So Person X makes off as a pure winner in the clawback (doesn't lose Fund Y profits, gets "made whole" of direct losses in clawback) Not "fair" but "legal". Yay!
In real-world experience, rather than 10th-grade story problems, the devil is in the details. Dates are important (you're eligible for recovery of losses from date range, you're liable for recovery from other date range), and Person A is likely to be vulnerable to clawback of earlier profits, even if reinvested and later lost. The profits from the scheme are separate transactions from the later losses in the same scheme. In this case, your simple math would be more fair, but probably not how the legal system would work. Yay!
You can see examples of this in capital gains taxes on people who made and lost a lot in cryptocurrency boom/bust cycles. Arbiters may have a lot of discretion in evaluating claims in these big cases, but I'd rather have the law on my side than relying on the discretion of an arbiter.
In real-world experience, rather than 10th-grade story problems, the devil is in the details. Dates are important (you're eligible for recovery of losses from date range, you're liable for recovery from other date range), and Person A is likely to be vulnerable to clawback of earlier profits, even if reinvested and later lost. The profits from the scheme are separate transactions from the later losses in the same scheme. In this case, your simple math would be more fair, but probably not how the legal system would work. Yay!
You can see examples of this in capital gains taxes on people who made and lost a lot in cryptocurrency boom/bust cycles. Arbiters may have a lot of discretion in evaluating claims in these big cases, but I'd rather have the law on my side than relying on the discretion of an arbiter.