Friday, June 15, 2018

An Update on the California Cryptocurrency Unclaimed Property Class Action

In our last post, we mentioned a potential class action against a “digital currency exchange” dealing in Bitcoin and other cryptocurrencies brought by a private plaintiff alleging, among other things, violations of California’s unclaimed property laws.  It appears that specific claim will no longer be at issue in the case.  In mid-May, the defendant, Coinbase, filed a motion to dismiss asking the court to throw out the complaint.  In its motion, Coinbase argued that the plaintiff could not bring a claim against Coinbase for failure to comply with the California Unclaimed Property Act, arguing that such a claim could only be brought by the State Comptroller’s Office.

In response, the plaintiffs amended their claims, and removed the cause of action for violation of the Unclaimed Property Laws.  Coinbase’s response to the amended complaint in due in July.

Monday, May 14, 2018

Cryptocurrency Exchange Hit With Unclaimed Property Class Action

In May of 2010, a Jacksonville software developer named Laszlo Hanyecz made the first purchase of real world goods (2 pizzas) using the cryptocurrency Bitcoin.  Since that time, cryptocurrencies – digital currencies that rely upon computerized cryptography to control monetary flow (i.e., the amount of funds available), approve and record transactions – have become more publicly accepted and risen tremendously in value.   Today, Bitcoin - one of the most widely known cryptocurrencies - can be used to purchase a wide variety of goods at a number of retailers.

As cryptocurrencies such as Bitcoin become more widely accepted, they will also come under the increasing scrutiny from financial regulators, law enforcement agencies, and consumer protection watchdogs.  Indeed, it appears that this is already happening.  Already, the IRS has issued guidance as to when cryptocurrencies will be treated as property for U.S. tax purposes.  On the unclaimed property law front, the 2016 Uniform Unclaimed Property Act includes within the definition of "property" subject to the act "virtual currency," defined as: "a digital representation of value used as a medium of exchange, unit of account, or store of value, which does not have legal tender status recognized by the United States."

More recently, "digital currency exchange" Coinbase has been sued in a potential class action for, among other things, purportedly failing to comply with California's unclaimed property laws.  A digital currency exchange is generally a business where cryptocurrencies can be traded or exchanged for "fiat currency" (i.e., government-issued money).  The class action complaint was filed in a California federal court on behalf of "[a]ll persons and entities who were sent Cryptocurrencies . . . through Coinbase.com to their email address, and who never claimed such Cryptocurrency."  The complaint alleges that, in certain instances, members of the plaintiff class who were sent cryptocurrencies by others through Coinbase were only sent a single email notifying them of the transaction.  The complaint alleges that Coinbase's alleged failure to send follow up emails or escheat the property to the State amounts to a violation of the California Unclaimed Property Act and/or is an unlawful business practice.

Assuming the case proceeds to the merits, it will be interesting to see how the court's attempt to impose the unclaimed property regulatory framework on this type of "asset."  Coinbase's response to the complaint is currently due on May 18, and indications are that it will move to dismiss the complaint.

Wednesday, May 2, 2018

California Taps the Brakes on Potential Amnesty Program

A few weeks ago, the unclaimed property industry was abuzz with the news of California legislation that would implement the Golden State’s first Voluntary Disclosure Agreement (VDA) program since 20o2.  VDA arrangements are amnesty programs pursuant to which holders of unclaimed property can self-report and remit overdue property to the state.  In most such programs, in exchange for coming forward with the overdue funds, the holder generally receives a waiver of the late-reporting penalties and/or interest that would otherwise be assessed under the act.  While VDA programs have long been in place in unclaimed property significant states like Delaware and New York, California has been an extreme outlier:  not only does the state have no amnesty program, but it is among the most aggressive in assessing interest on unclaimed property.  Little wonder then that news of a potential California VDA program was welcome news.

Alas, it appears that the program is not in the immediate offing.  According to an article in the Northern California Record, the sponsor of the legislation has pulled the bill, suggesting that it needs “more work.”  No word on what that work is, or when a revised bill might be offered.

Wednesday, April 25, 2018

Kentucky Becomes Latest State to Adopt Version of 2016 UUPA

Kentucky Governor Matt Bevin recently signed House Bill 394 into law, which enacts a version of the 2016 Revised Uniform Unclaimed Property Act promulgated by the Uniform Law Commission.  The new law incorporates many of the Uniform Act's structural and procedural changes, including the establishment of a formalized audit appeal procedure, detailed provisions relating to confidentiality, and rules relating to the reporting and remittance of unclaimed life insurance policies.
The adoption of the Uniform Act provisions also resulted in some substantive changes from the earlier Kentucky Unclaimed Property Act.  For example:
  • The dormancy period for money orders has increased from 3 years to 7 years;
  • The dormancy "trigger" for securities has changed from inactivity to a returned mail standard;
  • Stored value cards are now expressly covered by the Act, with a dormancy period of 3 years from December 31 of the year or issuance or last activity.
Kentucky is the fifth state to adopt a version of the 2016 Revised Uniform Unclaimed Property Act.
In addition to implementing the 2016 Uniform Unclaimed Property Act, the new law also requires the State Treasurer to submit a report to the legislature regarding the "status of the abandoned property fund" at the end of the year.

Wednesday, January 3, 2018

Delaware Names New State Escheator

According to release from the Delaware Department of Finance, Brenda R. Mayrack has been named the Delaware State Escheator.  Escheator Mayrack is well known to the unclaimed property professionals’ community, having served as both an auditor as well as attorney in private practice representing holders.  She takes over Delaware’s Office of Unclaimed Property at a crucial time.  Delaware is in the midst of several high profile unclaimed property matters including, most recently, a decision by the United States Court of Appeals in Marathon Petroleum Corp. v. Cook, holding that private parties may raise the Texas v. New Jersey priority rules established by the Supreme Court to challenge a state’s authority to escheat property, and allowing for the possibility of broader challenges to Delaware’s audit practices.