65 new state law changes have been enacted regarding examinations and audits of abandoned property as of September 2012. States looking for additional revenue are passing laws that will allow them to dip into those funds earlier than previous laws allowed.
Abandoned property (sometimes referred to as unclaimed) refers to accounts in financial institutions and companies that are labeled “inactive”. These are accounts that have had no activity generated or contact with the owner for one year or longer.
Any account that is deemed “inactive” can be claimed by the state. For example, if there has been no shareholder initiated activity (contributions, address change, etc.) for three years, then the issuer must send out a mailing to all shareholder accounts falling into this category. The letter to the shareholder requests a response.
Each state enacts unclaimed property statutes that protect funds from reverting back to the company if the owner lost contact with them. Most states have held lost funds until the owner was found, returning them at no cost or for a nominal handling fee upon filing a claim form and verification of identity
Over 35 states recently adopted a three year dormancy period. Some states are dissolving the dormancy period altogether and allowing the department of revenue to liquidate the securities as soon as possible.
Securities audits are being performed because of a belief that the securities industry was severely underreporting abandoned property. These audits can be burdensome and over broad and their focus has now shifted to foreign securities accounts. However, there is no current law in any US state that requires foreign accounts to default to the state of incorporation.
On a national level, SEC Rule 17Ad-17 was approved in November of this year by the Office of the General Counsel. This rule addresses the problem of lost security holders and requires transfer agents to conduct two separate searches to try and locate them. In conducting these searches, the rule requires that specific criteria must be followed, including the search of a national database. It is expected that all Commissioners will approve the proposed changes and submit final sign-off sometime in December, 2012.
The theory of this rule is that by establishing uniform and minimum search requirements, the number of lost security holders will be decreased and the amount of property turned over to the states under state unclaimed property laws will diminish.
What do you think?
Should states increase their revenue by taking abandoned property funds earlier than previous laws allowed or should that money be held for the owners or their beneficiaries?
What search requirements should be in place?