Company settles with states over big tax bills, remediation to investors
WASHINGTON, D.C. – (January 17, 2025) – The North American Securities Administrators Association (NASAA) today announced that a taskforce of state securities regulators and the United States Securities and Exchange Commission (SEC) has reached a $106 million settlement with Vanguard Marketing Corporation and The Vanguard Group, Inc (Vanguard) for failing to supervise certain registered persons and failing to disclose potential tax consequences to investors following a change in investment minimums for certain target date retirement funds.
Over the past three years, regulators in Connecticut, New Jersey, and New York, coordinated through NASAA’s Enforcement Section Committee, co-led a multistate task force of 40 states to conduct a comprehensive investigation, parallel to a concurrent investigation by the SEC.
In 2020, Vanguard lowered the investment minimums and fees for its Institutional Target Retirement Funds (TRFs). As a result of the lowered investment minimums, a large number of retirement investors redeemed their Investor TRF shares to purchase Institutional TRF shares.
The large number of redemptions caused Vanguard to sell highly appreciated assets in the Investor TRF, which resulted in significant capital gains taxes for hundreds of thousands of retail investors who remained invested in the Investor TRF. Vanguard did not disclose potential capital gains and tax consequences to Investor TRF shareholders that would result from this anticipated migration of shareholders from the Investor TRF to the Institutional TRF as a result of the lowering of the minimum investment for the Institutional TRFs.
“This joint investigative effort underscores the crucial role our members play in investor protection,” said Leslie Van Buskirk, NASAA President and Wisconsin Securities Administrator. “This settlement shows the value of state and federal authorities working together to benefit investors.”
The SEC will handle remediation payments through its Fair Fund program to compensate investors for the capital gains taxes.
The Vanguard Group, Inc. (VGI) is the parent company of Vanguard Marketing Corporation (VMC), a FINRA- and state-registered broker-dealer. Vanguard markets and sells target retirement funds to investors who hold shares in qualified accounts that offer special tax treatment, including deferred taxes, as well as to investors who hold shares in taxable accounts. Historically, the amount of capital gains distributions and resulting tax liability for shareholders in Investor TRFs has been modest. Throughout this examination, Vanguard has not admitted or denied any wrongdoing.
NASAA Enforcement Section Committee Co-Chair Amanda Senn, Alabama Securities Director, commended the state securities regulators for their work in the investigation and subsequent settlement.
“As demonstrated by this enforcement action, our members are working collaboratively to protect investors and the integrity of financial markets across the country,” said Senn.
45 NASAA jurisdictions are signatories to the term sheet: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, U.S. Virgin Islands, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.
– NASAA –
About NASAA:
Organized in 1919, the North American Securities Administrators Association (NASAA) is the oldest international organization devoted to investor protection. NASAA is a voluntary association whose membership consists of the securities regulators in the 50 states, the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, the 13 provincial and territorial securities regulators in Canada, and the securities regulator in México. For more information, visit www.nasaa.org.
For More Information:
Fred Baldassaro, Director of Communications
fbaldassaro@nasaa.org | 202-737-0900
Karen Grajales, Manager, Communications and Investor Outreach
kgrajales@nasaa.org | 202-737-0900
