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Trust account operations are very complicated from a legal standpoint. If it can be shown that the trust account (even if not identified as such) had general funds also deposited into it, it then loses its "trust" applicability.
Some of you may recall the GMAC case where the Ontario Court of Appeal, among other things, stated that funds collected by the bankrupt broker were not subject to the legislated trust provisions as the funds were co-mingled. Those funds received after the date of bankruptcy and collected by the Receiver and were statutorily required to be kept in a trust account by the Receiver and did satisfy the legal definition of a trust, and the claims of the owed carriers took priority over the secured creditor.
The above only occurs when the defaulting broker declares or is put into bankruptcy.
If the defaulting broker is not placed into bankruptcy, courts have found the principal to be personally liable for the trust funds.
