Escheating Scandal?

An Investor’s Business Daily column claims:

Like other states, Delaware originally enacted its unclaimed property laws as a consumer protection mechanism to reunite Delaware residents with dormant bank account balances, uncashed paychecks, and other unclaimed property…. But Delaware is now interpreting those laws against businesses to create a colossal revenue source for the state government.

Today, unclaimed property is Delaware’s third-largest source of revenue after income taxes and franchise fees. Last year alone, Delaware seized $319.5 million from liquidated property while returning only $18.9 million of unclaimed property to its rightful owners.

Delaware does this through an unfair, onerous and expensive audit system that “looks back” to 1981, and contrives unclaimed property if the company doesn’t have records for all those years. This process often costs companies millions of dollars, mires them in years of audits, and forces them to deal with third-party auditors who are motivated by contingent fees to invent unclaimed property where none exists.

Kelmar, which conducts most of the audits for the Delaware Department of Finance and works on a contingent fee, was paid more than $30 million in the second half of 2012 alone.

Others have written about this before, see this BusinessWeek article from 2010. Now there’s a lawsuit, Select Medical Corp. v. Cook. Several years ago, the California escheat scheme was struck down on constitutional grounds, though the objections to it differed from the ones here; it will be interesting to see what happens with the Delaware scheme.

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