What happens when a Delaware Voluntary Disclosure Agreement (“VDA”) goes bad? In the case of Computer Associates, Inc. (“CA”), the VDA is terminated and Delaware opens a full blown audit. CA had an initial VDA estimate of $685,000 in 2005. When CA and Delaware finally settled under litigation in February 2010, CA paid $17,650,000 to the state.
Just under $1 million was allocated to the post VDA reporting periods, leaving $16.7 million to the VDA period of 1991 through 2008. This final settlement amount was in great excess of the last settlement offer that became public information, at $3.5 million.
While the breakdown between principal and interest and penalties is not publicly available, it is widely believed that a significant amount of the increase is due to interest and penalties. In addition, discovery during the litigation uncovered documents that led to a higher extrapolation amount.
Key Events:
- 2004: CA first approached Delaware about their VDA program for report years 1991-2004.
- 2005, as part of the VDA program, CA reported that it had $685,000 of unclaimed property.
- 2005-2007: Negotiations ongoing, while Delaware requests accounting records.
- 2008: Delaware offers to settle based on report of $7.6 million. CA rejects offer and countered with $2.5 million.
- 2008: Delaware issues assessment of $8.2 million, including penalties and interest. CA counters with $3.5 million offer.
- 2008: Delaware terminates VDA, issues audit notice. CA sues in Delaware Chancery Court.
- 2008-2009: Ongoing discovery disputes, eventually CA turns over evidence that was not previously brought to Delaware’s attention, raising extrapolation estimates.
- 2010: CA and Delaware settle for $17.65 million, including principal, interest, and penalties for reporting periods 1991-2010.
Lessons Learned:
Holders should conduct a full self-audit, discovering all possible unclaimed property items. Understand where your risk remains, especially if your company does not have full and complete records. States, particularly Delaware, will review your VDA submission and may conduct further auditing if they question the results of your efforts. They may also use different estimation and extrapolation methods than you initially propose. While hindsight is 20-20, be aware that ongoing disputes with the state may lead to greater assessments, penalties, and interest, as previously undiscovered information is revealed.
