May 14, 1999
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
Re: File No. S7-11-99
Dear Mr. Katz:
I am writing in response to a request for comments regarding proposed amendments to Rule 17Ac2-2 and Form TA-2 and the proposed rescission of Rule 17a-24 under the Securities Exchange Act of 1934.
First of all, I want to commend the Securities Exchange Commission (SEC) for requiring transfer agents to intensify their efforts to locate lost securityholders. The two required searches will result in owners being reunited with their property in a more timely manner. This is the objective of the Uniform Unclaimed Property Act. Experience has taught us that the earlier a search is conducted, the easier it is to reunite owners with their property. However, the rules, as originally written, seem to minimize the efforts of Unclaimed Property Administrators in locating owners and returning property to the owners. The proposed amendments continue to ignore those efforts
I would like to encourage the SEC to propose an amendment to Rule 17Ad-17 that would prohibit a transfer agent from using any service that results in the securityholder from receiving the full value of their property. The current rule only prohibits this service until the required two searches are completed. It is grossly unfair to penalize a securityholder a significant portion of their assets because they separated from their property, in many cases, through no fault of their own. Often, the separation is a result of poor record keeping on the holder's books rather than neglect on the part of the owner. Mergers, acquisitions, dissolutions and a change of transfer agents often create record keeping issues on the holder's books. An owner should not have to relinquish their property for any reason.
State Unclaimed Property Administrators should be allowed to locate lost securityholders prior to professional search firms conducting their search. The owner will not pay a fee to recover property held by the state. Many states use the same extensive search techniques employed by these search firms with great success. The State of Arizona (Arizona) uses several skip tracing techniques to locate rightful owners. Since 1995, holders reported 14,783 lost securityholder accounts to Arizona. Over 25%, or 3,726, of these owners have been reunited with their property at no cost to the owner. Many of these owners were not even aware that their securities had been "lost" until they attempted to liquidate them or until we notified them of the account being reported to the state. Arizona continually increases its efforts through outreach programs. Even though we have not yet located every owner reported to Arizona during this period, the assets are held in perpetuity for the owner.
At a minimum, the SEC should monitor the number of lost security holder accounts being turned over to professional search firms. Form TA-2 already monitors the number of accounts that are remitted to states. A line should be added to monitor search firms and how many owners are located through their efforts prior to remitting accounts to states. This will enable the SEC to monitor the effectiveness of this practice. The SEC proposed amendments should also require the search firms to inform the owner the nature of the property to be recovered. Arizona receives many calls from lost securityholders who have been notified by professional search firms to recover funds that belong to them. In most cases, the owner only knows the total amount the asset is worth and what percent they must pay to recover the asset. They are not informed as to the nature of the asset. Therefore, the owner cannot make an informed decision as to whether they should enlist the search firm to recover assets that they could find on their own if given complete information. If transfer agents decide to utilize search firms, the contract should be between the transfer agent and the search firm, not the owner and the search firm.
In summary, the State of Arizona appreciates the effort being made by the Securities and Exchange Commission to increase efforts to reunite lost securityholders with their assets. However, the proposed amendments to Rule 17Ac2-2 do not address the effectiveness of the states' efforts in this endeavor. The SEC should also amend Rule 17Ad-17 to ensure that lost securityholders are not penalized by the use of professional search firms following the searches required in Rule17Ad-17. Such an amendment would protect the assets of securityholders and also reduce the number of lost securityholders. Since the State Unclaimed Property Administrators have the same objective as the SEC, Arizona would support such an amendment.
Lynette M. States, Assistant Director
Administrative Services Division