There has been an increase in state audits of equity-related property held by publicly traded companies and their transfer agent. Our guest contributor this month, Brenda R. Mayrack, Esquire of Mayrack Law LLC based in Wilmington, Delaware, provides an interesting insight into this latest development in her article, “Increased attention to equity-related property continues in state audits and enforcement efforts.”

Increased attention to equity-related property continues in state audits and enforcement efforts During the last few years, holders and holder advocates have experienced a significant increase in state audit activity concerning securities and equity-related property, which includes stocks, bonds, any other equity interest in a business or financial institution, as well as dividends and other payments related to the underlying ownership interest. Much of this increased audit activity has stemmed from contract audit firms working on behalf of Delaware as the lead audit state. As states continue to rely increasingly on unclaimed property as a source of revenue, state audit activity in this area is likely to continue. Holders should take steps to improve their compliance for this type of property to avoid, be prepared to respond to, and minimize any liability arising from an equity audit. Read the article here.

Letter to UP Adviser

Letter to the UP Adviser In this month’s newsletter, we have one letter to share with our readers:

Dear UP Adviser,

We’re performing our due diligence mailings in preparation for the Fall 2013 compliance reporting and would like to know more about the states’ business to business (B2B) exemptions. Should we apply these exemptions before we perform our due diligence or should we first perform our due diligence?

Yours Sincerely, Love To Take B2B

Dear Love To Take B2B,

This is a “million dollar” question and we’ll have to schedule a follow-up discussion on the states’ B2B exemptions. Our recommendation is for you to first perform your due diligence before applying any B2B exemptions. This recommendation is more of a best practice and it’s much better to resolve your outstanding transactions through your due diligence process before applying any applicable B2B exemptions. Whereas the due diligence process would most likely provide answers as to whether outstanding transactions are truly unclaimed or not, applying the B2B exemptions would leave you with some unanswered questions. To make matters worse, your company’s state of incorporation may not recognize another state’s B2B exemption and can “attempt” to claim those transactions that you’ve determined to be subject to the other state’s B2B exemption.

Not all states have B2B exemptions, which varies by property type and state. About 14 states have some form of B2B exemptions, and credit balances, unredeemed gift certificates/cards and de minimis property below a certain dollar amount are example of transactions that are commonly subject to B2B exemptions. While some state’s B2B exemptions are broadly defined others are very specific. Please note that in general, the B2B exemptions only apply to transactions between businesses and not between businesses and consumers (i.e. B2C). Some states require that the transactions occur in the normal and ordinary course of business or that there has to be an ongoing business relationship between the businesses for the exemptions to apply. Regardless of your situation, we recommend that you consultant with your in-house or outside counsel whenever you’re planning to apply the B2B exemptions, especially for those high-dollar transactions. We look forward to our further discussion on the states’ B2B exemptions.

Best of Luck,
UP Adviser

Delaware settles 1st VDA Submission under New Program

It’s been almost a year since our first blog on the Delaware new voluntary disclosure agreement (VDA) program.

We are pleased to report that the first submission under the new program has been finalized and settled. The success of this 1st submission is a reflection of what can be accomplished when the State, Client and Advocate are all committed and work together towards a common goal. Read more.

It’s here Again.Time to send the Due Diligence Letters

Before reporting the funds as unclaimed property, most states (with the exception of Delaware and Pennsylvania) require that a last contact letter (i.e. due diligence letter) be sent to the last known address on the holder’s books and records. In most cases, a letter sent by first class mail not more than 120 days and not less than 60 days prior to reporting the funds, meets the states’ due diligence requirements. In addition, many states have a monetary threshold relieving the Holder of the due diligence requirements for small dollar accounts. Read more.