MBE Rules · Remedies
Tracing
Tracing into commingled funds
The rule
Constructive trusts and equitable liens follow misappropriated funds into products and commingled accounts; the lowest-intermediate-balance rule caps recovery at the smallest balance after the deposit.
In plain English
Tracing allows a claimant to follow misappropriated funds into products or accounts, asserting a claim to those assets. When funds are commingled, the lowest-intermediate-balance rule limits recovery to the lowest balance in the account after the misappropriation occurred.
Worked example
A client discovers that their investment advisor misappropriated $50,000 and deposited it into a commingled account. Over time, the account fluctuated, with the lowest balance reaching $20,000 before the advisor withdrew all funds. The client can only recover $20,000 based on the lowest-intermediate-balance rule.
Memory hook
Trace it back to the lowest balance for your claim to stick!
The trap
Exams may present scenarios where students miscalculate the lowest balance or confuse tracing with other recovery methods, leading to incorrect conclusions.
How examiners test it
Questions often involve fact patterns with misappropriated funds and require candidates to apply the lowest-intermediate-balance rule to determine the recoverable amount.
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