Rule 17ad-17: Requirements for Finding Lost Securityholders

SEC Rule 17ad-17 provides a framework for financial institutions to locate securityholders with whom they have lost contact. Originally established for transfer agents, its scope was later expanded by the Dodd-Frank Act to include broker-dealers. The rule ensures these entities, which maintain investor records and distribute payments, exercise a standard of care in reconnecting with individuals who may be unaware of their assets. This regulation aims to reunite investors with their securities and any associated cash distributions, such as dividends or interest payments.

The rule establishes a process for these institutions to follow before an account is considered abandoned. It is designed to prevent the premature escheatment of assets to state governments, a process where unclaimed property is turned over to the state after a designated dormancy period. By mandating search actions, the regulation provides a uniform approach, safeguarding investor assets. This federal requirement helps ensure a diligent effort is made to find the owner before this transfer occurs.

Identifying a Lost Securityholder

A securityholder is designated as “lost” based on communication failures. The trigger is when two consecutive pieces of correspondence sent to the individual’s address of record are returned as undeliverable. These mailings include account statements, corporate action notices, or other official communications. Once the second item is returned, the institution must classify the account holder as lost.

A different standard applies if the securityholder has uncashed checks. An individual becomes an “unresponsive payee” if a check is not cashed within six months of being mailed or by the mailing date of the next check, whichever is earlier. If a single piece of correspondence sent to an unresponsive payee is returned as undeliverable, that person is then immediately categorized as a lost securityholder. This accelerated classification acknowledges the risk that the individual is unaware of the issue and the outstanding funds.

The rule provides a window to correct the situation. If the transfer agent receives an updated address or successfully re-sends the returned mail within one month, the securityholder is no longer considered lost. Certain accounts are exempt from these search requirements. These include accounts where the institution has documentation that the securityholder is deceased, the total asset value is less than $25, or the securityholder is not a natural person, such as a corporation.

Information Required for the Search

To conduct searches, institutions must use specific personal information from their records. The required data points are the securityholder’s full name and last known address. These details form the baseline for any inquiry.

The most valuable information for an accurate search is the securityholder’s Social Security Number (SSN) or Taxpayer Identification Number (TIN). The rule prioritizes the use of the TIN because it is a unique identifier, significantly reducing the likelihood of false positives that can occur when searching by name alone. A search based on a common name could yield thousands of potential matches, but a TIN-based search can pinpoint the exact individual.

Financial institutions use this information to query large, commercially available databases. These third-party services aggregate data from a wide array of public and private sources, such as credit bureaus and property filings, to find more current addresses. The objective is to use the securityholder’s name, last known location, and TIN to find a digital footprint that leads to their current whereabouts.

The Mandated Search Procedure

Once a securityholder is identified as lost, Rule 17ad-17 prescribes a two-step search process. The first search must be performed between three and twelve months after the securityholder is deemed lost. This initial search must involve querying at least one national information database service.

The purpose of this search is to use the securityholder’s name and TIN to find a more current address. The institution must use a database service reasonably believed to be able to ascertain the correct address. The search must be conducted without imposing any charge on the lost securityholder.

If the first search fails to yield a new address, the rule mandates a second search. This second attempt must be conducted between six and twelve months after the first search was completed. This follow-up search provides another opportunity to locate the individual, as their information may become available in databases over time. Failure to conduct both required searches within the specified timelines is a violation of the rule.

Recordkeeping and Unclaimed Property Laws

Following the search procedures, institutions have specific recordkeeping obligations under SEC Rule 17ad-17. They must maintain detailed records of their search efforts for each lost securityholder. This documentation must include the results of each database query, noting if a new address was found and if contact was re-established. To prove compliance, these records must be retained for at least three years, with the first year’s records stored in an easily accessible place.

The federal requirements of Rule 17ad-17 intersect with state unclaimed property laws, often called escheatment. These state laws require institutions to transfer “abandoned” property to the state’s custody after a dormancy period, which generally ranges from three to seven years for securities. The SEC-mandated searches are a final federal requirement to locate the owner before this state process begins.

If both searches are unsuccessful and the securityholder remains lost, the assets become subject to state escheatment laws. The institution will be legally obligated to report and remit the property to the appropriate state’s unclaimed property division. At that point, the original owner must file a claim with the state, not the financial institution, to recover their property.