UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
: December 17, 1940.
IN RE KOCH.
On Petition for Rehearing.
By petition for rehearing the appellant directs our attention to findings of fact made by the state court justice who presided at the trial of the Martin Act (General Business Law N.Y., Consol.Laws, c. 20, § 352 et seq.) action to the effect that Mrs. Koch sold to the public within the state of New York stock of the Reinforced Paper Bottle Corporation by means of fraudulent practices, as a result of which she received the proceeds of such sales in the sum of approximately $1,024,454.06; that from the money so collected she made loans to said Reinforced Paper Bottle Corporation and to the Safety Service Milk Bottle Corporation; that the approximate amount loaned by her "to the said corporation" is $656,297.92; and that between 1923 and commencement of the action "the defendant corporations" have issued to her promissory notes totaling $1,194,984.56. Hence, it is urged that the decree directing the receiver to take possession of all property derived by her by means of fraudulent practices should be construed, in the light of the findings of fact, as expressly identifying the notes of these corporations which were in her possession and listed in her petition for arrangement. Assuming this to be true, we do not think it can alter the conclusion at which we arrived. Even if the decree passed to the receiver the right to possession of the notes held by Mrs. Koch, he would have to return them to her, if no intervenor established a right to them. When the debtor's petition was filed no victim of her fraud had come forward to assert any right to the notes; nor did any such victim appear in the bankruptcy proceedings during the intervening months that preceded confirmation of the arrangement on July 12, 1940. So far as appears she was the only cestui of the receiver's trust. We cannot see that the receiver's has any right to prevent her property from being administered in bankruptcy, unless he can point to some adverse claimant for whom he is acting as trustee.Cf. In re Gant, D.C.N.C., 52 F.2d 220. If her victims prefer to take what bankruptcy will give them rather than to rescind their purchases, they have that privilege.
The petition for rehearing is denied.
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