Attorney General Anthony G. Brown announced today that the Office’s Securities Division, along with a task force of state securities regulators and the U.S. Securities and Exchange Commission (SEC), has secured a $106 million settlement with Vanguard Marketing Corporation (VMC) and The Vanguard Group, Inc. This settlement addresses allegations that Vanguard did not adequately supervise certain employees, including stockbrokers, and failed to inform investors about potential tax consequences following a change in investment minimums for some of their target date retirement funds.
This resolution concludes a three-year investigation led by the North American Securities Administrators Association’s Enforcement Section Committee and the SEC. The investigation centered on Vanguard’s decision in 2020 to lower the investment minimums for its Institutional Target Retirement Funds (TRFs). This change prompted a large number of retirement plan investors to shift from Investor TRF shares to Institutional TRF shares, leading to significant capital gains taxes for many remaining investors due to the sale of highly appreciated assets. Vanguard did not disclose these potential tax impacts to the affected investors.
The $106 million collected from the settlement will be used to compensate the harmed investors through the SEC’s Fair Fund program.
Attorney General Brown emphasized the importance of transparency and fairness in the financial industry, stating, “Marylanders who entrust their hard-earned money to investment firms deserve transparency and fairness—not surprises that cost them thousands in unexpected taxes. This settlement sends a clear message: we will hold companies accountable when they put profits over the interests of everyday investors.”
Vanguard Marketing Corporation, a registered broker-dealer, along with its parent company, The Vanguard Group, Inc., sells target retirement funds to both tax-advantaged and taxable account holders. Typically, the capital gains distributions and associated tax liabilities for investors in these funds have been minimal. The SEC will directly notify the affected investors and handle the distribution of remediation payments.
Investors with questions or concerns about their investments or financial advisors are encouraged to contact the Office of the Attorney General’s Securities Division at securities@oag.state.md.us or 410-576-6300.
