Accordingly, SEC adopted a  rule on October 1, 1997, requiring transfer agents to conduct searches and  annually report to SEC aggregate data on the accounts of lost security  holders. Transfer Agents and Broker-dealers Reported Limited Numbers of Lost Accounts, but Little Historical Data Were Available

In 2000, the year for which the data are most complete, the average number  of lost security holders for transfer agents and broker-dealers was  approximately 2 percent of total accounts. Most of the transfer agents and broker-dealers that were unable to provide  us with data reported to us that they believed that the lost account ratio has  remained the same or decreased in the last 2 years. When searches for lost security holders are unsuccessful, transfer agents  and broker-dealers are required to remit the property to the state  unclaimed property administrators under the state escheat laws. Both transfer agents and broker-dealers used telephone calls  and mail for over 75 percent of their searches. Transfer agents used credit  bureaus and professional search firms less frequently, but they still used  these firms more than broker-dealers. However, when transfer agents began reporting the data, SEC staff found  differences in the way that firms interpreted the questions. Because of  these inconsistencies, SEC staff have not been able to review the operation  of the rule after 3 years as instructed by the Commission in 1997. SEC Relies on Inspections to Ensure Compliance

SEC relies primarily on its general inspections of transfer agents to ensure  that these firms comply with the securities laws and regulations, including  the lost security holder rule. SEC found violations relating to  compliance with the 1997 rule in about a quarter of the inspections it made  between 1998 and 2000. This is consistent with our survey results, which  indicated that about 22 percent of the transfer agents who responded to our  survey were in violation of the lost security holder rule because they did  not have written policies or procedures for searching for lost security  holders. Yet, only transfer agents are subject to SEC’s 1997 rule. In addition, SEC directed its staff to assess the operation of  the rule after 3 years. Objectives, Scope, and Methodology

Our objectives were to provide information on (1) the extent to which  accounts are lost, whether this has changed over time, and the reasons  security holders were separated from their accounts; (2) the techniques  used by transfer agents, broker-dealers, and other entities to find lost  customers and the costs of these searches; (3) the Securities and Exchange  Commission’s (SEC) effort to use the data reported by transfer agents to  review the operation of its 1997 rule; and (4) SEC’s methods for ensuring  that transfer agents comply with the rule’s requirements.
Why GAO Did This Study

One in eight Americans are entitled to unclaimed and abandoned assets, according to the National Association of Unclaimed Property Administrators. These unclaimed and abandoned assets include savings and checking accounts, securities, paychecks, insurance settlements, and utility and rental deposits. Most of this money is unclaimed because the owner moved and simply forgot about the account, changed his or her name, or died. After a period of dormancy, the funds are turned over to state unclaimed property offices. To protect investors, the Securities and Exchange Commission (SEC) adopted a rule in 1997 requiring transfer agents to search for lost security holders, maintain written procedures for searching for lost security holders, and annually report to SEC on the accounts of lost security holders. However, the rule excluded the broker-dealers that are involved in the buying and selling of securities and that hold the vast majority of owners' assets. Legislation was introduced in Congress in 2000 that would have expanded the SEC rule to cover broker-dealers. GAO surveyed broker-dealer and transfer agents survey respondents and found that the number of lost accounts was about two percent of total accounts.

What GAO Found

Survey respondents said that they believe the number of lost security holders has remained steady since 1998. Transfer agents and broker-dealers said that the main reason for lost accounts was that owners forgot to send a change of address when they moved. Both transfer agents and broker-dealers generally resorted to telephone calls and mailings to locate lost security holders, using each method at least 75 percent of the time. Transfer agents and broker-dealers used credit bureaus and professional search firms the least and found these methods to be the least effective. About 40 percent of the responding transfer agents and broker-agents spent less than $10 trying to locate each lost customer. SEC has been unable to use data provided by transfer agents to assess the operation of the 1997 rule because of differences in the way agents interpreted the questions. In addition, the requested information was insufficient for SEC staff to review the operation of the rule after three years as they were directed when the Commission adopted the rule. SEC relies primarily on its general inspections of transfer agents to ensure that these firms comply with the 1997 rule. SEC found violations in compliance with the 1997 rule's reporting and procedural requirements in about one quarter of the inspections it made between 1998 and 2000. Given that only transfer agents are covered by the 1997 rule, the extent of the lost security holder issue may be small.