California’s top fiscal watchdog and private contractors are accused of falsifying foreign investors’ addresses to seize and sell hundreds of thousands of dollars in stock, according to a federal court filing seeking to halt the state’s $15 billion unclaimed property program.

The allegations are part of a lawsuit that accuses state Controller Malia Cohen and two contractors, Kroll LLC and Kelmar Associates LLC, of taking private property without adequate notice and improperly profiting from its sale.

Under California law, banks and other businesses must turn over financial assets — including cash, stocks and insurance payouts — to the state Controller’s Office when owners fail to claim them or make contact for a specified period, typically three years.

In a motion filed Wednesday, plaintiffs accused Cohen of “seizing the property she cannot control from persons she has no authority over.” 

The filing alleges that officials changed overseas investors’ addresses to make their assets appear connected to California, allowing the state to claim property it otherwise might not have been entitled to seize.

One investor, Edmilson César Martim Jr. of Brazil, alleges that California seized and sold $708,641.22 in Google retirement stock without notifying him.

According to the filing, his Brazilian address was replaced in property records with the designation “CA 00000.”

Martim said he traveled several hours to a U.S. Embassy to obtain notarized documents required to recover his money, only to have his claims repeatedly denied by the controller’s office.

Another plaintiff, British investor Karl Whitty, alleges that contractor Kroll changed his address from Cardiff in the United Kingdom to “CARDIFF, CA 00000.”

Whitty eventually recovered almost $4,750 from the state, but only after a 17-month wait. His shares would have been worth approximately $15,222 if they had not been sold, according to the filing.

“Instead of upholding the purpose of this law, Defendants have weaponized the [unclaimed property law] by seizing, selling, and destroying private property without constitutional notice,” the court filing states.

The plaintiffs are asking a federal judge to temporarily prohibit the state from taking possession of additional unclaimed property while the case proceeds.

The controller’s office did not immediately respond to a request for comment.

Cohen was already facing scrutiny after a state auditor’s report last week found her office mishandled more than $33,000 in employee overpayments and failed to detect managers working remotely from Idaho, Alabama and Tennessee in violation of state rules.

The state is required to safeguard unclaimed property and return it to rightful owners who submit valid claims. But California generally sells unclaimed securities after receiving them, meaning owners who later recover their money may miss out on subsequent stock-market gains.

Herb Morgan, a Republican candidate for controller in November’s election, said the court filing “raises serious questions about whether [Cohen] possesses the financial competence or judgment this office demands.”

“Malia Cohen has demonstrated a stunning lack of financial judgment and a fundamental misunderstanding of her responsibility as California’s chief fiscal officer,” Morgan said.

“The state controller is supposed to protect the people’s money, not treat it as another revenue stream for Sacramento.”

In February, a federal Labor Department watchdog warned that $192 million in unused COVID-era unemployment benefits had been transferred to state unclaimed-property offices, raising concerns about potential fraud and the need to recover taxpayer funds.

The California lawsuit cites more than $15 billion in unclaimed property held by the state across approximately 84 million accounts. That figure represents property held by the state, not assets proven to have been illegally seized.

A hearing is scheduled for Jan. 21, 2027, before U.S. District Judge George H. Wu in Los Angeles.