Maryland Attorney General Anthony G. Brown announced the completion of a $106 million settlement with Vanguard Marketing Corporation and The Vanguard Group, Inc. for failing to supervise certain registered persons and failing to disclose potential tax consequences to investors following changes made to investment minimums for specific target date retirement funds.
The settlement, finalized after a joint investigation by state regulators and the U.S. Securities and Exchange Commission (SEC), requires Vanguard to compensate affected investors for capital gains taxes incurred as a result of the company’s actions. The SEC will notify eligible investors and administer payments through its Fair Fund program. Compensation amounts will be based on each investor’s individual tax situation.
The case centers on Vanguard’s 2020 decision to lower investment minimums and fees for its Institutional Target Retirement Funds (TRFs). That change prompted many investors to sell Investor TRF shares to move into the Institutional TRFs. The resulting large-volume sell-off forced the Investor TRF to sell highly appreciated assets, creating significant capital gains tax liabilities for hundreds of thousands of retail investors who remained in the fund. Vanguard did not disclose these potential tax consequences to shareholders prior to the change.
The settlement resolves allegations that Vanguard’s actions led to unexpected capital gains distributions for investors. Vanguard has not admitted or denied wrongdoing.
Vanguard Marketing Corporation is a FINRA- and state-registered brokerage firm under its parent company, The Vanguard Group, Inc., which markets and sells retirement funds to both tax-advantaged and taxable accounts. Historically, capital gains distributions in Investor TRFs had been modest.
Attorney General Brown acknowledged the work of Securities Commissioner Melanie Lubin, Assistant Securities Commissioner Katharine M. Weiskittel, and the North American Securities Administrators Association.
Investors with questions may contact the Maryland Securities Division at 410-576-6360 or securities@oag.maryland.gov.
