(WNY News Now) After an examination into the company’s failure to disclose tax implications from modifications to its retirement programs, Vanguard Group has agreed to pay $106 million in restitution to investors.
NEW YORK Vanguard Group, Inc., an investment advice firm, and its subsidiary Vanguard Marketing Corporation provided $106 million to the Securities and Exchange Commission (SEC), New York Attorney General Letitia James, and a bipartisan, multistate coalition of 45 securities regulators. The settlement comes after hundreds of thousands of investors’ capital gains tax payments increased as a result of Vanguard’s failure to inform them of changes to its retirement programs. Vanguard reduced the minimum criteria on one of its retirement funds without informing investors that the changes would result in higher tax payments, according to an Office of the Attorney General (OAG) inquiry. These unreported adjustments resulted in over 15,000 individuals in New York having to pay exponentially greater capital gains taxes on their retirement funds. Today, Vanguard agreed to pay $106 million in restitution to hundreds of thousands of investors as part of a deal with the bipartisan coalition formed by the SEC, New York, Connecticut, and New Jersey.
According to Attorney General James, New Yorkers should feel secure knowing that when they depend on qualified experts to assist them with their retirement savings, those experts won’t wind up charging them more. Vanguard is paid by customers to help manage and protect their retirement money, but these investors were not informed of changes that resulted in them having to pay thousands more. Today, the SEC, a group of states, and my office are holding Vanguard responsible for deceiving hundreds of thousands of people across the country. In order to ensure that their lifetime of hard work and earnings are preserved, New Yorkers should be able to retire in comfort and dignity.
Managing around $7.9 trillion in retirement funds, Vanguard is one of the biggest financial advisors in the world. Vanguard provided investors with two types of target date retirement funds: Institutional Target Date Retirement Funds and Investor Target Date Retirement Funds (TRFs). The goal date of the approximate year that an investor intended to retire guided the structure and investments of both Vanguard Investor and Institutional TRFs. The fund fees and expenditures, as well as the minimum investment amounts required to invest in the TRFs, were the primary distinctions between Vanguard’s Investor TRFs and its Institutional TRFs. While the Institutional TRFs were less expensive to administer but required a minimum investment of $100 million, the Investor TRFs were marginally more costly to administer but had a $1,000 minimum investment level.
Vanguard reduced the minimum investment amount for its Institutional TRFs from $100 million to $5 million in December 2020. Many investors sold their Investor TRF shares to buy Institutional TRF shares as a result of the reduced investment minimums. Hundreds of thousands of retail investors who depended on the Investor TRFs had to pay substantial capital gains taxes as a result of Vanguard selling highly valued assets in the Investor TRFs due to the volume of sales. Due to the transfer of shareholders from the Investor TRFs to the Institutional TRFs, Vanguard failed to notify Investor TRF shareholders of the possible capital gains tax implications.
According to the OAG’s inquiry, Vanguard set up a working group to examine the effects of these changes and recognized that investors would probably have to pay taxes on the higher account value, but they neglected to warn investors of these implications.
As part of today’s settlement, Vanguard must provide $106 million to an SEC-managed fair fund for distribution to affected investors as compensation. The SEC will contact restitution-eligible investors.
Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New York, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, West Virginia, Wisconsin, Wyoming, the District of Columbia, and the U.S. Virgin Islands are among the 45 jurisdictions that have signed the settlement’s term sheet.
Under the direction of Deputy Bureau Chief Kenneth Haim and Investor Protection Bureau Chief Shamiso Maswoswe, Senior Enforcement Counsel Hannah K. Flamenbaum, Assistant Attorneys General Melissa Gable and Stephanie Torre, Legal Assistants Natalya Fadeyeva, Principal Accountant Shalendra Ramadhin, and former law interns Alex MacDonald and Greg Zaffino carried out the OAG investigation. Under the direction of Director Victoria Kahn, Senior Data Analyst Akram Hasanov and Data Scientist Gautam Sisodia offered further assistance to the entire Research and Analytics Unit. First Deputy Attorney General Jennifer Levy is in charge of the Division of Economic Justice, which includes the Investor Protection Bureau. Chief Deputy Attorney General Chris D. Angelo leads the division.