Tag: California

An Update on the California Cryptocurrency Class Action

In our last post, we mentioned a potential class action against a “digital currency exchange” dealing in Bitcoin and other cryptocurrencies brought by a private plaintiff alleging, among other things, violations of California’s unclaimed property laws.  It appears that specific claim will no longer be at issue in the case.  In mid-May, the defendant, Coinbase, filed a motion to dismiss asking the court to throw out the complaint.  In its motion, Coinbase argued that the plaintiff could not bring a claim against Coinbase for failure to comply with the California Unclaimed Property Act, arguing that such a claim could only be brought by the State Comptroller’s Office.

In response, the plaintiffs amended their claims, and removed the cause of action for violation of the Unclaimed Property Laws.  Coinbase’s response to the amended complaint in due in July.

Cryptocurrency Exchange Hit With Unclaimed Property Class Action

In May of 2010, a Jacksonville software developer named Laszlo Hanyecz made the first purchase of real world goods (2 pizzas) using the cryptocurrency Bitcoin.  Since that time, cryptocurrencies – digital currencies that rely upon computerized cryptography to control monetary flow (i.e., the amount of funds available), approve and record transactions – have become more publicly accepted and risen tremendously in value.   Today, Bitcoin – one of the most widely known cryptocurrencies – can be used to purchase a wide variety of goods at a number of retailers.

As cryptocurrencies such as Bitcoin become more widely accepted, they will also come under increasing scrutiny from financial regulators, law enforcement agencies, and consumer protection watchdogs.  Indeed, it appears that this is already happening.  Already, the IRS has issued guidance as to when cryptocurrencies will be treated as property for U.S. tax purposes.  On the unclaimed property law front, the 2016 Uniform Unclaimed Property Act includes within the definition of “property” subject to the act “virtual currency,” defined as: “a digital representation of value used as a medium of exchange, unit of account, or store of value, which does not have legal tender status recognized by the United States.”

More recently, “digital currency exchange” Coinbase has been sued in a potential class action for, among other things, purportedly failing to comply with California’s unclaimed property laws.  A digital currency exchange is generally a business where cryptocurrencies can be traded or exchanged for “fiat currency” (i.e., government-issued money).  The class action complaint was filed in a California federal court on behalf of “[a]ll persons and entities who were sent Cryptocurrencies . . . through Coinbase.com to their email address, and who never claimed such Cryptocurrency.”  The complaint alleges that, in certain instances, members of the plaintiff class who were sent cryptocurrencies by others through Coinbase were only sent a single email notifying them of the transaction.  The complaint alleges that Coinbase’s alleged failure to send follow up emails or escheat the property to the State amounts to a violation of the California Unclaimed Property Act and/or is an unlawful business practice.

Assuming the case proceeds to the merits, it will be interesting to see how the court’s attempt to impose the unclaimed property regulatory framework on this type of “asset.”  Coinbase’s response to the complaint is currently due on May 18, and indications are that it will move to dismiss the complaint.

California Legislature Taps Brakes on Potential VDA Program

A few weeks ago, the unclaimed property industry was abuzz with the news of California legislation that would implement the Golden State’s first Voluntary Disclosure Agreement (VDA) program since 20o2.  VDA arrangements are amnesty programs pursuant to which holders of unclaimed property can self-report and remit overdue property to the state.  In most such programs, in exchange for coming forward with the overdue funds, the holder generally receives a waiver of the late-reporting penalties and/or interest that would otherwise be assessed under the act.  While VDA programs have long been in place in unclaimed property significant states like Delaware and New York, California has been an extreme outlier:  not only does the state have no amnesty program, but it is among the most aggressive in assessing interest on unclaimed property.  Little wonder then that news of a potential California VDA program was welcome news.

Alas, it appears that the program is not in the immediate offing.  According to an article in the Northern California Record, the sponsor of the legislation has pulled the bill, suggesting that it needs “more work.”  No word on what that work is, or when a revised bill might be offered.

 

Friday Lost + Found: California’s Audit Haul, Delaware Faces Threats, AARP Says “Open Your Mail”

California Unclaimed Property Audits Bring in Over $1B Per Year — The Lake Arrowhead, California Mountain News has an article about a recent speech given by California State Treasurer John Chiang.  In addition to discussing the state budget, new technology initiatives, and “his perspective on the ‘American Dream,'” Treasurer Chiang gave some information relating to his time as the State Controller.  As reported by Mountain News, Treasurer Chiang claimed that California’s unclaimed property program was “broken” when he took over as Controller, and that his focus on “high profile audits brought in $9.3 billion” during his time in office (or about $1.2 billion per year).   To put that number into some perspective, $1.2 billion per year is more than the GDP of at at least 17 countries.

Delaware Online Chronicles Threats to Delaware’s Revenue — In Delaware Online there is an editorial by Harry Themal which outlines some of the “clouds on the horizon” with regard to Delaware’s future financial outlook.  Along with many of the same problems that plague other states, the article specifically notes Delaware’s vulnerability to fluctuations in revenue from abandoned property and the possibility of future lawsuits (as suggested by Justice Alito’s comments in Taylor v. Yee).  As Mr. Themal notes, “[e]scheat has netted Delaware half a billion dollars – an eighth of the budget – so court rulings could be deadly.”

AARP:  “Open Your Mail!”The AARP recently posted an article entitled “Abandoned Funds May be at Risk” which sounds the alarm over the speed and relative ease with which some states declare investment accounts and securities as “abandoned” property.  While many investors favor a “buy and hold” or similar passive investment strategy, the article notes that investors need to stay in contact with financial institutions (and open their mail) to prevent funds from being deemed “abandoned.”

Friday Lost + Found: Happy Unclaimed Property Day and California & Kentucky Questions

Kentucky State Treasurer Defends His Post — Kentucky.com has an article about Kentucky Treasurer Todd Hollenbach’s defense of the position of State Treasurer.  Although term limits prevent Hollenbach from running again, a according to Kentucky.com some candidates for the position of State Treasurer seek to abolish the office – arguing that the various tasks can be handled by other government departments.

California Legislative Analysts’ Office: California Can Do More to Return Unclaimed PropertyThe LA Times is reporting on a release by the California Legislative Analyst’s Office (LAO) noting a potential conflict between the California Controller’s Office’s obligation to return unclaimed money to California citizens, and the revenue generated by the more than $400 million in revenue that unclaimed funds contribute to the state budget.

February 18 Was Unclaimed Property Day in South CarolinaAccording to WMBF, February 18 was declared “Unclaimed Property Day” in South Carolina by that state’s General Assembly and State Treasurer Curtis Loftis.  To be your own Santa in South Carolina, you can check the Treasury;s “Palmetto Payback” program here.

California Amends Definition of “Owner” to Give Charities Greater Access to Unclaimed Funds

 

On September 15, California Assembly Bill 1712 became law.

This legislation expands the definition of an “owner” under the Act authorized to make a claim for unclaimed property in the Controller’s possession.  In particular, the definition of “owner” was amended to add “a nonprofit civic, charitable, or educational organization that granted a charter, sponsorship, or approval for the existence of the organization that had the legal right to the property prior to its escheat but that has dissolved or is no longer in existence, if the charter, sponsorship, approval, organization bylaws, or other governing documents provide that unclaimed or surplus property shall be conveyed to the granting organization upon dissolution or cessation to exist as a distinct legal entity.”  In other words, if the California Controller’s office is holding unclaimed property for the American [Charity] Association – LA Chapter, and that entity is dissolved or no longer exists, the property can be claimed by the nationwide American [Charity] Association so long as the charter or organizational documents provide the national organization with that power.

According to a report on the bill by the Assembly Judiciary Committee, the bill arose from the acknowledgment that “there is a large amount of unclaimed property  . . . that is owned by nonprofit chapters or affiliates that have dissolved.”  By amending the definition of owner to include the parent or sponsoring entity of the dissolved organization, the bill’s sponsors intend to “retrun [the funds] to the charitable sector where it can once again benefit the community.”

While the legislation is certainly laudable, insofar as it requires that the organizational documents of the dissolved entity provide that unclaimed property will pass to the parent entity, it is unclear what impact it will have on the millions of dollars already in the Controller’s possession.