Warning: State Abandoned Property “Auditors” Are Running Rampant And Creating Big Risks For Public Companies…
Your editor went to the annual meeting of the Midwest Securities Transfer Association a few months ago, where he was stunned to learn that third-party abandoned property “auditors” were suddenly propagating like flies on a big, fat, abandoned pie - and descending on unsuspecting public companies and on their transfer agents with totally outrageous and unacceptable demands.
First it should be noted that these firms are simply hired guns who are not “auditors” in the usual sense of the word at all: There are no rules or standards or codes of conduct, and no overseeing entities, like real auditors have. And, since their compensation is solely related to the amounts of money they can extract from the unwitting subjects of their so-called audits, all of their activities are completely colored, and covered from top to bottom, with blatant conflicts of interest… which are strictly forbidden for real auditors.
Second, it is pretty clear to us that they really have no legal rights to look at the extensive and highly sensitive records they demand to see. (See the article below on the lack of state subpoena powers for such materials.) Nonetheless, the states that hire them assert they have the right to assess cash penalties against companies that turn them away!
More alarming yet, the so-called auditors typically demand to take away copies of these sensitive files, or to download them to their laptops and all of them in these days of daily cybersecurity breaches have refused to detail their procedures to assure the safety and security of the files they wish to review. Several of them are ‘startups’ with little or no prior corporate history to review. And most if not all of them seem to have no insurance against data breaches and thefts. And most if not all have mighty few assets for injured parties to claim against.
Lastly, as we noted in our last issue too, most states sell the property almost immediately after escheatment and will return only the proceeds of sale if the true owner comes forward which leads repeatedly to lawsuits from investors, demanding to have the full and fair value back.
We are hoping that good news is on the horizon, via the pending appeal to the Supreme Court and the Plains Pipeline lawsuit against Delaware, where the summary, below, illustrates some of the scurvy tactics in more detail.
As an ex-banker, and a former transfer agent business manager, your editor would never let firms like these in the door, much less hire one.
At a minimum, hire a reputable firm with hands-on knowledge and experience immediately if you are approached by “auditors” like these. Please be sure to read the excellent article from Keane that’s in this quarter’s magazine. And please, dear readers, consider our longstanding suggestion to locate every owner or heir to any and all abandoned property you may be holding so you will never have to escheat another nickel to grubby, greedy state governments and their unscrupulous henchmen!