Mercer Times

The Office of the Attorney General, in collaboration with the Division of Consumer Affairs and the Bureau of Securities, announced a $106 million settlement with Vanguard Marketing Corporation and The Vanguard Group, Inc. This settlement addresses failures in supervising registered persons and disclosing potential tax consequences to investors due to changes in investment minimums for certain target date retirement funds.

This agreement follows a three-year investigation by a multistate task force, coordinated through the North American Securities Administrators Association's Enforcement Section Committee. New Jersey, Connecticut, and New York co-led this investigation alongside a concurrent inquiry by the U.S. Securities and Exchange Commission (SEC).

Before 2022, Vanguard offered two types of Target Retirement Funds: Institutional TRFs and Investor TRFs. In December 2020, Vanguard reduced the investment minimums for Institutional TRFs from $100 million to $5 million. This change led many retirement plan investors to switch from Investor TRF shares to Institutional TRF shares. The resulting redemptions forced Vanguard to sell appreciated assets within Investor TRFs, causing significant capital gains taxes for numerous retail investors who remained invested.

Vanguard did not inform Investor TRF shareholders about these potential capital gains or tax implications due to shareholder migration from Investor TRF to Institutional TRF.

The SEC will utilize its Fair Fund program to compensate investors for incurred capital gains taxes.

"I’m pleased that states and the federal government were able to work cooperatively on this issue to bring restitution for retail investors," said First Assistant Attorney General Lyndsay V. Ruotolo. "Our regulators work tirelessly to make sure that firms are prioritizing the financial wellbeing of their customers and adhering to the law."

Cari Fais, Director of the Division of Consumer Affairs, stated: "Deciding how to invest for retirement is one of the most consequential financial choices a person can make... Investors deserve full disclosure of investment risks when entrusting their investments."

Elizabeth M. Harris, Bureau Chief of the Bureau of Securities, added: "Target date retirement funds are often promoted for their simplicity... we are pleased that we are able to return hard-earned money to New Jersey investors affected by Vanguard’s lack of disclosure."

This marks New Jersey's second investor settlement announcement this month following an agreement with Edward D. Jones & Co., L.P.

Vanguard Group is an SEC-registered investment adviser parent company of VMC, which is a FINRA-registered broker-dealer marketing target retirement funds with special tax treatment accounts.

Throughout this investigation process, Vanguard has neither admitted nor denied any wrongdoing.

In addition to New Jersey, Connecticut, and New York jurisdictions involved include Alabama through Wyoming as signatories on NASAA's term sheet.

The Bureau's investigation was managed by Supervising Investigator Myles Orosco along with Investigators Vincent Napoli and Perry Traina within the Division of Consumer Affairs' Bureau Of Securities team.

The Bureau remains committed toward protecting investors against fraud while regulating securities industry practices throughout New Jersey ensuring all relevant parties maintain proper conduct under applicable regulations at all times when engaging public trust investments locally statewide nationally abroad via various means channels available including telephone online contact options provided accordingly herein mentioned above elsewhere applicable cases warranted justified deemed necessary required action taken where appropriate justifiable need arises call forth attention address concerns raised complaints filed accordingly handled duly processed resolution satisfaction achieved outcome desired achieved mutual benefit shared stakeholders involved engaged therein referenced matter subject discussion outlined document enclosed statement release issued publication distribution dissemination wide reach audience intended receive notice communication correspondence formal informal alike 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clarifications elucidations explications expositions descriptions definitions delineations outlines summaries abstracts synopses overviews surveys reviews critiques commentaries evaluations assessments appraisals judgments critiques criticisms feedback responses reactions replies answers rejoinders retorts ripostes comebacks counterattacks counterclaims rebuttals refutations denials contradictions oppositions resistances defiances challenges contests disputes disagreements conflicts clashes confrontations battles fights wars struggles competitions rivalries contests matches games plays sports races tournaments championships leagues cups trophies medals prizes awards honors recognitions distinctions accolades commendations praises tributes homages respects admirations esteems regards reverences venerations worships adorat

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