Amanda Robert Aug. 28, 2013, 7:53pm

TROY, Mich. (Legal Newsline) -- From Tom Prescott's perspective, several states fall short when it comes to unclaimed property.

Prescott, one of the principal owners of Total Asset Recovery Services LLC, a Troy, Mich.-based financial services business, contends that these states first fail to ensure that life insurance companies comply with laws and regulations. Then, even if they hire third-party auditors and identify companies that control large amounts of unclaimed property, they agree to settlements that keep beneficiaries from receiving all of their money.

"Frankly, it's going to be travesty for the citizens of a number of those states to not get what they're owed," Prescott said. "That is what the end result will be. It was an admirable pursuit, it was a good start, but they have now shown they are not pursuing [unclaimed property] to the full extent of what is required."

In recent years, TARS, one of the newer auditors in the unclaimed property industry, did more than just observe what Prescott calls an "egregious situation." Since 2011, the company has filed at least three lawsuits against MetLife Inc. and Prudential Financial Inc. for failing to turn over unclaimed life insurance policies to the rightful beneficiaries.

According to a previous Legal Newsline article, TARS brought the suits as qui tam lawsuits in Illinois, Minnesota and Florida under the states' False Claims acts, which allow those who disclose fraud against the state to share in the suits' proceeds. These suits are filed under seal and allow states to intervene.

The suits in Illinois and Minnesota were unsealed last year and later dismissed. The suit in Florida remains pending and was unsealed in recent months.

When asked about the purpose and status of the case, Prescott points out that he can't say much for now.

"We are under a partial seal by the state, specifically the Office of the Attorney General in Florida," Prescott said. "It has to do with identifying life insurance policies. It is an issue under the control of the state. We are in a supporting capacity, and unfortunately, we cannot talk about it openly."

Jennifer Meale, communications director for Florida Attorney General Pam Bondi, said in an e-mail that after evaluation TARS' qui tam complaint against MetLife and Prudential, the office opted not to intervene.

Prescott sees some of the recent multibillion settlements agreed to by several states and life insurance companies as problematic. In February 2012, Prudential agreed to pay out $17 million and improve its efforts to locate beneficiaries and report unclaimed property. Two months later, MetLife agreed to pay $40 million and similarly revise its business practices.

"It's shocking when you see this type of settlement," Prescott said. "You get some of these big companies that settle for $20 million or $40 million. That is such a low number. If you look at quarterly financial statements of a number of these companies, they should owe in the billions of dollars, with a B."

Prescott helped launch TARS in 2008, after he discovered the potential for growth and room for competition in the unclaimed property industry. He says that while many "asset finder companies" charged up to 50 percent in collection fees, his firm decided to only charge 10 to 20 percent in fees.

"Yes, we'd like to make a profit like anyone," Prescott said. "But we're not looking to take advantage of Aunt Sue who didn't know she had a property and now she's only going to get a small amount compared to what she should rightfully get."

Stanley Kaminski, a partner in the Chicago office of Duane Morris LLP, who focuses his practice on state and local taxation, as well as unclaimed property, views third-party auditors' compensation from a different perspective. In his opinion, they should be paid by the hour, and not by much money they produce for the state.

"They're always going to try to find the most amount due," Kaminski said. "That's just the way it is. If you had a judge decide how much you're going to pay in fines and then how much he's going to get paid, you wouldn't be too happy. The third-party auditor is not the judge, but he's the preliminary guy. If he writes up a very high amount, you're already arguing from a very large number."

Prescott agrees that critics of auditors express legitimate concerns, but contends that the states are responsible for overseeing their auditors and holding them accountable for their actions. Plus, he adds, even though auditors request information from companies, the states are in charge of collecting the money from them.

He also points out that states should more frequently revise their contracts and demand better results from their third-party auditors. For example, he says, even though Verus Financial LLC succeeded in establishing contracts early on with many states, the company has since failed to perfect its methodology.

"When we circle behind them for a number of states and do the same work, we would receive the same data that they had received from the state, but we would identify considerably more assets or monies that were even owed to the state than they did," he said.

Prescott explains that he highlights his firm's "superior methodology" when seeking to contract with states. Unlike Verus and other third-party auditors, his firm uses a 25-step process to identify missing or abandoned assets, he says.

"It has literally 10 additional steps that delve into the details that someone like Verus does not do," he said. "If they did, we'd be more worried. But since they're not doing it, we can come in and show, this is what we would produce, this is what they would produce. That's a very powerful and compelling argument for the states."

Prescott further explains that TARS, which operates with five full-time employees and 12 independent contractors, is not a large company. However, he says, he already works with all 50 states and plans to identify assets in all of those states soon.

"If we can marry assets with their rightful owners, that also has a positive impact on word-of-mouth for us," he said. "And more importantly, it reduces the claimed amounts of unclaimed property funds."

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