State argues for unclaimed $151M in bonds

Pulaski County Circuit Judge Alice Gray had a lot of questions but got few concrete answers Thursday from lawyers who want her to transfer control of as much as $151 million in unclaimed federal bonds owned by Arkansas residents to Auditor Andrea Lea.

Her decision via court order will come as soon as possible, she said.

The most definitive answer Gray got in the 72-minute hearing was that if she does not do what Lea is asking, that $151 million will go into federal coffers, with the U.S. Treasury Department possibly laying claim as soon as Tuesday.

"If the court does nothing, Treasury will have unilateral authority to make sure this money will not come back to Arkansas," Lea's attorney, David Thompson, told the judge. "The question becomes, does this money come back to Arkansas or stay in Washington? That's really the choice before the court."

Arkansas can claim title to the bonds, unclaimed by their owners for at least seven years past maturity, under Arkansas Code 18-28-231 -- passed in the General Assembly's last session -- which went into effect July 23.

The state still will have to go through federal courts to assert ownership after a favorable ruling in circuit court, a process Thompson said will take "years and years."

But the Treasury Department has proposed a new rule that would allow it to keep the bonds, some of which could be 60 years old, before the Arkansas law takes hold, Thompson told the judge.

The federal agency is "actively working ... actively conspiring ... actively trying to thwart" the Arkansas Legislature, the Washington, D.C., lawyer said.

Lea, who did not attend the proceedings, wants the judge to issue a temporary order giving the state control of the bonds until the new law puts them under state control.

Then, if the auditor can't find the rightful owners, the state can claim the bonds, Thompson said.

Arkansas is better equipped to find those owners with a superior website, and it actively will try to find them, he told the judge.

Treasury does not seek out potential bondholders and has a much more burdensome system, Thompson said.

Questions that Thompson and other attorneys could not answer definitively for Gray include:

• How much are the bonds worth, since $151 million is only an estimate based on state population?

• How many bond owners are there?

• Why are private law firms, which can claim 10 percent of the bonds' worth for fees, and not the attorney general representing the auditor?

• Why did Lea wait until Aug. 5 to file her lawsuit when the Treasury rule change was proposed July 1?

The auditor would use the time granted by the requested order -- by law at most two weeks -- to notify the public by advertising in the Arkansas Democrat-Gazette that the bonds are under state control and how the owners can assert a claim, Thompson said.

That process would repeat at least once, possibly twice, after which the auditor would petition the court to make the state's ownership of the bonds permanent, he told the judge.

Thompson said he hoped to present Arkansas' claim to the bonds to the U.S. Court of Federal Claims within, at most, 36 days of Thursday's hearing.

Gray said she was uneasy giving the state title to the bonds of people who don't know their property is being taken, even if it's only temporary.

She worried that by transferring title to the state, she could cost Arkansas bond owners the opportunity to challenge the legality of the state law in court.

Noting there was no one to contest Lea's petition, Gray said she'd never had to decide a case in which the opposing party was not identified.

Gray said she wasn't sure whether the auditor had done enough to show the Treasury Department would not help identify owners.

She also questioned whether she had the authority to allow the auditor to use advertising, known as a "warning order," to notify bondholders because Lea has not taken other steps typically required by the courts to locate the owners.

Gray said she was uncomfortable acting quickly with so little to go on.

"This is $151 million," she said. "You're asking the court to decide with no evidence. All we have is attorneys' arguments."

Thompson did acknowledge the order Lea wants requires the judge to wade into "uncharted waters" in "extraordinary circumstances." But he said Gray could see for herself that making sure the state gets the bonds is better for the owners by comparing the auditor's website to the Treasury site.

Gray also can tell from the timing of the Treasury rule proposal that the federal government is after the bonds, he said.

The proposed rule affects only one state in the nation, and that's Arkansas, Thompson told the judge.

Metro on 08/14/2015

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