In a recently-unsealed whistleblower lawsuit initiated under the laws of Delaware, dozens of companies organized under Delaware law are facing possible exposure to liability for failing to escheat the value of unclaimed gift cards to the State. Escheat is a term referring to the legal requirement imposed by Delaware’s unclaimed property law mandating that any property left dormant for a specific period of time must be returned to the State for maintenance in trust. According to reports, unclaimed property is the third largest source of revenue for The First State and amounts to 15 percent of its total general revenue fund.
Details of French v. Card Compliant, LLC
Under Delaware law, businesses are required to return all unclaimed property to the state. This includes dormant checking or savings accounts, uncashed checks and, as is the case here, unused gift certificates or gift cards. While the rightful owner may reclaim the property at any time, the state is permitted to use the funds or liquidate the assets in the interim. When no owner can be identified, Delaware is allowed to keep the funds.
The relator in this case, William French, formerly served as Vice President of Card Fact, Inc., which was acquired by Card Compliant, LLC in 2009. From that time until 2011, Mr. French served as a Card Compliant sales representative.
According to the allegations, Card Compliant entered into “sham transactions” with 27 business entities, including restaurants and retailers, for purposes of confounding the true ownership status of the unclaimed gift cards.
The retailers engaged in this unlawful misconduct in an attempt to avoid having to remit the balance of unpaid gift cards to the State of Delaware in accordance with its unclaimed property laws.
As a result, the complaint alleges, these companies through Card Compliant violated the Delaware False Claims and Reporting Act by “failing to file required reports and making false reports to Delaware ‘to conceal, avoid, or decrease their obligations to the State of Delaware.’” This provision mimics the federal False Claims Act in its “reverse false claim” prohibition – punishing the wrongful withholding of government funds as opposed to the submission of a false claim for payment.
If found liable, defendants could face penalties between $5,500 and $11,000 per violation, as well as three times the amount of actual damages.
Report Fraudulent Activity Right Away
Fraudulent scams against the government are constantly evolving. If you are aware of suspicious conduct involving financial, environmental, healthcare, or contracting fraud, we encourage you to contact a whistleblower attorney right away.