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Unclaimed Property: One of the Hottest Issues for Issuers of Securities in 2018

An Interview with John Buonomo, Senior Vice President, Issuer Services at AST

“The unclaimed property scene continues to present some of the hottest issues out there for issuers, as state treasurers are working overtime to maximize the revenue they can realize via the escheatment process.”

“Perhaps the hottest set of new issues revolves around the new escheatment rules in Illinois - which is one of the top-five or so states where abandoned property is concerned. The new rules, which took effect January 1st, will require a lot more due diligence on the part of public companies and their agents. The new rules shorten the dormancy period to three years after mail is first returned as undeliverable, and to two years after a shareholder is deceased – and now, as an increasing number of states also do, consider cash and shares to be ‘abandoned’ if there has been no contact from the holder after five years. We have reached out to Illinois several times as an industry, most recently via a letter from the STA hoping to receive information regarding the apparent immediacy of enforcing the new legislation.”

“A second huge area of concern for issuers; Kelmar, which conducts audits of corporate abandoned property records and corporate escheatment practices, has now been hired by 21 states - and their audits, as so many issuers have already found out, can be time consuming, distracting and often very expensive to deal with.

"Another thing to note regarding the ‘hot issues’ - issuers and their agents need to exercise great caution in terms of the contents of any files they produce in any ‘audit’ because of the high degree of sensitivity surrounding shareholder records.”

“On a more positive note, we have had some success in dealing with the State of California, where I, and other industry members, along with Jen Borden, Esq., a noted expert in this field, led a meeting with the head of California’s Unclaimed Property Division, and the General Counsel. The meeting really opened their eyes to the inefficiencies that their old rules and regulations have been generating for issuers and their agents – and for the state itself. About 95% of the state’s initial calculations of fees and penalties for late or no escheatments were being abated after analysis of the facts and circumstances, so they really took notice.”

Q: So John, what advice to you have in response to these hot issues?

“The top task is to drive and carefully track contact with shareholders. Unfortunately, in many states these days, the fact that mail has not been returned by the post office is not sufficient proof that shares have not been ‘abandoned.’ This is particularly bad for participants in dividend reinvestment plans, who understandably think that everything is ‘on automatic’ - and it’s even worse for companies that do not pay dividends - and for their shareholders, who are in particular danger of having their shares escheated for lack of ‘contact.’ Issuers should also look to find shareholders whose mail is returned as soon as possible. This will reduce the number of accounts that need to be escheated - and will give the ‘auditors’ nothing to look at.”