When it comes to unclaimed accounts, all that is certain is that transfer agents, issuers and other holders have to get used to being uncertain. Delaware and Illinois, among other states, have recently adopted new Unclaimed Property (UP) laws that arguably make it a bit too easy for states to get access to unclaimed accounts.
These new laws also make it much more difficult for custodial agents, financial firms and issuers to determine exactly when an account should be considered unclaimed and the assets transferred to the states.
States, of course are quick to liquidate the assets since they rely on Unclaimed Property as income, which means owners who eventually do try to claim the escheated property can lose money due to subsequent corporate actions or the underlying stock increasing in value (stop me if you heard the one about the Belgian scientists suing first Merck and then Delaware).
States will penalize custodial/transfer agents & issuers for either not escheating an account or reporting it late. However, if the account is mistakenly (or sometimes correctly) classified as unclaimed and transferred to a state, investors could turnaround and sue. It depends on the state.
An important note: Transfer agents are not indemnified by issuers for errors or litigation, but issuers are (usually) indemnified by transfer agents for any litigation arising from escheatment.
A revised version of the US Uniform Unclaimed Property Act (RUUPA) enacted in 2016 made it harder for states to classify accounts as unclaimed, because it requires that mail sent to investors be returned as undeliverable by the post office (RPO).
However, states are not required to follow all or even any of the provisions of RUUPA, just as they were not required to follow previous versions of the Uniform Unclaimed Property Act (UUPA).
In other words, transfer agents, issuers and other institutions are following state regulations which might actually conflict with those of the SEC.
State regulations set the standard for when an account is considered unclaimed and the dormancy period before it is eligible for escheatment.
To quote Chairman Mao: “There is chaos under the heavens, and the situation is excellent”.
Stay tuned, it will get better, but first it will get more confusing.