WASHINGTON (CN) - Five state treasurers asked a federal judge to vacate the U.S. Treasury's new rules prohibiting a state from claiming title to abandoned bonds.
The state treasurers of Kansas, South Dakota, Louisiana, Mississippi and Kentucky sued the U.S. Department of Treasury, Bureau of Fiscal Service, and Secretary Jacob Lew in D.C. Federal Court on Tuesday.
The state officials asked the court to set aside new federal treasury rules governing "abandoned" U.S. savings bonds.
"For decades, Treasury's regulations have provided that a state that escheats title to a bond may redeem the bond for value as the bond's rightful owner," the lawsuit states. "The final rules represent a sharp, unacknowledged, and unjustified departure from that longstanding policy."
A bond may be escheated if the person who owned it dies without heirs or if it remains unredeemed for a period of time, typically three to five years. Under the old rules, the bond would become property of the state.
Kansas Treasurer Ron Estes claims that the U.S. Treasury is currently holding $16 billion worth of matured U.S. Savings Bonds that are no longer paying interest. He says $151 million of those bonds were issued to owners with addresses in Kansas.
But under new rules, the U.S. Treasury will "disallow" all "escheat claims for 'unclaimed' bonds that are not in a state's possession," and the department will no longer recognize escheat proceedings as valid.
"Nowhere in the final rules does the Treasury acknowledge that it has changed course. Beyond that omission (itself grounds for invalidation), Treasury's explanation for its shift - that it is 'protect[ing] the rights of savings bond owners,' - does not withstand scrutiny," Tuesday's lawsuit states.
The complaint also asserts that the new rules violate the 10th Amendment because they create a second tier of bond ownership for states.
"The Kansas State Treasurer's Office has over 30 years of proven experience returning unclaimed property to Kansans," Estes said in a statement. "I believe we can do a better job of finding these Kansans and returning their money to them. Some of these bonds date back to World War I, and many of the original owners or their heirs do not know that the U.S. Treasury is still holding their money."
The state treasurers seek a declaration setting aside the U.S. Treasury's new bond rules. They are represented by David Frederick with Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington D.C.