Jan. 21, 2025
Salem – The Oregon Division of Financial Regulation (DFR) announced today that it joined a taskforce of state securities regulators and the U.S. 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 taskforce investigation coordinated through the North American Securities Administrators Association'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.
“It's vital that people who invest their money have confidence in the companies they do business with," said TK Keen, DFR administrator. “As state regulators, we are going to hold those companies accountable when they make large scale changes that impact their customers, particularly when they don't adequately notify their customers about those changes."
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 who were affected 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 any questions or concerns about your financial investments or institutions, please contact DFR's consumer advocates at 1-888-877-4894 (toll-free) or email
dfr.financialserviceshelp@dcbs.oregon.gov.
###
About Oregon DFR: The Division of Financial Regulation protects consumers and regulates insurance, depository institutions, trust companies, securities, and consumer financial products and services. The division is part of the Department of Consumer and Business Services, Oregon's largest consumer protection and business regulatory agency. Visit dfr.oregon.gov and dcbs.oregon.gov.