Big Windfalls Lose Gusto in Unclaimed Property Case

Left nearly destitute by her late husband’s medical bills, Annis Bolivar was cleaning houses in Bakersfield for $15 apiece when she got the good news.

Fifty-two shares of stock that had stopped paying dividends long ago, and that the 66-year-old woman believed worthless, were, in fact, worth a small fortune--about $125,000.

No one had notified her when the company, whose stock she acquired in 1968, was merged in 1983 into one of the most spectacularly successful companies in Wall Street history--Berkshire Hathaway Inc.

Nor was she contacted before the company’s new owners, headed by legendary billionaire investor Warren Buffett, transferred the Berkshire Hathaway stock she’d been awarded in the merger to California’s unclaimed property fund--the state’s repository for inactive bank accounts, unclaimed utility deposits, and the like.

The case of Bolivar, a retired school secretary, is far from unique. The 1983 merger between the Blue Chip Stamp Co. and Buffett’s holding company had given about 500 California shareholders tiny stakes in a company whose stock fetched $38,000 a share last week.

Together, their holdings--at today’s prices--are worth more than $30 million.

But here’s the rub. The state, which sought the authority to sell the stock in the darkest days of the early 1990s recession, when it ran so short of cash that it issued IOUs instead of checks, sold off more than half of the Berkshire Hathaway stock in 1995 for an average of $31,177.77 a share--more than $6,000 per share less than today’s price.

Bolivar’s four shares contributed $124,711.08 to keeping California’s government afloat that year. The shares of Alice and Masaru Morita, who once operated a small food market in Gardena but are longtime residents of Huntington Beach, were cashed out for $436,488.78.

So even though the value of the Moritas’ shares has since risen nearly $100,000, that’s all they were entitled to receive when their son, Allan Morita of Fountain Valley, made a claim to the state on their behalf.

“This is highway robbery,” said Lt. Gov. Gray Davis who, as state controller from 1987 to 1995, vigorously fought efforts by the governor and the Legislature to use money from the unclaimed property fund to help balance the state’s budget. “It’s not the state’s money. They have no right to rip off honest citizens.”

But the legal responsibility for notifying shareholders in the first place was Berkshire Hathaway’s, Davis said.

He’s not the only one who thinks that way. A class-action lawsuit was filed on behalf of these overlooked stockholders in Los Angeles Superior Court this past week. The damage suit, prepared by the San Diego firm of Milberg Weiss Bershad Hynes & Lerach, alleges that Berkshire Hathaway failed in its duty to its stockholders by giving away their stock without proper notice, and demands, at least, the higher price their shares would fetch today--21% more than the 1995 liquidation price.

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The shareholders filing suit are for the most part retired small-business owners--operators of grocery stores and service stations in Orange County, the Burbank area and South-Central Los Angeles. They include two Holocaust survivors, and the 82-year-old widow of a service station operator who returned to her hometown in Oklahoma after her husband’s death.

William Palmer, a Sacramento attorney who found some of the stockholders at the addresses on company records, said he finds the case “just outrageous.”

“Even though they held these people’s addresses in their hands, they gave away their stock,” Palmer said.

“An entire class of little shareholders [was deprived] of the right to own and benefit from arguably the hottest stock of the century,” Palmer said.

Reached at Berkshire’s Omaha, Neb., headquarters, Debbie Bosanek, an assistant to Warren Buffett, said “there isn’t anybody available who can comment” on the case.

Palmer said that Berkshire Hathaway’s attorneys are taking the position that this is just another group of small stockholders, some of whom fall through the cracks in every merger.

Because of the storied success of Buffett’s company, most of the stockholders contacted by Palmer received substantial sums from the unclaimed property fund, even after paying 30% to cover legal expenses as well as the maximum 10% fee that the heir-finders who assisted Palmer can charge in California.

Bolivar, for example, netted $85,000 from her $125,000, and promptly paid off the remaining $40,000 in bills from treating her husband’s liver cancer. “Without this money, I wouldn’t have had an extra cent for anything the rest of my life,” she said.

Others, like the Moritas, dealt directly with the state after Palmer contacted them, and obtained the liquidated value of their shares.

How so many small investors with such valuable assets fell between the cracks raises questions about the diligence of Berkshire Hathaway, and the banks that served as the transfer agents on the merger--the Bank of Boston and Bank of America.

Like Bolivar, who still lives at the same address where she and her husband received dividend checks in the late 1960s and early 1970s, many of the other forgotten stockholders said in interviews that they had not moved in decades.

The Bank of Boston, Berkshire’s transfer agent on the merger, quit the transfer business a few years ago and could not determine why the shares had been “escheated” (turned over) to the state in 1989, a spokeswoman said.

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Bank of America, Blue Chip’s transfer agent, has been out of the transfer business since 1991 and would not comment on why some shareholders went unnotified because it has not seen the lawsuit, a spokesman said.

The matter also raises questions about whether California looks at unclaimed property and sees a duty to find the owners, or simply an enormous pile of obscure revenue it can snatch in lean times. Currently, the unclaimed property fund is awash with $2 billion that belongs to some 5 million people.

Although most states routinely publish the names of unclaimed property owners, the California Legislature slashed the controller’s advertising budget a few years ago. Now, twice a year, the office runs advertisements in the state’s major newspapers, announcing, “You may be owed money!” and listing the state’s toll free number (800) 992-4647).

State Controller Kathleen Connell did not respond to three requests for comment. Department spokesman Byron Tucker said the controller is “unable to comment at this time.”

Added Tucker: “We have no legal obligation to notify people when property goes into the unclaimed property fund.”

But most states accept at least a moral obligation to try to reach rightful owners, and are no longer content to adopt a purely passive posture in dealing with the question of returning other people’s property.

Val Jundt, executive director of the National Assn. of Unclaimed Property Administrators in Bismarck, N.D., said that in addition to regularly publishing lists in newspapers, many states hire professional search firms, post the names of property owners on the Internet and conduct outreach programs to find people, especially when the amounts are large.

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Pennsylvania Treasurer Barbara Hafer sends workers with lists and computers to county fairs, expositions and conventions, as well as nursing homes, insurance companies and local police departments. “We have a very aggressive program,” she said, “[and] we’re very good at collecting and distributing.”

Minnesota, too, makes an extra effort to notify people, regularly publishing names and distributing lists to television stations. It even tries to track down owners of unused gift certificates.

Unclaimed property experts find it remarkable that so many shareholders escaped the attention of both state officials and heir-finders for so long. Palmer said investigators brought the issue to his attention around the time the state sold 458 of the 809 Berkshire Hathaway shares in the unclaimed property fund over several weeks in late 1995.

The sale netted $14,280,494.43. Those shares would now be worth $17,266,600.

In addition to the nearly 500 California shareholders, Palmer estimated there may be another 500 people whose shares also ended up as unclaimed property in other states.

“In more than two decades in this field, this is the first time I have ever heard of anybody suffering a loss because the property was turned over to the state for safekeeping,” said David Epstein, a Boston lawyer who advised a 1981 commission that proposed the national uniform unclaimed property law.

It’s not uncommon for some shareholders to fail to respond to requests to exchange their stock certificates after a corporate merger, Epstein continued, and transfer agents often turn over lists of “unexchanged shareholders” with their shares and uncashed dividend checks.

“This is pretty infamous stock,” said Anthony Andreoli, a Westlake Village accountant who conducts national searches for states and corporations and is the former chief investigator for the state controller’s unclaimed property division.

In recent years, he said, California “has changed radically from other states” in the way it attempts to reach owners and was “the first state” to stop publishing lists.

The uniform law requires states to send a notice by first-class mail to the last known address, in addition to publishing names, although California and a few states have stopped sending the letters because so many are returned as undeliverable.

Lt. Gov. Davis said California under his watch had an active program to locate owners, but the recession caused a sea change in attitudes toward unclaimed property.

“Gov. Wilson and the Legislature wanted use of that money, knowing full well only a small number of people would make a claim for it, about 30%,” Davis said. “I made as big a fuss as I could, yelling and screaming, saying we’re literally stealing money from its rightful owners.”

The state’s obligations aside, Davis said Berkshire Hathaway initially bore the burden of tracking down its shareholders.

Had Berkshire or the state sent a letter to her house in Taft, a Kern County town of 20,000, Bolivar is certain she would have received it. “You could walk down the main street and anyone could have pointed out my house. Everybody knows everybody else’s business.”

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Fred Jackson, an Auschwitz survivor who operated Freddie’s Deli on Fairfax Avenue in Los Angeles for 42 years, feels the same way. “I was never notified, I never knew of the merger,” he said. “I had other stocks and dividends and I got them all. Nobody [else] had a problem finding me.”

Even after he sold his deli in 1991, Jackson said, he continued to receive mail sent to him there. Jackson acquired 52 shares of the Blue Chip Stamp Co. in 1968, the same year as Bolivar.

Like the better-known S&H; Green stamps, Blue Chip trading stamps were offered by thousands of retail and service establishments primarily in California as a bonus for customers and to keep them coming back.

Consumers eagerly gathered and pasted the stamps into books and later redeemed them, at some 95 centers throughout Southern California, for merchandise such as household furniture, television sets and small appliances.

Originally started by nine supermarket and drugstore chains that wanted to have some control over the then-burgeoning stamp programs, Blue Chip Stamps eventually offered stock to the public as well as small merchants who participated in the program.

Like Allan Morita’s parents. For nearly 20 years, until they sold it in the 1960s, the Huntington Beach couple operated the Motoyama Market in Gardena. They also acquired 192 shares of Blue Chip Stamp Co.

“Most people forgot about the stock because stores quit issuing the stamps,” said Morita, speaking for his father, who is now in his 80s.

After his mother was contacted by an heir-finder, Morita asked his stockbroker to find out what happened to the Blue Chip Stamp Co., and learned of the merger. State officials told him his parent’s stock had been liquidated for $436,488.78.

“The annoying part of all this is that the stock was cashed in without making any effort to find out who owned it,” Morita said. “My parents hadn’t moved in 30 years.”

When he received documents from the state showing that the shares had been escheated, state records had the correct address for his parents, Morita said.

William Q. Smith, who owned 26 shares of Blue Chip Stamp stock, has lived in the same house in South-Central Los Angeles since 1965 when he opened Bill’s Texaco. After Blue Chip quit issuing dividends in the late 1970s, Smith said the fact he owned some “kind of stock slipped by me” until he was contacted by Palmer. Smith’s two shares of Berkshire Hathaway were worth $62,000.

David Girard also operated a service station, in fact, four of them around Burbank for many years. He, too, received Blue Chip Stamp stock and was never told it had been acquired by Berkshire Hathaway.

“Anybody who knows Dave Girard knows I’m very business-savvy,” he said. “I’ve bought and sold stocks before and I certainly would have recognized Warren Buffett’s stock. I’m not a dummy.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

California’s Unclaimed Property

Value of unclaimed property waiting for owners: $2 billion

Number of unclaimed property owners: 5 million

Institutions reporting unclaimed property annually: 8,000

Number of owners added to list annually: 450,000

Approximate value of their property: $250 million

Approximate number of claims paid annually: 65,000

Approximate amount of money disbursed annually: $75-$80 million

HOW TO MAKE A CLAIM

* Call toll-free, (800) 992-4647; be patient, it may take a while. A computer search will be made using your name and Social Security number.

* If property is being held, you will receive, free, a claim form seeking proof of identity and association with the property (such as a savings account passbook).

* Notarized forms may be required for amounts in excess of $1,000 and stock accounts.

* An evaluator will process the claim, usually within 90 days from when it is received. Payments usually include 5% interest add-on.

* Property can also be claimed by rightful heirs.

* Many states now list names on the Internet and some Internet search firms will search for free: “ifast” can be reached via Internet at www.ifast.com. It is a service operated by CapitaLink. A listing of states and telephone numbers for searching for unclaimed property is also on that site.

Sources: Office of State Controller, National Assn. of Unclaimed Property Administrators, CapitaLink; Researched by MICHAEL G. WAGNER / Los Angeles Times