|
|
 |
 |
 |
| California ordered to pay interest on seized assets |
| |
| WRITTEN BY: Tom Chorneau, Chronicle Sacramento Bureau |
| DATE PUBLISHED: Wednesday, October 17, 2007 |
| |
California taxpayers are on the hook for as much as $500 million in interest that a judge says the state owes to thousands of property owners whose assets were taken into trust under a troubled state program that manages abandoned property, officials acknowledged Tuesday.
A federal judge in San Jose ordered state officials last week to begin paying interest to property owners whose assets were returned after being held in the state's unclaimed property program. The ruling overturned a 2003 law that had halted interest payments.
Officials in the state Department of Finance and the state Treasurer's Office have estimated that the liability could exceed $500 million, while the attorney who won the case against the state estimated the cost of back interest to be as much as $1 billion.
The ruling is the second major blow to the state this year over how it has handled more than $5 billion in the unclaimed property account - enough money to cover the cost of the California's 109-campus community college system.
In May, a federal appeals court in San Francisco found that the state routinely seized and liquidated unclaimed assets without properly notifying the owners before taking action. The court barred the state from accepting unclaimed assets until a new notification system is put in place.
State officials, already facing a budget deficit in the fiscal year beginning next July that could reach $8.6 billion, have not decided whether to appeal last week's ruling by U.S. Magistrate Judge Richard Seeborg.
"I'm grateful for what the judge had to say," said attorney William Palmer, who has filed several lawsuits over the management of the unclaimed property program. "After all, this was never the state's money."
In the case before Seeborg, Palmer's client, Agnes Suever, held onto a $13,000 cashier's check for more than 10 years before trying to cash it in 2001 - and found that the money backing the check had long ago been transferred to the state.
Although the state returned the principal to Suever a year later, she argued she was still owed interest because the state had use of the funds for two years. Seeborg ruled that the state, after taking possession of the property and using it for its purposes, should pay Suever interest on the funds.
"It is as if California claimed to be holding a tree in custody for its owner but insisted on pruning back and keeping all the branches that grew in the interim," Seeborg wrote in his ruling.
Each year the state takes possession of hundreds of millions of dollars of lost or forgotten assets - from bank accounts and utility deposits to insurance payouts and stock dividends.
Although the state is required to return the cash value of holdings when the rightful owners step forward to claim them, most of the time no one makes a claim and the state is allowed to use the money for programs such as schools, public health and prisons.
Last year, the unclaimed property program generated almost $300 million to California's general fund.
Garin Casaleggio, spokesman for State Controller John Chiang, who oversees the unclaimed property program, said there's still a question of how much the state will ultimately pay in interest.
The judge has not clarified the interest rate to be paid, Casaleggio said, and which property owners will qualify for back payments - issues that could cut costs to taxpayers. State attorneys will return to court soon for clarification, he added.
Chiang, who took office in January after many of the legal problems in the unclaimed property program had surfaced, has said he supports paying interest to property owners on assets returned by the state.
The state paid about $12 million a year in interest on seized property before the law was changed four years ago to halt such payments, records show. But because the state also eliminated interest payments retroactively, Palmer said, the liability is much more than the $48 million in interest covering four years.
For example, a bank account taken into trust in 1992 would have generated 10 years of interest before the law halting interest payments was imposed. But if an owner claimed his money after 2003, not only would he lose out on interest that might have generated after the law was passed, but all interest generated before that.
For most of the last three decades, the state paid interest of 5 percent, compounded annually. But the rates changed several times in recent years and it is not clear what the judge will decide the state will owe.
After the interest issue is settled, the state faces claims that noncash property was illegally taken without notice to its owners and transferred into the unclaimed property account.
Several cases involve stocks and bonds whose value escalated between the time the state took possession of the asset and when the owner realized the property had been transferred to the state. More problematic, however, are personal items such as jewelry, personal papers and keepsakes that were destroyed or sold for cash by the state and whose value cannot easily be assigned.
State officials have made no estimate of how much more they could have to pay if those claims are upheld.
E-mail Tom Chorneau at tchorneau@sfchronicle.com. |
| |
 |
| California UP - federal litigation update |
| |
| DATE PUBLISHED: Monday, October 15, 2007 |
| |
On Friday night October 12 at 6:00 PM federal Judge Seeborg in Suever v. Westly / Connell (San Jose) ruled in plaintiffs’ favor and found the seizure of Interest Payments by the Controller from the 8.7 million accounts in the Unclaimed Property Fund is Unconstitutional. Accrued interest must be restored to the $5.1 billion in private funds. Some of the accounts have been accruing interest since 1959. A copy of the decision is attached in which the Judge compares Interest to the Principal as "leaves to the tree." The estimated amount of private funds taken is (was) at a minimum of $500 million (per the California State Treasurer's report on the litigation in California Bond disclosures), but probably in excess of $1 Billion.
Also attached for your reference is the Suever v. Westly / Connell Ninth Circuit decision issued in 2006.
Other key dates this month are as follows:
October 15 - Taylor v. Westly (today) - Controller presents his plan to Judge Shubb to lift the federal injunction at 2:00 p.m. in Courtroom 5, Eastern District Federal Court (Sacramento).
October 17 - Suever v. Westly / Connell - (1) Motion for Class; and (2) Motion for Sanctions will be heard by Judge Seeborg at 9:30 a.m. in Courtroom 4, Northern District Federal Court (San Jose).
October 22 - California State Senate Governmental Organization Committee - Informational Hearing on the claims set forth in the Taylor and Suever cases will begin at 10: a.m. in room 1391 of the State Capitol (Sacramento). Senator Florez issued the call for an investigatory hearing. That committee’s website is at http://www.sen.ca.gov/ftp/sen/committee/STANDING/GO/_home1/PROFILE.HTM
|
| |
|
|
|
| Has desperate state turned to stealing? |
| |
| WRITTEN BY: Scott Herhold |
| DATE PUBLISHED: Thursday, October 11, 2007 |
| |
Chris Lusby Taylor is a brainy Englishman who has never set foot in the United States. As a European employee of Intel in the late 1970s and early '80s, he designed microprocessor chips. His wife was general counsel for Intel in Europe.
Taylor, like many employees, counted on his Intel stock as a hedge against inflation. He put his 52,224 shares in a safe deposit box in a London bank, as secure a place as he could imagine.
Sadly, it wasn't safe from the long grab of the California controller. In 1992, without notifying Taylor, the state seized the Englishman's stock and sold it - dubbing it unclaimed property - even though Taylor retained the original certificates. His Sacramento attorney, William Palmer, says Taylor lost more than $3 million that he would have had if the stock had remained his.
California's pretense? The state said Taylor's stock counted as unclaimed because he had not cashed a dividend check or responded to a request for a shareholder vote within three years.
Never mind that Intel did not issue a dividend during that time, or that most people toss proxies in the trash. Never mind that Intel was a Delaware company. The state required Intel to issue replacement stock certificates, which the then-controller, Gray Davis, sold for the general fund.
'He was shocked'
What happened to Taylor, who also designs elegant sundials, is outrageous. "He was shocked," said attorney Palmer. "He could not believe that a province in another country would take his personal property and sell it for its own gain."
The Englishman has since settled for an undisclosed amount with Intel, which attorney Palmer described as being "very gracious." Taylor's case against the state, and complaints of others like him, are still alive. They come to San Jose next week for a crucial legal hearing to determine whether a class of complainants should be formed.
Controller John Chiang's office says it is working hard to eliminate potential abuses. Empowered by new legislation, Chiang has improved notification procedures and decreed that seized stock be held for up to two years before being sold. His office also maintains a Web site that lists the names of all people whose property has been seized.
Need for cash
But the state's yen for money still burns, and that's what has driven this abuse. A report by then-Controller Steve Westly revealed the state brought in $116 million in fiscal 2003 through sales of abandoned property.
The 9th U.S. Circuit Court of Appeals in May found the state's practices for notifying owners still unconstitutional and insufficient.
The core of the problem stems from the state's decision years ago to outsource the collection business to contractors who take a percentage - generally 12 percent - of money raised. The state relied heavily on a Boston bank, State Street Bank & Trust, that had little incentive to spend a lot of time finding owners.
The state has also done a poor job of notifying people, key since the window for declaring property dormant is three years. In Taylor's case, the lack of notification was bewildering, because Intel sends him pension information. (State attorneys say they had an outdated Belgian address).
Nobody knows precisely how many people share Taylor's plight, though Palmer estimates there are "hundreds of thousands." And here's another twist of the knife: When the state gets its hands on dormant safe-deposit boxes, it tosses items that cannot be sold - irreplaceable family treasures like photos, or marriage certificates.
"My own pet theory is that California is so desperate for money that it has resorted to stealing," Palmer said.
Harsh words, yes. But can you call them untrue?
|
| |
|
| California Press Releases |
| |
| WRITTEN BY: Dr. Will Yancey, CPA |
| DATE PUBLISHED: Thursday, August 23, 2007 |
| |
On August 23 the California State Controller’s Office announced major changes in the state’s unclaimed property program.
The announcements do not make it clear how the state will compensate true owners whose property was liquidated in the past.
Here are links to the SCO press releases and some news stories.
(Copy and paste links below into your browser)
http://www.sco.ca.gov/eo/pressbox/2007/08/pr041ucpreforms23.pdf
http://www.sco.ca.gov/eo/pressbox/2007/pc0823/reformsfs.pdf
http://www.sco.ca.gov/eo/pressbox/2007/pc0823/leghist.pdf
http://www.latimes.com/news/local/la-fi-unclaimed24aug24,1,1662654.story
http://cbs13.com/consumer/local_story_235235526.html
http://data.sacbee.com/capalert/login.html?previous=http%3A//www.sacbee.com/772/story/339275.html |
| |
|
News brief Archives:
|
| Notice to Holders of Unclaimed Property |
| FTC CHIEF CALLS FOR DISCLOSURES ON GIFT CARDS |
|
|
 |
|
|
