In June 2015, Jerry Fent, a local activist attorney, filed a lawsuit against the State of Oklahoma, saying that the unclaimed property program was a Ponzi scheme since the state regularly used the unclaimed money to fund other portions of the state's budget.
In September 2015, the court granted the State's Motion to Dismiss, finding that sovereign immunity precluded damages in this case and that the Act did not provide for unconstitutional takings. The case was appealed to the Oklahoma Supreme Court, which today affirmed the trial court's dismissal. Notably, all of the Oklahoma Supreme Court justices concurred in the opinion.
The Court, in specifically addressing the Ponzi scheme allegations, said the unclaimed property act is "not a "Ponzi scheme" within the meaning of that term. It is not a fraudulent investment scheme being perpetrated against the citizens of Oklahoma . . . The UUPA deals with unclaimed property that is presumed abandoned. It establishes a reserve to pay valid claims in the event owners of that property eventually come forward to claim it, and permits the State to put the rest to use. The State is not deceiving new investors in order to pay valid claims, but rather paying those claims with abandoned property it would be taking in anyway, per the terms of the UUPA."
The Court said that the Act did not violate either Oklahoma or United States Constitutional due process provisions. In the recent US Supreme Court denial in the Taylor case, Justice Alito said that the Court may want to review the current state escheat laws to determine whether owner notification provisions were sufficient. Here, the Oklahoma Court determined that there was ample notice to owners, as holders were required to perform due diligence (sending notices to owners prior to escheatment) and the State is required to provide notice once it has received the property (newspaper notices and website search databases). The Court acknowledged the potential difficulties in reaching the owner, as the "very nature of the UUPA as a custodial taking statute for property that is presumed abandoned means that communicating notice to potential owners may be difficult. Accordingly, the statute requires mailed notice, publication, and posting on the internet."
Due diligence will continue to highlight many cases going forward. Holders would be wise to ensure that their due diligence programs meet or exceed state minimum requirements prior to reporting to avoid being the subject of litigation, similar to Hanesbrands, currently the subject of federal litigation in Connecticut.