Texas State Securities Board

The Texas State Securities Board announced today that it joined a taskforce of state securities regulators and the United States Securities and Exchange Commission (SEC) in a $106 million restitution settlement with Vanguard Marketing Corporation (VMC) and The Vanguard Group, Inc. (Vanguard). The resolution will benefit retail investors - terms of the settlement can be found *here* [ [link removed] ].

The three-year investigation was coordinated through the North American Securities Administrators Association’s Enforcement Section Committee and revealed that beginning 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. To resolve its failures to supervise certain registered persons and failures to disclose the potential tax consequences, Vanguard has agreed to pay $106 million back to harmed investors.   

“We are always happy to see money go back to harmed investors,” said Commissioner Travis J. Iles. “This is a great result and a great example of state regulators working together to protect investors across the country.” 

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.

If you have questions or concerns about your investments or financial professional, please contact the Texas State Securities Board at [link removed].




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