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Incoming from Delaware: Unclaimed Property VDA Program invitation notices have been sent out

by Stephen P. Kranz, Eric D. Carstens and Vanessa S. Torres | Apr 13, 2026 | Audits, Delaware, Interest and Penalties, Unclaimed Property

The Delaware Office of the Secretary of State (SOS) confirmed that on April 10, 2026, invitation notices were sent to businesses (holders) identified as potentially out of compliance with Delaware’s unclaimed property law. The notices encourage holders to enroll in the SOS Unclaimed Property Voluntary Disclosure Agreement (VDA) Program within 90 days of receipt of the notice and cautions that failure to do so will result in the holder being referred to a peer state agency (the Department of Finance) for examination – the day-to-day of which is conducted by one of Delaware’s third-party unclaimed property audit firms. As a result, these seemingly routine initial regulatory compliance notices should not be ignored, and it is critical that companies be on the lookout for these notices and respond in a timely manner.

VDA Program invitations are typically sent to the holder’s chief financial officer (CFO) via certified mail. Given the history of these notices being lost, delayed in the mailroom, or forwarded to the wrong department, it may be prudent for those responsible for unclaimed property compliance to check with their CFO in the coming weeks on whether a letter from the SOS was received since the 90-day clock is imminent. Recipients of these invitations range from middle-market companies to Fortune 100 companies, both privately and publicly held, across a wide range of industries, including oil and gas, retail, banking, utilities, technology, media, healthcare, manufacturing, pharmaceutical, and consumer products. However, there has recently been a noticeable increase in invitations sent to companies that maintain a long filing history but may have been involved in recent merger or acquisition activity. Additionally, companies that have formed within the last 10 years but have experienced rapid growth over the last few years are at higher risk of receiving invitations. This group includes startups that have recently gone public; cloud and artificial intelligence companies; and companies with online and transient customer bases, such as payment processers and online marketplaces. Delaware incorporated entities with a large presence of foreign owned (or unknown) property on their books and records are always at risk of an unclaimed property regulatory compliance review by Delaware.

The lookback period for both the unclaimed property audits and the VDA Program is 10 report years, plus the five-year dormancy period for most property types, equating to a 15-year lookback period. Often, complete and researchable books and records are not available for the full lookback period and the VDA Program regulations require estimation for the older periods.

Enrolling in the VDA Program offers several benefits, including, but not limited to, a waiver of Delaware’s statutory penalties, a significant reduction in interest paid on any findings, control over the process, a 90-day aging criteria for voided disbursement checks that limits the workload (compared to the traditional 30-day period), and not being referred to the Department of Finance – which has the potential to turn into a multistate audit.

Holders that receive an invitation to the VDA Program from the SOS in the coming weeks are [...]

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Business Victorious in Unclaimed Gift Card False Claims Case

by Stephen P. Kranz, Eric D. Carstens and McDermott Will & Emery | Jun 26, 2020 | Delaware

The Delaware Supreme Court gave Overstock.com a win in a False Claims Act (FCA) suit alleging the retailer failed to remit unclaimed gift card funds to the state. Overstock.com Inc. v. the State of Delaware and French, DE Sup. Ct., No. 327,2019 (June 25, 2020). A jury previously found Overstock liable for approximately $7.3 million. The Delaware Supreme Court, interpreting the FCA statute in effect for the years at issue, determined the trial court judge improperly instructed the jury that the knowing failure to file unclaimed property reports was the making of a false statement as required to succeed on an FCA claim. Contrary to the trial judge’s instructions, the Supreme Court determined that to meet the FCA standard in effect for the years at issue, some document incorporating the alleged false claim must have been provided to the government. Failure to file a report was by definition not a false record or statement because there was not record or statement.

Based on this interpretation of the FCA statute, the jury verdict was reversed because Overstock did not file any unclaimed property reports with Delaware. Absent a filed report, there was no false claim. The plaintiffs alleged other documents were sufficient to meet the submission of a “false record or statement” element of the relevant FCA: (a) Overstock’s books and records and (b) statements to the SEC. The Supreme Court rejected these arguments. Overstock’s books and records were not sufficient because these documents were not submitted to the State and the SEC filings were not submitted in order to avoid the alleged unclaimed property liability.

Delaware, like many states, adopts the same language as the federal FCA statute. The federal government made amendments in 2009 to include language imposing liability if someone “knowingly conceals or knowingly and improperly avoids or decreases an obligation.” Delaware amended its FCA statute in 2013 to include this language.

Practice Note:
This win does not provide any guidance on the substantive issue asserted by the plaintiffs at trial regarding whether and under what facts contracting with another entity to issue gift cards imposes unclaimed property obligations on the issuer rather than the retailer. This is a narrow victory as it applies to a prior version of Delaware’s FCA statute. However, companies confronted by FCA suits – for both unclaimed property and tax liability, should look at when or if the state at issue amended the FCA to adopt the modern version and whether they have a filing history. It is interesting that a company that did not file any report is potentially better off under the historic FCA language than one who did. While this a victory based on a narrow issue, a victory is a victory.

Victory? Delaware Suggests an End to Contingency Compensation for Unclaimed Property Contract Auditors

by Stephen P. Kranz | Jan 17, 2020 | Audits, Delaware, Unclaimed Property

For years, Delaware has used contract audit firms to enforce their unclaimed property laws and paid them based, at least partially, on the amount recovered. Motivated by this financial reward and empowered as an agent of the state, the contract-auditing firms with the State’s complicity harass holders, inflate liabilities by deploying aggressive estimation techniques and engage in other questionable practices to maximize their bounty.

Maybe not anymore. In a federal court filing on January 10, Delaware’s brief appended as an exhibit its most recent contract signed December 31, 2019, with Kelmar, one of the more notorious unclaimed property contract audit firms. The new contract states that Kelmar will be paid at set hourly rates for general ledger work, instead of their prior compensation, which was largely seen to be contingent upon recovery. (Securities-related work remains contingency-based.)

It will be welcome news if this heralds an end to the madness of contingency compensation for contract auditors. Holders have voiced complaints for decades, often forced to litigate to prove Kelmar’s method incorrect. The US Chamber has detailed the flaws of using contract auditors and urged a ban to the practice, and judges have tried to rein in their behavior. The National Conference of State Legislatures adopted a resolution disapproving of the practice. After all of these years and horror stories, the message might have finally gotten through.

Delaware Starts Unclaimed Property “Compliance Reviews” (Different from Audits)

by Eric D. Carstens and Stephen P. Kranz | Jan 16, 2019 | Delaware, Unclaimed Property

If the Delaware Office of Unclaimed Property believes that a person may have filed an “inaccurate, incomplete, or false report,” the State Escheator may authorize a “compliance review” under Del. Code Ann. tit. 12, § 1170(b). This is not a standard audit and as a result, the target is not entitled to the option of entering the state’s voluntary disclosure program rather than being subject to the audit. Nevertheless, the compliance review can result in a finding of liability.

Correspondence between the Unclaimed Property Professionals Organization and the Delaware State Escheator’s Office acknowledges that several holders have been selected for this review. According to the Escheator’s Office, if a holder has no report or a negative report, the state will typically request a copy of the holder’s unclaimed property policies and procedures that would support the lack of property due to the state. By statute, the state may review the filed reports and “all supporting documents related to such reports.” The scope of the concept of “supporting documents” is not clear.

Practice Note: Companies, particularly those domiciled in Delaware, not filing Delaware unclaimed property reports or filing reports showing no liability, should review their policies and procedures related to unclaimed property, including how voided checks and unidentified remittances are handled. Furthermore, recent audits have included an expanded Automated Clearing House (ACH) payment review request, so a company should also review its treatment of failed ACH payments. Such a review should take place in an environment that will protect the attorney-client privilege – so, including internal counsel and/or external counsel is critical. Such an internal review should: (a) verify that the holder is in compliance with its policies and procedures; and (b) provide any necessary policy or operational changes. Conducting such a review and maintaining attorney-client privilege for appropriate elements of the review is especially important given recent false claims act developments in the unclaimed property space.

Litigation Alert | Third Circuit Reaffirms Scope of Federal Priority Rules

by Eric D. Carstens and Stephen P. Kranz | Dec 7, 2017 | Audits, Delaware, Procedure, Unclaimed Property

On December 4, 2017, the US Court of Appeals for the Third Circuit issued its much-anticipated precedential opinion in Marathon Petroleum Corp. et al., v. Secretary of Finance et al., No. 16-4011. The opinion affirms the Third Circuit’s existing view (described in its 2012 New Jersey Retailers Association decision) that US Supreme Court precedent permits a private cause of action to enforce the federal priority rules, overruling the federal district court’s conclusion (in this case and Temple-Inland) that the priority rules only apply to disputes between states. (more…)

Get Ready for the Countdown: Final Delaware Unclaimed Property Regulations Published

by Eric D. Carstens, Stephen P. Kranz and McDermott Will & Emery | Oct 5, 2017 | Audits, Delaware, Unclaimed Property

On October 1, 2017, the Delaware Department of Finance published final regulations in the Register of Regulations repealing its former unclaimed property regulations and promulgating a new reporting and examination manual. See 21 DE Reg 336 (Oct. 1, 2017). The final reporting and examination regulation contains no substantive changes from the revised version that was re-proposed on August 1, 2017. As published, the regulations are set to be adopted and take effect on October 11, 2017. (more…)

Holders Beware: Delaware Department of State Notices to be Mailed in Two Weeks!

by Eric D. Carstens and Stephen P. Kranz | Sep 29, 2017 | Audits, Delaware, Unclaimed Property

In two weeks, the Delaware Secretary of State (SOS) will begin mailing notices to holders who have been identified as likely being out of compliance with Delaware unclaimed property law. Holders that do not enroll in the SOS Voluntary Disclosure Agreement Program (VDA Program) within 60 days of the mailing of this notice will be referred to the State Escheator for examination. Once an audit notice is issued, the SOS will have no legal ability to accept a holder into its VDA Program.

The VDA Program was put in place to respond to concerns about Delaware’s audit program and allow holders to come into compliance through a “self-audit” that is administered by the holder, as opposed to the State Escheator. The audit is overseen by a third-party provider that must approve the steps taken by the holder, but allows more flexibility in terms of the details and deadlines than a traditional audit. Delaware law requires that every company be provided with an opportunity to voluntarily comply prior to being issued an audit notice. For holders that receive a notice from the SOS in a little over two weeks, this letter will be their one opportunity to voluntarily come forward and enroll in the VDA Program and requires prompt decision making and evaluation, given the 60 days deadline and potentially significant implications.

It is still expected that the final Department of Finance (DOF) regulation required by SB 13 will be included in the October 1, 2017 Register of Regulations. If this holds true, companies currently under a Delaware audit authorized by the State Escheator on or before July 22, 2015, will have 60 days from October 1 (i.e., until November 30, 2017) to convert to the SOS VDA Program. Again, the same analysis and implications are at stake.

Practice Note

There is a lot for holders to consider in a very short period of time. Holders should be aware that there are may be more than the single, historic third-party provider in charge of administering the SOS VDA Program. Adding new providers creates uncertainty in the process and it is not clear how holders will be assigned to each provider.

Holders in need of advice on whether to enroll in the SOS VDA Program should reach out to the authors to discuss their options. Stay tuned for our analysis of the final DOF regulation, which will be posted shortly after publication.

Delaware (Re)Proposes Unclaimed Property Reporting and Examination Manual Regulation

by Eric D. Carstens, Stephen P. Kranz and McDermott Will & Emery | Aug 16, 2017 | Audits, Delaware, Interest and Penalties, Unclaimed Property

On August 1, the Delaware Department of Finance (DOF) published a revised version of its proposed reporting and examination manual regulation addressing audit procedures and method of estimation. See 21 DE Reg 123 (Aug. 1, 2017). The revised proposed regulation is substantially similar to the first draft proposed earlier this year, but contains a dozen or so notable differences (described in more detail below). Because the former draft of the regulation was never finalized, the 60-day time period for eligible holders to convert to the Voluntary Disclosure Agreement (VDA) Program (administered by the Secretary of State) or an expedited audit has not started to run, and will not commence until the final DOF regulation is published in the monthly Register of Regulations. Based on the fact that the DOF is accepted comments through August 31, 2017 (and likely needs at least a month to take them into consideration), the final regulation is not expected to be published before October 1, 2017, giving eligible holders at least three more months before the looming conversion deadline.

Our summary of the initial regulations proposed by the DOF and Secretary of State (SOS) on April 1, 2017 is available here. The final SOS VDA estimation regulation was published on July 1, 2017, without substantive amendments. See 21 DE Reg 50 (July 1, 2017). Below is a brief summary of the key differences between the old and new proposed DOF reporting and examination manual that holder’s should be aware of.

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Resistance is not Always Futile: New Decision in Ongoing Delaware Unclaimed Property Audit Litigation

by Eric D. Carstens and Stephen P. Kranz | Aug 14, 2017 | Audits, Constitutional Issues, Delaware, New Jersey, Pennsylvania, Unclaimed Property

On August 9, 2017, the US Court of Appeals for the Third Circuit (Third Circuit), overruling the US District Court for the District of Delaware (District Court), allowed a claim by a holder seeking to prevent an unclaimed property audit by Delaware on due process grounds to proceed. See Plains All American Pipeline L.P. v. Cook et al., No. 16-3631 (3d Cir. Aug. 9, 2017). The procedural due process claim challenges Delaware’s use of auditors that have a stake in the assessment. Consistent with the District Court decision, the Third Circuit held that challenges to Delaware’s estimation methodology were ruled not ripe. The case has been remanded to the District Court for further proceedings.

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Substitute Alert ‒ Delaware Technical Corrections Bill

by Eric D. Carstens and Stephen P. Kranz | Jun 6, 2017 | Audits, Delaware, Interest and Penalties, Unclaimed Property

Last Friday, the Delaware Senate released a substituted version of the bill (Senate Bill 79) introduced last month as a technical corrections bill to Senate Bill 13—the unclaimed property rewrite legislation enacted earlier this year.

The Senate substitute differs from the introduced version of Senate Bill 79 as follows:

It does not strike § 1147(a)—the provision that limits the ability of a holder to assign or otherwise transfer its obligation to pay or deliver property or to comply with the unclaimed property law to others (aside from a parent, subsidiary or affiliate of the holder).
It would delay the timeline that Delaware must promulgate regulations to December 1, 2017.
It would make changes to the State Escheator’s authority to grant waivers of interest and penalties under § 1185 as follows:
1. Removes the language in the introduced bill that made the discretionary waiver of penalties only applicable to late filed property remitted while under examination.
2. Gives State Escheator the following waiver authority for property remitted before January 1, 2019:
  1. Waive, in whole or in part, the calculable interest under § 1183 of this title for unclaimed property remitted to the State with a required report under § 1142 (the general holder report section) or § 1170 (the compliance review section) of this title.
  2. Waive, in whole or in part, the calculable interest under § 1183 of this title for unclaimed property remitted to the State as a result of securities examinations in which estimation is not required under §§ 1171 and 1172 of this title.
  3. Waive up to 50 percent of the calculable interest under § 1183 of this title for all unclaimed property remitted to the State and not provided for in paragraphs (b)(1) or (b)(2) of this section.
3. Gives State Escheator the following waiver authority for property remitted on or after January 1, 2019:
  1. Waive, in whole or in part, the calculable interest under § 1183 of this title for unclaimed property remitted to the State with a required report under § 1142 (the general holder report section) or § 1170 (the compliance review section) of this title.
  2. Except for examinations expedited under § 1172(c) of this title, waive up to 50 percent of the calculable interest under § 1183 of this title for all unclaimed property remitted to the State and not provided for in paragraph (c)(1) of this section.

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