States with the right unclaimed-property laws should be able to cash up to $16 billion in unredeemed savings bonds, according to a complaint in Pulaski Circuit Court by Arkansas Auditor Andrea Lea.
Lea is seeking a declaratory judgment that would allow Arkansas to cash an estimated $151 million worth of unredeemed bonds -- a little less than 1 percent of the national total.
The money -- after attorneys take their 10 percent share -- would become a part of the unclaimed-property trust fund, which pays into the state's general fund. But even if a war bond is used to build a road, an owner or his heirs could still claim the money, and the state would have to pay it back.
Unclaimed money would "go back into the treasury for the benefit of all Arkansans," said Sen. Jake Files, R-Fort Smith. "On the flip side, it gives the auditor the ability to try to get that money in the rightful hands of those who it belongs to."
Files wrote legislation this year that changed how the unclaimed property laws work in Arkansas.
It gives Arkansas the legal title to unclaimed savings bonds, instead of mere custody of bonds found in abandoned safe-deposit boxes.
That's been a key point when states have raised the issue in the past, said John Ahlen, an attorney who works in the auditor's office.
In 2004, New Jersey, North Carolina, Montana, Kentucky, Oklahoma, Missouri and Pennsylvania claimed custody of $1.6 billion in bonds originally held by residents within their states and sued the U.S. Department of the Treasury.
The case was appealed to the 3rd U.S. Circuit Court of Appeals, which ruled that the states did not have access to the money even if they possessed the bonds.
Writing in 2012 for the three-judge panel, Morton Ira Greenberg said the states lacked the power to force the federal government to comply with state unclaimed-property laws, and said people would be confused by states' claims to bonds issued by the federal government.
"Though the States contend that their intent in bringing this action has been benevolent, the objective reality obviously is otherwise," he wrote.
The Federal Code of Regulations states that "savings bonds are not transferable and are payable only to the owners named on the bonds, except as specifically provided in these regulations and then only in the manner and to the extent so provided." (31CFR 351.15)
It lists no provisions for states taking custody or title of the bonds.
Ahlen said having title to the bonds was different than mere custody and would likely prove a more compelling argument.
Files said Ruth Whitney, chief executive of InVeritas Research & Consulting Inc., a lobbying firm, told him that Kansas is successfully using a similar strategy to cash in bonds discovered in unclaimed safe-deposit boxes.
But both Kansas and Arkansas also want to cash matured bonds that go unredeemed five years after they reach maturity -- even if they're unable to locate the bond itself.
Online, the U.S. Treasury Department states that "savings bonds cannot be transferred. If you find a bond that belongs to someone else or buy a bond on an online auction site, you cannot redeem it."
Kansas has sued the federal government over the matter, Ahlen said.
Lea said Arkansas would do more than the federal government to find the rightful owners of the unredeemed bonds.
"The state is responsible to hold the money forever," Lea said. "If the great-grandchild of that person comes back to claim it, we have to have it for them."
She said the state publishes lists of unclaimed property in newspapers and posts them online.
Ahlen said heirs claim about half of what the state auditor's office takes in.
Though the federal government has the names and addresses of the original owners, it doesn't attempt to find heirs, the complaint states.
Arkansas Attorney General Leslie Rutledge is not representing the state in the complaint for declaratory judgment, according to court filings.
Instead, a group of private firms is representing the state.
Charles Harrison of McMath Woods P.A. in Little Rock submitted the complaint on Lea's behalf. Attorneys from Cooper & Kirk, PLLC in Washington, D.C., and Kessler Topaz Meltzer & Check LLP in Radnor, Pa., are also listed.
If a judge rules the state can cash paper bonds held in its vault, the firms will receive 10 percent of the value of the bonds in the vault, Lea said.
The percentage goes up if a judge rules the state can cash all unclaimed bonds if their original holders last resided in Arkansas. The lawyers won't be paid if the state isn't allowed to cash any bonds.
Files' legislation allowed outside counsel to be brought in.
"It is a little different, a little more specialized issue," he said. "So we just wanted to create some flexibility so it wouldn't be just be limited to the attorney general."
Judd Deere, spokesman for Rutledge, directed questions about attorney general's involvement to Lea and Files.
Metro on 08/08/2015