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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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UPPO Discusses H.B. 3598 Concerns with Texas

Posted By Administration, Thursday, December 12, 2019

Earlier this year, the Texas legislature passed H.B. 3598, which the governor subsequently signed into law. Among other things, the legislation outlines requirements for combined reporting of unclaimed property for affiliated companies. The new law raises many questions for holders and service providers.

 

Organized by UPPO’s Government Relations and Advocacy Committee (GRAC), Texas Director of Unclaimed Property Joani Bishop and Assistant Director of Unclaimed Property Bryant Clayton accepted a request to discuss issues raised by H.B. 3598, and a conference call was held on Oct. 30, 2019. 

 

Clayton explained that the overall goal of H.B. 3598 is to better identify who is reporting unclaimed property to Texas and the relationships between entities. The state plans to offer two options for reporting:

  1. Affiliated group: Submission of one NAUPA file including separate Federal Employer Identification Numbers for the parent company and its affiliates. 
  2. Each affiliate group reports independently: The report must identify the reporting affiliate and parent FEINs. 

The state plans to include instructions on its website and in its unclaimed property reporting manual. The new Texas reporting website is scheduled for introduction in July 2020.

 

Bishop and Clayton responded to several other questions generated by GRAC representatives:

 

Regarding the definition of “controlling interest,” if entities are equal partners, how would the controlling corporation be determined? Holders would self-identify the controlling corporation.

 

Will the new Texas reporting website allow third parties to report on holders’ behalf? Yes. The advocate will be able to report and provide the parent FEIN to indicate the holder.

 

What happens when there are different types of stock, such as common stock and employee stock? When considering securities and transfer agents, trying to identify the parent FEIN for stocks could require outreach to thousands of companies. Similarly, payroll and rebate processors would have only the FEIN for the company with which it is doing business, and extensive outreach could be necessary to identify the parent FEIN. Texas will need to review this type of situation. 

 

How will indemnification apply? Indemnification will be afforded all of the entities identified via FEIN in the report.

 

What are the possible penalties for noncompliance? Holders must comply. Texas will reject and return noncompliant reports.

 

How will negative reports be handled? The holder could file the negative report separately, or the new NAUPA file format would allow for a negative report to be included in the consolidated file (using the one and nine records).

 

How will insurance companies with a holding company and insurers be handled? Would holders report the holding company as the parent and then the insurers? Also, how would life insurance companies handle non-life-insurance property? Reporting is based on the nature of the property rather than the nature of the holder. Life insurance companies with non-life-insurance property will report that property in July and report its life insurance property on Nov. 1 with the holder company as the parent FEIN.

 

Should due diligence letters be sent by the individual members of the affiliated group or by the affiliated group? Texas prefers that the letter be sent from each individual entity because they would have knowledge of the property when it comes to questions or claims.

 

Which entity in the affiliated group is required to sign the report? Does each member of the affiliated group have to sign? Some corporations can have many owners and principles who would know little, if anything, about the report. Texas needs to research this question. 

 

How should holders handle scenarios in which the parent corporation is in Texas but the subsidiary and actual property are in another state? Property should go to the state where it resides. The NAUPA file format (record 1) allows for each FEIN to indicate the state of incorporation. 

 

Texas plans to send UPPO a mockup of its proposed website redesign for comment. The new website will allow more than one FEIN to be uploaded. The state is also working to complete website instructions and its updated Unclaimed Property Holder Reporting Manual as quickly as possible. UPPO offered to review this information and provide feedback and additional questions for clarification before the July 2020 filing requirements.

 

UPPO thanks Joani Bishop and Bryant Clayton for their cooperation and their clarification of issues raised by H.B. 3598. We will continue to provide additional updates to UPPO members as more information becomes available. 

 

 

Tags:  consolidated reporting  H.B. 3598  Texas  unclaimed property 

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Understanding Delaware’s Verified Report Request and Compliance Review Process

Posted By Administration, Thursday, November 21, 2019

As part of the sweeping changes to Delaware’s unclaimed property law resulting from the passage of S.B. 13, the state created a new verified report and compliance review process. This process is intended to give both the state and holders the ability to review and correct any errors or oversights in annual filings without escalation to examination.

 

Unlike full-fledged unclaimed property examinations, the verified report and compliance review process does not require an invitation to participate in the voluntary disclosure program to proceed. 

 

“With the verified report and compliance review process, we are looking at holders who are already filing or who have filed reports in the past, reviewing their most recent report, making sure it’s accurate and giving them a chance to remedy any errors,” said Delaware State Escheator Brenda Mayrack. 

 

Verified Report Request

Delaware primarily sends verified report requests to holders who previously filed unclaimed property reports but did not do so in the most recent year, or holders who had a significant variance compared to previous filings. Variances may include property types dropping off or reappearing, significant changes in the amount reported, or noteworthy differences compared to other holders in the same industry. 

 

Holders receiving a verified report requests are asked to provide a copy of their unclaimed property policies and procedures and given the option to certify that the report was correct and complete, under penalty of perjury, or to identify and report/remit additional property and correct errors. 

 

“Because many [holders receiving a verified report request] are nonfilers, we want to know the determination that no liability was due to Delaware came after a deliberate process that was informed by robust policies and procedures,” Mayrack said. “Particularly for holders that have gone through a VDA or exam, it’s important for us to know they have implemented appropriate and robust policies and procedures for unclaimed property going forward.”

 

Compliance Review

Holders who fail to provide a sufficient response to Delaware’s verified report request, or who filed a negative or $0 report, may receive a compliance review request. 

 

“The verified report is not a prerequisite to a compliance review, but the compliance review does serve as the first step in escalation if there is a nonresponse or insufficient response to the verified report request,” Mayrack said.

 

Like the verified report request, a compliance review looks at variances compare to previous filings and compared to holders in the same industry. The compliance review also is not a prerequisite to a voluntary disclosure program invitation and subsequent exam notice.

 

Compliance reviews are a more abbreviated review of filings than unclaimed property examinations. Like verified report requests, they provide holders an opportunity to correct errors. Holders are given one year to complete the review, so the state expects a prompt response to compliance review notices.  

 

“The state is not going to have much patience for a nonresponse,” Mayrack said. “We do send follow-up reminders, but if we don’t seem to be getting the holder’s attention, it will be escalated.”

 

Compliance reviews include a more thorough request for documents supporting the most holder’s most recent unclaimed property filing than the verified report request. Information and document requests may include:

  • Supporting federal tax returns, financial statements, chart of accounts, trial balances.
  • Holder’s affiliated and related legal entities information.
  • General ledger reconciliations, check registers, voided check lists, aging/credit reports, etc., supporting Delaware annual report.
  • Third-party administrator information (if applicable) for securities, payroll, stored value cards, rebates, etc.
  • Proof of owner outreach (due diligence) efforts performed.
  • Unclaimed property policies and procedures.

If there is a finding of deficiency in the compliance review, the state can either collect and enforce that deficiency or, if the findings suggest a potentially larger compliance issue, refer the holder for a voluntary disclosure program invitation and subsequent exam (if the holder declines VDA participation).  

 

“If you receive a letter under this program, respond promptly,” Mayrack said. “A nonresponse is the quickest way to be escalated for additional enforcement measures, which means an invitation to the VDA program and, subsequent examination notice if the holder does not opt into the VDA program.”

Tags:  compliance  compliance review  Delaware  unclaimed property  verified report request 

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UPPO Survey Examines State Unclaimed Property Return Rates

Posted By Administration, Thursday, November 7, 2019

State unclaimed property officials often promote their goal of reuniting citizens with their property. They use a variety of tactics to educate the public about unclaimed property and encourage people to search their unclaimed property databases. They perform their work under a patchwork of laws and policies that vary by state.

 

The Unclaimed Property Professional Organization Claimants’ Representative Committee is examining how these laws and other factors affect unclaimed property return rates. Its objective is to apply a data-driven approach to identify, organize and share existing laws and policies that maximize reunification while preserving balanced consumer protection.

 

The committee’s first step was establishing individual state return rates. Using data gathered through a Freedom of Information Act request, the committee reviewed the total dollar amount of unclaimed property received and paid annually for fiscal years 2013-17 from all states. The following return rate results are organized into four descending groups of 12 states each by percentage returned. The states within each group are listed alphabetically and do not reflect any return rate order within the group.

 

Three states – Indiana, Nebraska and Wisconsin – are not included in the following results. Their committee is reviewing the methodology used by the states to determine their results, which varied significantly from the other states, making them subject to question. 

 

Group #1

Average Return Rate: 48.25%

Return Rate Range: 58.75% – 43.14%

  • Connecticut
  • Florida
  • Illinois
  • Iowa
  • Maine
  • Mississippi
  • Nevada
  • New York
  • Rhode Island
  • Utah
  • Vermont
  • Washington

 

Group #2

Average Return Rate: 40.12%

Return Rate Range: 42.56% – 38.83%

  • Alaska
  • California
  • Kansas
  • Kentucky
  • Massachusetts
  • Michigan
  • Minnesota
  • Missouri
  • Montana
  • Oregon 
  • South Carolina
  • Tennessee

 

Group #3

Average Return Rate: 36.02%

Return Rate Range: 38.74% – 33.14%

  • Arizona
  • Arkansas
  • Hawaii
  • Idaho
  • Louisiana
  • Maryland
  • New Jersey
  • Oklahoma
  • Pennsylvania
  • Texas
  • West Virginia
  • Wyoming

 

Group #4

Average Return Rate: 19.44%

Return Rate Range: 31.18% – 8.59%

  • Alabama
  • Colorado
  • Delaware
  • District of Columbia
  • Georgia
  • New Hampshire
  • New Mexico
  • North Carolina
  • North Dakota
  • Ohio
  • South Dakota
  • Virginia

 

The committee is now analyzing state statutes and policies governing claims, private sector service provider restrictions, and unclaimed property account information restrictions to compare return rates with legislative and policy frameworks. This information will be the subject of a future committee report. 

 

Tags:  return rates  unclaimed property 

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Whistleblower Trend Raises Concerns for Unclaimed Property Holders

Posted By Administration, Thursday, October 10, 2019
Updated: Saturday, October 5, 2019

Government politics aren’t the only place whistleblowers are making news these days. Several recent whistleblower lawsuits aimed at unclaimed property practices signal a concerning trend for holders. 

 

Typically, whistleblower, or qui tam, cases under the False Claims Act come about when a company’s employee or former employee (referred to as the “relator”) alleges the company defrauded the government by intentionally paying the government less than what is owed. Allegations usually involve falsifying documents to mislead the government into thinking less money is due. 

 

“Unclaimed property cases don’t fit into the usual False Claims Act mold,” said Ethan Millar, partner with Alson & Bird LLP. “False claims statutes were not intended to apply to regulatory disputes between a state and a holder about when states’ unclaimed property laws apply. They were designed to be quasi-criminal anti-fraud statutes, which is why they impose severe penalties, including treble damages and attorneys’ fees.”

 

Unfortunately, recent qui tam cases have been based on mere regulatory disputes. Given the direction such cases have taken, it’s possible that any noncompliance with unclaimed property statutes could result in accusations of False Claims Act violations. 

 

Decided last September, The State of Delaware ex. rel. William Sean French v. Overstock.com Inc. represents a turning point for False Claims Act cases related to unclaimed property compliance. At issue in the lawsuit was Overstock’s relationship with CardFact (later acquired by Card Compliant LLC), a third-party company used to issue gift cards and assume certain gift card responsibilities. 

 

The case came about when a former CardFact employee filed a qui tam lawsuit, alleging that CardFact and dozens of its retail clients (including Overstock) had violated the Delaware False Claims and Reporting Act by failing to escheat unredeemed gift cards to the State of Delaware. 

 

Among the various allegations, the plaintiffs claimed that the contracts between CardFact and its clients were shams and that the retailers rather than CardFact were the true issuers of the cards, and were required to report them to Delaware, as their states of incorporation. All of the defendants in the case other than Overstock were dismissed or settled. 

 

“I don’t think anybody in the holder community believes that Overstock acted with knowledge or reckless disregard for the law,” Millar said. “Overstock’s actions were perfectly reasonable and consistent with what dozens of other retailers were doing in terms of structuring their operations to reduce unclaimed property risks. These structures were not hidden from Delaware. They were openly discussed at conferences, in Delaware audits and in Delaware voluntary disclosures, and nobody ever said you can’t do this kind of thing or have to do it a particular way. To the contrary, Delaware approved very similar structures for well over a decade prior to this case.” 

 

However, a jury decided the third-party “cardco” structure in this case was improper and that Overstock knowingly or recklessly disregarded the law and should have reported its unredeemed gift card balance, less related profits, to Delaware. Along with the decision came a hefty judgment for $7.2 million, including civil penalties, treble damages and other costs. In addition, the state is entitled to attorneys’ fees, though the amount of such fees is still in dispute. Overstock has appealed the decision.

 

This decision leaves the unclaimed property community wondering, if a company can be held liable under the False Claims Act under those circumstances, what other circumstances could be used to hold businesses liable.

 

Relators are motivated by the prospects of a huge financial windfall of 15-25% of any judgment or settlement resulting from their lawsuits. Unfortunately, their self-interests are advancing aggressive enforcement positions regarding unclaimed property laws that not even state administrators are promoting.

 

In another recent case, New York ex. rel. Raw Data Analytics LLC v. JPMorgan Chase & Co., the relator alleges that JPMorgan is liable under New York’s False Claims Act for failing to self-assess interest on late reported unclaimed property. Although the New York Office of Unclaimed Funds does not require holders to self-assess interest, the court ruled that, under New York’s Abandoned Property Law, such self-assessment is mandatory. JPMorgan takes the position that nobody in the industry self-assesses interest and that the states don’t expect or ask holders to do so.

 

“We’re now seeing these sorts of cases where relators are making novel legal arguments about what is required under state unclaimed property laws, and then trying to use this alleged violation of the escheat statutes as the basis for False Claims Act liability,” Millar said. “False Claims Act complaints are no longer confined to scenarios when a company is committing what looks like fraud.”

 

Relief for the unclaimed property community from False Claims Act lawsuits that exceed the law’s intent requires a court to address one big question: Should False Claims Act statutes even apply to unclaimed property? The False Claims Act is intended to apply when money is owed to the government. However, unclaimed property is owed to the property owner. The government acts merely as a custodian of the property. 

 

“I suspect any major False Claims Act case in the future will raise this issue,” Millar said. “There is strong authority in the False Claims Act that a custodial interest alone is not sufficient to trigger the False Claims Act. After all, the False Claims Act statutes were intended to apply to government funds, not to money owed to individuals.”

 

Until such a decision, unclaimed property holders can take steps to protect themselves. First, they should ensure their unclaimed property compliance policies, procedures and practices are current, well documented and thoroughly followed. Next, address “gray areas” where holders and states have differing perspectives. 

 

“There will always be gray areas because no unclaimed property law directly deals with every specific situation,” Millar said. “These gray areas may be exploited by relators. However, holders can protect themselves by obtaining legal opinions to support their positions. Even if a court later disagrees with the holder’s position, the fact that the holder reasonably relied on legal counsel can demonstrate that the holder did not act with the knowledge or recklessness for False Claims Act liability.”

 

Finally, respond to issues raised by employees. Companies should have policies and procedures in place for addressing employee complaints. Don’t retaliate against employees who raise potential issues, and always investigate credible complaints. Giving employees a meaningful complaint process and remediating problems early may reduce the likelihood of issues rising to the level of a full-blown qui tam lawsuit. 

Tags:  JPMorgan  litigation  Overstock  qui tam  trends  unclaimed property  whistleblower 

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Unclaimed Property News Roundup

Posted By Administration, Thursday, September 19, 2019

Unclaimed property often makes news headlines beyond the frequent reports of states trying to return money to their citizens. Following is a recap of some recent stories getting news coverage from local and national media outlets. 

 

Unclaimed gift cards become a gift to state budgets 

On Aug. 27, 2019, The Atlantic published an article discussing states’ use of unclaimed property – with a focus on gift cards – to strengthen their budgets. The article discusses Delaware’s unclaimed property practices, the Overstock.com case and the debate over states spending unclaimed funds. 

 

Lost items resurface at unclaimed property auction 

On Aug. 28, 2019, Orlando Sentinel reported on the strange tale of an elementary school teacher who discovered items from her safe deposit box, which her bank lost years earlier, were part of Florida’s unclaimed property auction.  

 

Consumer reporters shine the light on unclaimed property claim challenges 

On Aug. 28, 2019, ABC 7 News in San Francisco reported on a citizen’s difficulties claiming funds from an unclaimed cashier’s check after receiving notification from California’s Unclaimed Property Division. After claim denials, the state promptly returned the man’s funds when the television station’s consumer reporters sought answers. 

 

Famous people have unclaimed property too

A Sept. 4, 2019, Outline article discusses the treasure trove of unclaimed property waiting to be claimed by celebrities in California. Searching the state’s database, the website discovered nearly $100,000 available to more than 200 celebrities, escheated by an out-of-business board game manufacturer.

 

Cryptocurrency and unclaimed property 

A Sept. 11, 2019, Accounting Today article discussed the need for companies to consider the effects of cryptocurrency’s rising popularity on their practices, including unclaimed property compliance. 

Tags:  cryptocurrency  gift cards  safe deposit boxes  unclaimed property 

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