"What we're struggling with is how best to allocate losses," Gaylord said.
Shelby replied: "In terms of winners and losers, I don't see any winners here."
A lawsuit filed in April by the U.S. Securities and Exchange Commission alleges APS and owner Curtis L. DeYoung misappropriated funds and made unauthorized investments, then sent account statements to clients showing inflated amounts to conceal the wrongdoing.
Government regulators in April seized control of the $350 million fund and Shelby issued a temporary restraining order freezing the 5,500 client accounts.
In May, the judge partially unfroze the accounts and permitted court-appointed receiver Diane Thompson to allow those clients to have access to their funds.
Shelby also agreed Thompson could require account holders to set aside 20 percent of their money flowing in from investments until he approves a plan to divide up the losses among the company's clients.
At Wednesday's hearing, Paul Moxley, DeYoung's attorney, argued that the receivership should be dissolved because the five-year limit for filing a lawsuit has passed. Gaylord had said in a previous hearing that while Thompson still is trying to determine the exact extent of the losses, they appear to have begun in the years 2000 to 2004.
In addition, Moxley said the SEC lacks authority to sue because DeYoung did not sell investments that are regulated by the agency.
SEC attorney Daniel Wadley countered that DeYoung needed an infusion of new cash after he created the $24 million deficit, and his company created a form that facilitated the sale of securities in clients' accounts and the transfer of the money back to APS.
American Pension Services allows clients to direct their own investments from IRAs or several other types of retirement accounts, including into real estate or to other areas that are banned if those funds are deposited with banks or brokerages.