Holders Coalition Fights Threats By Unclaimed Property “Auditors” To Change State Laws At The Expense Of Share-Owners

Here’s an email we got recently from Jen Borden – whom we consider to be the world’s top expert on all things concerning unclaimed property. It updates the article she did for our year-end magazine, 2022 Unclaimed Property Year-End Round Up, and provides some truly disturbing news about the increasingly predatory practices of so-called UP “auditors” and their lobbying efforts to change existing state laws to the detriment of shareholders in order to enrich themselves:

“I think I hit it in the piece I did for the year-end Optimizer, but everything I have been warning about is coming true with these audits.  I have been holding the line on audits [where Jen consults with affected issuers] refusing to give in to the auditor’s “interpretations” of when securities are escheatable.  So, the auditors have very effectively marshaled their resources and are getting the laws changed.  Nevada is a perfect example.  See the letter the SSA wrote to the NV governor.  We got back a NASTY note from the Treasurer.  If the Governor does not veto AB 55 [which he did not] most securities accounts in NV will be escheatable unless the issuer is a dividend payer, the securities are directly held, and the issuer is old school sending a check which the s/h cashes.  Clearly not the way the majority of the industry currently works.  Brokerage accounts – gone.  DRPS – gone.  Divs via ACH – gone.  Voted your proxy?  Too bad, we don’t track that as activity.  Oh – California even said that they will take book entry securities that are directly held, because their stock provisions only apply when held in certificated form.  Absolutely backwards and IMO unconstitutional.

“Corporate Secretaries would lose their minds to learn their shareholder base is so at risk, but they are not [yet] in the fight at all. Not to be dramatic, but this situation is precarious. It should not be left to one issuer or one holder to fight this battle. It is an industry issue, and we need experienced voices speaking up. We were very effective recently in Montana in getting a bill similar to Nevada’s quashed. Unfortunately, there are at least a dozen other states that are in the bag for the contingent fee auditors.”

Issuers need to know how dangerous the current over-reaching by so-called “auditors” and by a growing number of ruthlessly predatory states really IS: If a shareowners property is escheated, unbeknownst to the owner or the legal heirs - and sold off, as many states do almost immediately - and THEN the owner or heirs come forward to claim it - virtually every state that is “coached” by the so-called auditors will only pay the proceeds of sale. Dividends and stock appreciation – often representing huge amounts? GONE.

What comes next? A lawsuit against the issuer – and usually against the Transfer Agent too, alleging that they had breached their fiduciary duties by failing to “do right” by the share owner, to whom they do indeed owe a “duty of care.” Very often, the plaintiff wins – State laws bedamned. But even when they do not, the issuer, and usually the T-A too, is stuck with the costs of litigation and a major diversion of management time and attention.

Five things issuers need to do NOW:

• Most important of all - make sure that a thorough, highly rigorous and well-documented search for so-called “lost shareholders” is conducted before any escheatment takes place. These days, a competent search firm can find literally every single one - or their legal heirs if they are deceased. Aside from providing you with evidence that you have met your fiduciary duty to share owners, this will prevent escheatment (and future lawsuits too, please note) and will ultimately put the “abandoned property audit firms” out of business – which is where they belong.
• Read the STA/SSA joint letter sent to Nevada legislators, which outlines the issues in detail.
• If you are incorporated in one of the “bad states” that allows so-called auditors to run rampant (currently, NY, NJ & DE are not among them) - and that flatly refuses to make subsequently found owners whole - and especially if your state that is being coached to re-write the laws governing unclaimed property - you should contact the State Treasurer to say you are seriously considering reincorporating elsewhere. (Delaware actually made many useful changes to its escheatment and reimbursement practices after hearing from a large number of issuers, though they are still not nearly as good to “found holders” as NY & NJ)
• If you are incorporated in a “bad state” you should seriously consider joining the Holders Coalition and allowing your company to be included in their letters to state legislators. Go to www.uppo.org for more information on this vital subject.
• Do not make the mistake of thinking that this is an issue mainly affecting large companies - OR that your company is too small to matter. Some of the biggest lawsuits we have seen - in terms of dollar value AND in terms of damages awarded, were against “small companies” whose stock prices had risen stratospherically over time. (N. B.: Many states have provisions for double and even triple indemnity for cases involving breach of fiduciary duty,)