Separate vs. Sub: Important Distinction...!

In an April 2009 bankruptcy ruling, the court ruled that monies held in an intermediary’s SUB-accounts were available to all creditors.

The sub-accounts were part of a “pooled” account structure (where the exchange proceeds were dumped into one pot), yet they were made to appear to the clients as if they were separate accounts. The courts had previously ruled that commingled, or pooled, accounts were bankruptcy assets and therefore available to all creditors.

This particular bankruptcy brought down one of the largest title companies in America – proving once again that no company is too big to fail. It is important to note that this case involved poor judgment and the careless investment of the account, and NOT the blatantly immoral theft of the funds.

More importantly, the clients who lost their exchange funds were not those whose funds were part of the bad investment. The ones who lost out were those who came in after the fact. The new client’s funds were, unbeknownst to them, used to make up for the prior snafu.