Holder Aware – Delaware Moves to Shore Up its Unclaimed Property Program
In a pair of bills introduced late last week in the Delaware General Assembly, Delaware moved to shore up its unclaimed property program through proposed amendments to its unclaimed property law that would establish unclaimed property reporting requirements for virtual currency, and create a permanent expedited audit option with significantly reduced interest for holders. Additionally, in apparent reaction to several recent court opinions criticizing the State’s use of contingent fee audit firms, and curtailing the State’s ability to compel the production of holder records, the proposed amendments would eliminate most third-party contingent fee arrangements, and expand the State’s authority to seek records – from the holder and various third-parties – wholly unrelated to the identification of abandoned property due and owing to the State.
SB103 – Inclusion of Virtual Currency – Other than Game Related Digital Content – as “Property”
Introduced in the Delaware State Senate on April 14, 2021, Senate Bill 103 (“SB103”) would implement an unclaimed property reporting requirement for virtual currency, expressly including cryptocurrency, while excluding game-related digital content as property subject to reporting. This amendment – initially rejected as part of a 2017 overhaul of Delaware’s unclaimed property law in the wake of the Delaware District Court’s opinion in Temple-Inland, Inc. v. Cook, 2016 WL 3536710, at *1 (D. Del. Jun. 28, 2016) – more closely mirrors the definition of “property” included in the 2016 Revised Uniform Unclaimed Property Act (“RUUPA”), and would provide much need clarity to holders in the digital, web, and gaming arenas with respect to their reporting obligations for this property type.
While Delaware’s newly proposed legislation in SB 103 appears to be based primarily on RUUPA, it does differ in its remittance requirements. Specifically, Delaware’s new legislation includes a requirement for the liquidation of and conversion to U.S. dollars of virtual currency prior to reporting and remittance. The bill synopsis provides that this requirement was included for ease of administration and ease of returning the cash value to its owners.
SB104 – Expedited Audit Option, Elimination of Contingent Fee Arrangements and Expansion of Authority to Compel Holder Records
In a separate bill cosponsored by a bipartisan group of legislators, and introduced the same day, Senate Bill 104 (“SB104”) would effect additional revisions to Delaware’s unclaimed property statute, many of which are retroactive in scope and are, therefore, relevant to holders currently under audit. Perhaps most significantly, the proposed legislation would create a permanent expedited audit option – available to holders under audit as of February 3, 2017 or later – authorizing the expedited examination of a holder to be completed within two years of the acceptance of the request to expedite – subject to the holder’s agreement to remit payment to the State within the earlier of (i) ninety days following the receipt of a statement of findings and request for payment; (ii) three years from acceptance of the holder’s request to expedite or notice of expedited examination; or (iii) one hundred and eighty days following the expiration of a single extension of the two-year audit period as authorized by the State Escheator. As an incentive to holders to enter the expedited audit program, the legislation offers significantly reduced mandatory interest of 1%, while holders under conventional audit are subject to a mandatory interest assessment of at least 20% for examinations authorized after August 1, 2021.
In addition, in apparent reaction to several recent court opinions criticizing the State’s use of third-party audit firms compensated on a contingent fee based on a percentage of the amount of property recovered for the State, and limiting the State’s ability to subpoena and use certain holder records for purposes unrelated to the identification of unclaimed property reportable to Delaware, the proposed legislation eliminates the use of contingent fee compensation arrangements, except for examinations of accounts or polices of insurance and securities-related property. At the same time, the legislation expands the State Escheator’s authority to subpoena records, including from any agent, representative, subsidiary or affiliate of the holder, for purposes of determining whether a holder has complied with Delaware’s unclaimed property laws. This includes information to verify the completeness or accuracy of the records provided, whether or not such records may identify property reportable to the State, although the legislation expressly prohibits the use of documents obtained in an examination in which Delaware is the mandate state from being used in a multistate examination without the holder’s written consent.
The foregoing is intended to address the more significant features of SB103 and SB104, and their potential implications on Delaware’s unclaimed property law. For more detailed information regarding SB103 and SB104, please feel free to contact Morris Nichols attorneys in the Unclaimed Property Counseling Group.
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