The Whistleblower and H&M Unused Gift Cards - $36 Million Settlement

New York, NYA whistleblower is getting a big payout after he filed a lawsuit under the New York False Claims Act, accusing H&M of keeping millions of dollars in unused funds from its gift cards. Rather than transferring unredeemed gift card balances to the Abandoned Property Fund as the law stipulates, H&M lied about an out-of-state company handling its gift cards business. But H&M didn’t count on the whistleblower: greed ultimately cost the fashion retailer $36 million—from keeping about $18.4 million in unused gift cards. Clearly, deception doesn’t pay when the whistle is blown.

Whistleblower William French filed a lawsuit against H&M in 2016, accusing the Stockholm-based company of violating New York's False Claims Act and a law governing abandoned property. French will receive $7.74 million from the $36 million that H&M will pay to settle the lawsuit. And of the $28 million payout to the state, over $18 million is allocated to the Abandoned Property Fund for unredeemed balances on H&M gift cards sold before 2015. Under the agreement, New Yorkers with unused balances on H&M gift cards issued between 2004 and 2014 can now recover their money.

New York Attorney General Letitia James told Reuters that H&M since at least 2008 unlawfully kept approximately $18.4 million in unused gift card balances in its own bank accounts instead of transferring them to the state's Abandoned Property Fund.

The H&M Investigation

After French filed a lawsuit under the False Claims Act, which allows people to file civil actions on behalf of the government and share in any recovery, the Office of the Attorney General (OAG) began investigating H&M. The OAG soon discovered that, for several years, the retailer had unlawfully kept millions of dollars in unredeemed gift card balances rather than transferring the money to the Abandoned Property Fund. H&M also concealed its greed by setting up a bogus company in Ohio in 2008 that was supposedly conducting its gift card business. In reality, H&M continued to run the business itself and pocketed the money from the sale of gift cards.

The state asked H&M in late 2011 about its gift-card business—like it was giving the company one last chance to come clean-- but H&M continued its charade. It even lied to the state that the phony company had “paid out tens of millions of dollars” on H&M’s gift cards. The retailer told the state that unused gift card balances had been transferred to an out-of-state entity (Ohio) that had no transfer obligation to New York – in reality, H&M retained millions of dollars in unredeemed gift card balances and remained responsible for honoring its gift cards.

Gift Cards – A Gazillion Dollar Business

Here are a few factoids:

• Gift cards were number one on consumer Christmas wish lists.
• Americans purchased an estimated $171 billion worth of gift cards in 2019
• More than 70% of all gift cards are redeemed within 6 months
• Between 10- 20 percent of gift card balances remain unredeemed at any given time
• About 6 % of gift cards are never used
• Between 2005 and 2015 alone, unredeemed gift card balances amounted to an estimated $45.7 billion

A Bankrate.com survey finds that more than half of adults — 51% — currently have unused gift cards, vouchers and store credits. In total, that adds up to approximately $15 billion in unused money