Mark,
Were you in a hurry when security took the Dragonfly? Or in other words, if you had the time then, would they have given it back for you to otherwise provide for disposition of the knife?
I might not agree with a security guard rejecting the knife from coming through, but at least that would be an honest point of disagreement. What would upset me would be actual seizure or confiscation, especially if the confiscated items end up being used personally--talk about a conflict of interest. I wonder if there is any established policy, for formal disposition of confiscated items. Further, is the policy followed, or do the items end up on the key ring, in pocket, etc. as you speculate. It would seem, thinking about it that normally, policy would dictate that a list of seized items be maintained. {I started to use the word kept instead of maintained, but that double meaning would probably be too close to the truth.)
Did you file any complaints? If not don't feel bad, that is one of the things I would probably contemplate, but not get around to either. Further, to protect themselves, they might try to claim some bogus violation and cause you trouble. If one did want to bother, I supposed the victim of this loss could consider filing a lost luggage claim form which would have the effect of preserving your rights in writing within the applicable time limits.
Does anyone know what the supposed policy is re rejection versus confiscation? I did look at the FAA page regarding what can and cannot be carried on or checked, and then sent an e-mail with some questions, as provided for on the page, but have had no response for the last few weeks.
We may never have an answer to this unless this happens to a very senior partner at a large law firm who foists this off on an a very junior associate as a way to give the associate some experience.