NEW YORK—Sun America Life Insurance does not have to return more than $24 million in investment gains to the receiver of a fraudulent investment company because of the expiration of the statute of limitations, in a case that hinged on where the investment company was based.

The focus of the decision by the federal district court in New York in Robb Evans & Associates L.L.C. vs. Sun America Life Insurance et al. was WG Trading Investors L.P., headquartered in Greenwich, Conn.

In 2009, the U.S. Securities and Exchange Commission obtained an asset freeze against Paul Greenwood and Stephen Walsh and their three affiliated entities, including WG Trading Investors, stating they had “orchestrated a brazen investment fraud involving the misappropriation of as much as $554 million in investor assets.”

The SEC said the scheme had been going at since at least 1996. It said Messrs. Greenwood and Walsh solicited a number of institutional investors by promising to invest their money in an “enhanced equity index strategy that involved purchasing and selling equity index future and engaging in equity index arbitrage lending.”

“Greenwood and Walsh essentially treated their client's investments as their personal piggy bank to purchase multimillion-dollar homes, a horse farm and horses, luxury cars and rare collectibles, such as Steiff teddy bears,” the SEC said.

The SEC settled with Mr. Greenwood in 2010. Mr. Walsh's trial is scheduled for June, according to a spokeswoman for the U.S. attorney general's office in New York.

According to Patrick J. Gennardo, a partner with Edwards Wildman Palmer L.L.P. in New York, the two men essentially operated a Ponzi-type scheme, although the insurer had withdrawn its investment profits before the fraud was discovered in order to move the funds to better investments. Mr. Gennardo represented Sun Life Assurance Co. of Canada (U.S.), a unit of Woodland Hills, Calif.-based Sun America, in the litigation.

WG Trading's receiver, Robb Evans, filed a ‘”clawback” suit against Sun America, among others, in federal district court in New York, seeking the $24.4 million in profits the insurer had received from WG Trading, contending the New York statute of limitations applied.

According to Tuesday's ruling by Judge George B. Daniels, WG Trading made its last payments to Sun Life in 2005. New York's statute of limitations is six years from the time of the fraud, or two years from the date the fraud “could have reasonably been discovered.”

Connecticut's statute of limitations is four years from the date of transfer, or one year from when it could reasonably have been discovered.

The receiver's lawsuit was filed in 2010. Under Connecticut's statute of limitations, then, the lawsuit could have been successfully filed only if the last alleged payment had been made on either December 2006 or December 2009, according to the decision. But New York law would have applied under its longer time bar.

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The receiver had argued that New York law should apply “because (WG Trading) engaged in business and maintained an office for the regular transaction of its business in New York, and thus has a ‘significant connection' to New York,” according to the decision.

But the judge disagreed. “Even if WG trading engaged in business, maintained an office for the regular transaction of its business in New York, and thus has a ‘significant connection; to New York', WG Trading is still not a resident of New York. It remains a resident of Connecticut, where it maintains its principal place of business.”

The attorney for the receiver, Los Angeles-based Robb Evans, could not be reached for comment on the possibility of an appeal.

Mr. Gennardo said the decision is a rare win in such cases.

Generally speaking, the insurer would have had to pay back its profits, although it would have been entitled to keep its principal.

“There are very few defenses available to what they call the innocent winners because the law is so heavy skewed in favor of the receivers, but one of the few defenses is the statutes of limitations,” he said.