By James DeChene
This weekend the News Journal reported on a lawsuit brought by Belgian scientists whose stock in their company was escheated ultimately to Delaware resulting in a $12 million dollar loss for each. This is the latest in a series of lawsuits brought against the State of Delaware involving how abandoned property is collected and treated, and follows in a long line of cautions the State Chamber has relayed to the Department of Finance and the Secretary of State’s office.
At issue here is how property, in this case stocks, are classified as abandoned. If an account holder does not make contact with their financial institution every three years, the assets can be considered abandoned and reported to the State for collection. Again, in this case, it appears that the account holders were holding onto the stock long-term, and would have automatically benefited from their company’s merger with Merck, which would have borne a significant financial boon to the pair. Instead, the State paid them the market value of the stock at the time of escheat, which was significantly less than the future value they would have seen. The lawsuit brought against the State claims that the escheating of funds such as these is unconstitutional under both state and federal law.
As of now, abandoned property represents approximately $550 million, or 14% of Delaware’s operating budget. Its continued existence faces an uncertain future in light of the mounting litigation against the State of Delaware, with no ready alternative poised to take its place should the program be deemed unconstitutional.