FOR IMMEDIATE RELEASE
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Company Settles with States over Big Tax Bills, Remediation to Investors
BALTIMORE, MD – Attorney General Anthony G. Brown’s Securities Division has concluded the $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 Vanguard target date retirement funds. The settlement, announced earlier this year, is the result of a joint investigation by a taskforce of state regulators and the U.S. Securities and Exchange Commission (SEC).
Under the final terms of the settlement, investors will be compensated for capital gains taxes imposed based on Vanguard’s actions. Affected investors can expect to be notified by the SEC as it administers the remediation payments through its Fair Fund program. Those investors will be compensated for the capital gains taxes related to the investment with the remediation amounts determined based on the investors’ individual tax situations.
This settlement is based on Vanguard’s actions in 2020 to lower 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 sold their Investor TRF shares in order to purchase Institutional TRF shares. The large number of sales caused the Vanguard Investor TRF to have to sell highly appreciated assets in that fund, leading to significant capital gains tax liability 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 sell-off by Investor TRF shareholders as a result of the lowering of the minimum investment for the Institutional TRFs.
“Marylanders who invested their retirement savings deserve to know when a company's decisions will cost them thousands in unexpected taxes,” said Attorney General Brown. “This settlement holds Vanguard accountable and ensures affected investors are compensated for the tax bills they should never have received in the first place.”
The Vanguard Group, Inc. (VGI) is the parent company of Vanguard Marketing Corporation (VMC), a FINRA- and state-registered securities brokerage firm. 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.
In making today’s announcement, Attorney General Brown thanked Securities Commissioner Melanie Lubin, Assistant Securities Commissioner Katharine M. Weiskittel, and the North American Securities Administrators Association for their work on the case. If you have questions or concerns about your investments or financial professional, please contact the Maryland Securities Division at 410-576-6360 or [email protected].
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