Wisconsin Joins $106 Million Multi-State Settlement with Vanguard over Big Tax Bills, Remediation to Investors
MADISON, Wis. — The Wisconsin Department of Financial Institutions (DFI), a member of the North American Securities Administrators Association (NASAA), today announced Wisconsin has joined a taskforce of state securities regulators and the United States Securities and Exchange Commission (SEC) in a $106 million settlement with Vanguard Marketing Corporation (VMC) 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.
The settlement stems from a three-year multi-state task force investigation coordinated through NASAA’s Enforcement Section Committee, to conduct a comprehensive investigation, parallel to a concurrent investigation by the SEC.
The investigation revealed that in 2020, Vanguard lowered the investment minimums for its Institutional Target Retirement Funds (TRFs). As a result of the lowered investment minimums, a large number of retirement plan 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 triggered significant capital gains
taxes for hundreds of thousands of retail investors who remained invested in the Investor TRF. Vanguard did not disclose the potential capital gains and tax implications to Investor TRF shareholders which was a consequence of the migration of shareholders
from the Investor TRF to the Institutional TRF.
“This joint investigative effort underscores the crucial role our members play in investor protection,” said NASAA President and DFI Securities Administrator Leslie Van Buskirk. “This settlement shows the value of state and federal authorities working together to benefit investors.”
The Vanguard Group, Inc. is the parent company of Vanguard Marketing Corporation, 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. The SEC will notify the investors that were impacted by this action and will administer the remediation payments, through its Fair Fund program, to compensate investors for the capital gains taxes.
“As demonstrated by this enforcement action, we are working collaboratively to protect Wisconsin investors and the integrity of our financial markets,” said DFI Secretary Cheryll Olson-Collins. “This settlement is an important reminder to every firm and financial professional to comply with our securities laws.”
Wisconsin residents who have questions or concerns about this settlement, their investments, or financial professional, should contact the DFI’s Division of Securities by calling (608) 266-2139 or emailing DFISecurities@dfi.wisconsin.gov. Residents can also visit BrokerCheck® to research the background and experience of financial brokers, advisers, and firms.
NOTE: This press release was submitted to Urban Milwaukee and was not written by an Urban Milwaukee writer. While it is believed to be reliable, Urban Milwaukee does not guarantee its accuracy or completeness.
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