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The US 2nd Circuit Court of Appeals issued an interesting decision in SEC v Loewenson (May 09, 2002). Simplifying the facts somewhat, the appellant was one of the many investors who transferred various assets to a fraudster company running a classic Ponzi scheme, paying investors a return out of the assets transferred by later investors. The company incurred substantial losses from currency futures and options trading, and ultimately went into receivership. The appellant had transferred 8 million shares to the company which were still held in the company's brokerage accounts at the time of receivership.

Unsurprisingly the appellant sought a return of those shares. One of the arguments put forward was that the shares were transferred pursuant to a fraud perpetrated by the company so that the shares were subject to a constructive trust. Without deciding expressly whether there was indeed a constructive trust, the court disposed of the appellant's argument by saying "whatever beneficial interest [the appellant] might have in the transferred shares, arising from a constructive trust, does not defeat the equitable authority of the District Court to treat all the fraud victims alike (in proportion to their investments) and order a pro rata distribution." In other words, the shares formed part of the "receivership estate of the defrauding company for purposes of a pro rata distribution to the defrauded victims."

The effect of this decision seems to be that proprietary restitution is unavailable only when it is most needed. Can this occur in other jurisdictions?