Once again, the Delaware General Assembly is considering changes to the State’s unclaimed property law. The Senate has proposed two bills addressing various aspects of the law. Senate Bill 266 (“SB266”) would provide the Delaware State Escheator with control over whistleblower actions, though incentives to such whistleblowers, and consequences to holders, remain high. Senate Bill 267 (“SB 267”) addresses critical issues, such as foreign property, worthless securities, and early reporting. Both bills have been reported out of committee and are listed as “Ready” for review.
SB266:
This bill appears on its face to be favorable to holders, in that it “removes” the ability of whistleblowers to directly bring claims of unclaimed property noncompliance. Yet the law, if enacted, would permit the Attorney General to bring such actions and provide for potentially significant compensation to whistleblowers.
The bill defines a “whistleblower,” as “…any individual who provides, or 2 or more individuals acting jointly who provide information to the State regarding a holder’s noncompliance with the reporting requirements of Section 1142 of this title, where such individual is or individuals are the original source of such information.” Moreover, it adds a provision mandating that whistleblowers be awarded interest and penalties collected from the Holder to the whistleblower, provided that the whistleblower has a written agreement with the State Escheator, has materially complied with the agreement, and substantially contributed to the State’s determination by disclosing “specific and otherwise unavailable information regarding a holder’s noncompliance.” In fact, it prohibits the State from waiving interest and penalties related to any examination that arises from information provided by a whistleblower. In other words, although the State Escheator may waive most of the interest assessed in routine examinations (down to 20% of the total liability pursuant to 12 Del. Code 1185(a)(1)), if an assessment is the result of information provided by a whistleblower, then no waiver is allowed.
In addition to interest and penalties, in cases resolved by the Attorney General and arising from a whistleblower’s information, the bill would mandate that the Attorney General award the whistleblower with a percentage of “total payments” made by the holder to the State. Therefore, not only would whistleblowers stand to receive interest and penalties, but a portion of the collected property as well. The award may range from 10-30% depending on the total sum of payments and discretion of the Attorney General.
The law provides discretion to the Attorney General as to whether to initiate an audit or a False Claims Act suit. However, it still provides substantial incentive to whistleblowers in the unclaimed property arena.
SB267:
This bill, if enacted, would introduce notable changes to the State’s unclaimed property law. The bill would define “foreign country” or “foreign jurisdiction,” eliminate indemnification for property reported early and permit the State Escheator to enter into agreements for holders to indemnify the State with respect to such property.
At a high level, the following provisions may be of particular interest to holders:
- Section 4, which limits the situations in which holders may claim a return or refund of property based on an amended report;
- Section 6, which requires holders to remit payment “contemporaneously” with filing a report;
- Section 7, which allows the State to pursue claims in bankruptcy for unclaimed property reported, but not paid to the state, prior to a bankruptcy;
- Section 8, which includes changes to indemnification provisions for early reporting (holders will no longer be indemnified and may instead have to indemnify the State); and
- Section 9, which allows the State Escheator to decline to take custody of additional types of property, including virtual currency and “worthless securities.”
The Reed Smith Unclaimed Property team will continue to monitor developments related to SB266, and SB267 closely.
Client Alert 2024-089
