U.S. judge stops California state thievery

But it has been going on for years and the State is not giving up yet

The state's habitual seizure of supposedly unclaimed property in bank and stock brokerage accounts, safety deposit boxes and other repositories of wealth has always been more than a little questionable. The theory of "escheat," as it's called, is faintly medieval, assuming that idle property can be taken by a king for his personal use by divine right, a distant cousin of the doctrine of "eminent domain" under which property may be taken for public use. California, however, refined it into a lucrative source of income, even making it easier to seize property when the state's budget was, as it often is, out of balance.

Banks and other holders of property have been required to transfer the assumed unclaimed assets to the State Controller's Office (although they often held onto it as long as possible for their own reasons). The controller would then make a token effort at finding the rightful owner, often nothing more than a fine-print newspaper ad, before depositing the property -- sold if necessary -- into the state treasury. So far, the state has seized $5.1 billion in property from 8.2 million accounts over the last half-century.

Last week, a federal judge ordered the state to stop seizures until it had vastly improved its efforts to find the rightful owners -- rejecting the state's rather unseemly claims that it would lose a lucrative source of income, about $400 million a year currently. His ruling followed a federal appellate court ruling that seizing property and giving faint notice to owners was unconstitutional. "If the purpose of the law is, as the controller has reportedly said, to reunite owners with their lost or forgotten property, its ultimate goal should be to generate little or no revenue at all for the state," Judge William Shubb observed. He hinted that he would seize control of the system if he was not satisfied that the revised system was workable.

Controller John Chiang, while fighting the lawsuit filed on behalf of those whose property has been seized, said he would sponsor legislation to improve locating owners. The Legislature had previously rejected efforts to tighten up on escheat, unwilling to choke off a source of revenue for the state's chronically imbalanced budget.

It's high time for reform. The California Taxpayers' Association took a look at the list of unclaimed property in the controller's office and found, among other things, that the state itself was often listed as an owner, with millions of dollars at stake. Cal-Tax also learned that such well-known institutions as Disneyland and the Los Angeles Times were among those listed. The research undercut the Controller's Office's arguments that it had not been able to identify who rightfully owned escheated property.

The cases that triggered the lawsuit were especially egregious examples of official pocket-picking. Sacramentan Jafer Ehtesham said stock being held for him by a broker was seized and sold for $54,000, just half of its value. Another victim, a resident of England, alleged that the state took 52,000 shares of stock in Intel Corp. and sold it without notifying him, costing him $3 million.

The courts' intervention in what was clearly an outrageous process -- legalized theft, in reality -- could be costly for the state government. It not only can't count on escheats for several hundred million dollars a year in revenue, but those whose property was taken can now seek damages, and they could get hundreds of millions of dollars more. State officials expect dozens, if not hundreds, of suits seeking recovery to be filed. "The state still hasn't awakened to what's going on here," said William Palmer, the Sacramento attorney who won the federal lawsuit. "I have clients all over the country. I represent people from Greece that have lost property here."

Report here



(And don't forget your ration of Wicked Thoughts for today)