who cannot adequately distinguish his situation vis-a-vis the debtor from that of the other creditors. I think this reasoning supports, in a general way, finding the means to split the $45 million between the bank and the investment fund in Lyons v. Jefferson. US doctrine about constructive trust is sufficiently liberal (i.e. loose) that a US court would have no difficulty finding that the bank (or a bankruptcy trustee, if it comes to that) held the disputed funds in CT for the two fraud victims (assuming for simplicity two victims identically situated), in proportion to their losses from the embezzlement.

Best regards.

Andrew Kull