Month: March, 2019

Arkansas Passes Law For Immediate Liquidation of Unclaimed Securities

Recently, we posted an article addressing the potential pitfalls to owners arising out of the states’ identification and handling of “unclaimed” securities accounts. In that article, we noted a bill pending in Arkansas legislature permitting the Administrator of unclaimed property in that state to sell escheated securities immediately upon receipt, instead of holding them for three years. That bill became recently became law.

The new law was also passed as an emergency measure meaning that the legislature made a determination that this new law was “immediately necessary for the preservation of the public peace, health, and safety.” Accordingly, the law became effective immediately upon its approval by the Governor on March 15.

Assuming that the state begins the practice of immediately selling securities reported to the state, it means that owners who later seek to recover their property from the state will not receive the securities — nor any of the dividends, splits, or other compensation that may have accrued after the shares were reported — but rather just the value of the securities at the time of liquidation, less any fees incurred by the state.

Friday Lost + Found

IRS Holding $1.4B in Unclaimed Refunds — According to CBS News the Internal Revenue Service has announced that it has approximately $1.4 billion in unclaimed tax returns for more than a million taxpayers. In addition to background on how these amounts have gone unclaimed, the article also has some tips for those who may have fallen behind on filings.

California Holding Over $9 Billion in Unclaimed Property — From time to time, states will publish estimates of the approximate amount of unclaimed funds being held at a given time. According to a recent press release from the California State Controller’s Office, the Golden State holds over $9 billion dollars in unclaimed funds waiting for its rightful owners.

Former Mutual Fund Employee Convicted of Stealing from Dormant Accounts — Whenever any organization has a cache of dormant or otherwise unclaimed funds lying around (so to speak) there will be those who see the potential to take some of that money for themselves. According to the Philly Inquirer, a supervisor at a large mutual fund company has recently pleaded guilty to stealing more than $2 million “from dormant accounts that were slated for ‘escheat.'” He then issued checks from these accounts to various family members. There is no information on how the scam was discovered, but according to the Inquirer “[s]entencing guidelines call for a potential 46 years in prison, $2.1 million in restitution and a $1.25 million fine.”

Nebraska Makes Changes to Unclaimed Property Notification Requirements

New Law Changes Funding & Notice Provisions

On March 12, the Governor of Nebraska approved Legislative Bill 406 which amends various technical and administrative provisions of that state’s unclaimed property act. Among the more notable provisions are those which reduce the state’s obligation to publish and mail notice to owners of unclaimed property. Under the prior law, the state was obligated to mail notice and publish details relating to all items of $25 or more. The new law raises that threshold to $50. The new law also increases the amount held in the unclaimed property trust fund from $500,000 to $1 million.

Friday Lost & Found

A Roundup of Odds & Ends From the Week in Unclaimed Property

GAO Issues Report on Unclaimed 401(k) Funds — The Government Accountability Office, which is responsible for providing recommendations to Congress on the responsibilities of the federal government, recently issued a report concerning the application state unclaimed property laws to retirement assets such as 401(k)s. In preparing the report, GAO sent questionnaires to the unclaimed property offices of all 50 states, interviewed industry representatives, and surveyed fund and brokerage firms on their handling of these items. Among the GAO’s recommendations are that the IRS clarify the tax treatment of plans that are escheated to the state and consider allowing taxpayers whose later claim assets that were unknowingly escheated to rollover the assets into a qualified plan.

Claim Headaches — One of the benefits of modern escheat laws is that they are generally “custodial” in nature — meaning that the state takes possession of unclaimed property on the owner’s behalf, but the property does not actually become the state’s property. That said, the claim process can be a trap for the unwary. As recounted by the Mercury News, individuals seeking to claim property from the state face (at least) paperwork and (at worst) scammers that try to take some or all of the money owed to the claimant. The article recounts these problems and has a number of tips for claimants. It is worth a review for those considering filing a claim.

2016 Uniform Act News — States continue to work on legislation relating to the 2016 Revised Uniform Unclaimed Property Act.The Washington state legislature is currently considering such a bill, as are lawmakers in Nevada. and South Carolina.

Britons Blindsided by U.S. Escheat Laws

Why Unclaimed Property “Activity” Standard Doesn’t Make Sense for Long Term Investments

Jessica Gorst-Williams, the “Agony Aunt” of U.K. newspaper The Telegraph recently ran an help column relating to a U.K. resident’s complaint that her shares were escheated to the State of Delaware without her knowledge. Accordingly to the unlucky shareholder, her shares were turned over to the state “because I had not made any contact with the company since receiving the shares, the necessity of which I had no prior knowledge.”  Ultimately, the shareholder had to submit her driver’s license, passport, bus pass (seriously), as well as a copy of the actual stock certificate.

After jumping through these hoops, did our heroine across the pond get her stock back? Not exactly. Instead, she got a check for $1, as the state had already liquidated the stock without her consent at the then-market value. This story is far from unique. Every year, certain states require broker/dealer firms to turn over stock positions, which are in many cases summarily liquidated, based upon nothing more than the fact that the account owner did not engage in activity during the previous 3-5 years.

By way of background, all states require the reporting and delivery of dormant securities positions. However, the manner in which this “dormancy” is measured differs among the states. There are generally two styles. In “Returned Mail” (sometimes called “RPO” (Returned by Post Office)) states, the three to five year time period after which the broker must turn over “abandoned” securities to the state does not begin to run until one or more mailed account statements are returned to the broker as undeliverable by the postal service. In “activity” states, on the other hand, the dormancy period begins to run immediately after the last owner-generated activity in the account. In other words, when you open up a brokerage account subject to the unclaimed property jurisdiction of an “activity” state, the dormancy period begins to run immediately. If you don’t trade in that account or engage in some other activity, your securities will be deemed abandoned at the end of three to five years.

While the passage of time alone might make sense to require the escheat of certain items (i.e., payroll checks – which generally aren’t held for a long time), it doesn’t make sense when it comes to securities accounts, many of which are being held for the long term. While investment advice is not something this blog is qualified to provide, it is nonetheless true that “Buy and Hold” (or passive investing) has been a popular investment strategy for decades. Thus, escheating securities to the state (where they may be quickly liquidated) simply because of a lack of activity seems inconsistent with how many owners utilize their investment accounts.

Adding financial insult to injury, the overwhelming majority of states do not hold those securities escheated to them in the name of the rightful owner. Instead, most states’ laws, including those that have adopted the recent 2016 Uniform Unclaimed Property Act, provide that the state may sell securities after three years, and that generally the rightful owner is entitled only to the proceeds of the sale. In other words, the owner loses any increase in value of those securities after they are sold by the state.


Unfortunately, it does not look like these practices are waning. For example, a bill currently making its way through the Arkansas legislature would permit the Administrator of unclaimed property in that state to sell escheated securities immediately upon receipt, instead of holding them for three years. Thus, the states’ every increasing appetite for unclaimed property has shifted the burdens of maintaining ownership squarely onto the shoulders of the owner. Now, more than ever, it is important for owners to keep tabs on their securities accounts, even if they are holding for the long term.