> I never understood why commingling was illegal. The answer is straightforward. It is obviously possible to spend all of the money in an account. This is bad

> I never understood why commingling was illegal. The answer is straightforward. It is obviously possible to spend all of the money in an account. This is bad if some of that money was customer money which the fiduciary was not supposed to spend. Spending all the money in an account can be the result of bad business decisions. But equally, it can be the result of a series of negative events. For example, a business line of credit could pledge as security funds in an account. Later, the business runs into trouble due to rare macro events (e.g. war, pandemic, natural disaster, etc.) and the loan goes into default. The creditor can then seize the funds in the account. It is better for customers if that pledged account did not contain their money. > customers have priority in any liquidation of the contents of that account. Neither of the scenarios above results in the ability to prioritize in any kind of orderly liquidation. Bankruptcy will likely come eventually, but by the time the courts get involved all the customer funds are gone and unrecoverable. Preventing commingling provides a mechanism for the fiduciary to fail without having lost all of the customers' money.