Abandoned Property Update – States and their Hired Guns Keep Moving the Goal Posts in their Game of Greed

Thanks to a referral from Carol Irvine, President of Abandoned Property Advisors LLC, we had an informative conversation last month with Andrew Kay, Esq. of Cozen O’Connor.  He enlightened us on the recent case of Thrivent Financial for Lutherans v. Betty Y. Yee, et. al. – Yee being the California State Controller.  Specifically, the California Superior Court in San Francisco ordered, in July 2018, declaratory and injunctive relief against Yee’s office because it had, through Kelmar and Verus, tried to impose two “underground” (i.e. secret) abandoned property compliance regulations on life insurers regarding unpaid life insurance proceeds.  Without adopting regulations under California law and providing notice to the life insurance industry, California was requiring 1) that life insurers should have been monitoring the Death Master File maintained by the U.S. Social Security Administration to determine if any of their policy holders had died, and 2) that the abandoned property dormancy period for a deceased policy holder starts on date of death, not on the date life insurers receive proof of death and a claim for benefits.  Both of these requirements are false and inconsistent with California unclaimed property law!  And to make matters worse, California had already imposed these “underground” rules on 25 other insurance companies and received $300 million of “settlement” money in the process!  Thank goodness Andrew Kay and his colleagues have been able to protect life insurers operating in California from a similar future government money grab – like another win he secured for Thrivent against the State of Florida in 2014.

Mr. Kay cited a related “abandoned” property horror story in our conversation, involving two French scientists who had their Idenix Pharmaceuticals shares escheated in 2009, unbeknownst to them.  This resulted in their losing $12 MILLION of stock appreciation when Merck acquired Idenix in 2014.  The scientists sued the State of Delaware, but subsequently agreed to dismissal of the case with terms undisclosed.  Separately, the scientists filed a lawsuit in federal court against Computershare, the transfer agent for Idenix, which case was settled in 2017.  While the lawsuits were resolved, stories like this illustrate the dangers posed to transfer agents as well as consumers and financial services firms, by overzealous unclaimed property regulators.  In this case it is certainly difficult to see how Delaware was protecting the interests of the scientists, who lost millions of dollars in potential securities value.

So, the war rages on between states and their third-party, contingency-fee-based auditors like Kelmar and Verus, and the owners of securities, insurance policies and similar assets.  States allege they are taking “unclaimed” property away from “lazy” record keepers like transfer agents who have no right to the assets, even though transfer agents are constantly pinging “lost” holders under regulations such as SEC 240.17Ad-17, and are reporting their unclaimed property publicly and annually via filings such as the SEC’s Form TA-2.  We would argue that if there needs to be a record keeper for assets temporarily overlooked by their owner, far better that it be one like a transfer agent which 1) does not sell/liquidate/monetize such assets immediately like states do, 2) does not use these cash proceeds to fund their day-to-day operations like states do, 3) is continuously required to SEEK the rightful owners of and report lost assets, and 4) is the place, after the asset creator/issuer itself, most likely to be found by an asset owner when his/her oversight has been noticed.  The allegation by states that they are the best place to keep lost assets because they can be employed for the “public good” is almost laughable.  Remember again, states are supposed to enforce protection of individuals’ assets, not facilitate their siphoning into states’ coffers.

We will end this short article with a glimmer of hope:  The Thrivent v. Yee victory (and those like it); the likely broad-based adoption by states of the 2016 Revised Uniform Unclaimed Property Act (“RUUPA”) written by the Uniform Law Commission, countering some of the more flagrant abuses by states and their hired auditors; and a general rise in indignation among property owners over cases like that of the French scientists, should keep the abandoned property dialogue going in a healthy direction in the coming months and years.