Nearly 70 years ago, the federal government began issuing hundreds of billions of dollars in savings bonds to finance the greatest war effort in the nation’s history, with President Franklin D. Roosevelt buying the very first one.
But the bonds came with a catch: They wouldn’t be paid off for 40 years. As the decades passed after World War II, $16.7 billion worth of bond certificates were either forgotten in dusty attics or thrown out in the trash.
That treasure has remained unclaimed, but a lawsuit could change that.
Six states have sued the federal government to get that money, contending that the Treasury Department has done nothing to find the original bondholders or their descendants -- not even send out a letter when it came time for the government to repay the bonds. Moreover, the states say, they have laws that empower them to take unclaimed property for themselves, which would be a welcome infusion of cash at a time of economic distress.
Oral arguments are expected to begin in the coming weeks in U.S. District Court in New Jersey, where the lawsuit was originally filed.
“It’s daunting,” said Randall Berger, a partner at Kirby McInerney who is representing the states -- Kentucky, Missouri, Montana, New Jersey, North Carolina and Oklahoma.
“But the states are doing it because they need the money and because they have these statutes that clearly lay out what happens . . . to unclaimed property.”
Representatives for the Treasury Department and the U.S. attorney’s office, which represents the department, declined to comment.
The case will largely turn on the issue of where the boundaries are between federal and state power, lawyers for the states say.
If the court rules in favor of the U.S. government, the Treasury Department could keep money it owes to ordinary Americans.
But if the states win, they could continue to tap unclaimed U.S. bonds in the future, in effect establishing a new stream of funding from Washington.
Some states, such as California and New York, stand to reap as much as $1.6 billion, according to figures compiled by the states based on federal data. More states haven’t joined the lawsuit only because they don’t know about it, Berger said.
When the savings bonds were first sold in 1941, the government emphasized a patriotic duty of citizens to support the war effort.
The Treasury produced radio musicals urging listeners to buy war bonds, and broadcast networks enlisted celebrities to make the pitch. Newspaper carriers volunteered to sell bonds along their routes.
Well after World War II, the Treasury continued to issue the bonds. (Their maturity was reduced to 30 years in 1965.)
Because many of the bonds may have been lost over the decades, state officials said, they expect that a substantial chunk of the unclaimed money could end up in their coffers if they win the lawsuit. The Treasury kept a list of the original addresses of the bondholders but never tried to contact them, according to court documents filed by the states. In many cases, original bondholders died and their rights passed to relatives.
State governments employ staff members who are responsible for matching unclaimed property -- everything from land to checking accounts -- with the rightful owners. But state officials wouldn’t pursue the bondholders before the federal government provided the unclaimed proceeds. The Treasury balked, and in 2004 the states sued.
In April, Sen. John D. Rockefeller IV (D-W.Va.) introduced a bill to have the Treasury pay states $30 for every bondholder they find.
“Sen. Rockefeller believes we should return unclaimed bonds to their rightful owners, putting money in the pockets of families during tough economic times,” said spokeswoman Rebecca Gale. “He introduced this legislation with the support of state treasurers so the states would have a chance to review and find the rightful owners.”
No companion bill has been introduced in the House. For now, it appears, it will be up to the federal courts to settle the matter.
To the states, the issue is simple.
“The savings bonds that were issued starting some 60 years ago weren’t there to benefit the federal government if the bonds were unclaimed,” Montana Atty. Gen. Steve Bullock said.