January 17, 2025
Connecticut Department of Banking Announces Multi-State Settlement with Vanguard over Big Tax Bills
$106 Million in Remediation to Investors
HARTFORD - The Connecticut Department of Banking today announces a taskforce of state securities regulators and the U.S. Securities and Exchange Commission (SEC) reached 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 multistate task force 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 Department of Banking, though its Securities Division, led the multistate investigation in coordination with the New York Attorney General’s Office and New Jersey’s Bureau of Securities. The investigation revealed that 5,580 investors in Connecticut were affected. Remediation amounts for these investors will be determined based on their individual tax situation.
“This multistate settlement represents our ongoing efforts to protect Connecticut investors by conducting thorough investigations,” said Banking Commissioner Jorge Perez. “Consumer and investor protection is a priority at the Department of Banking, and I am extremely proud that our Securities team took a lead role in this multistate investigation, and that their diligence will result in remediation for Connecticut investors harmed.”
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.
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 Department of Banking, at 1-800-831-7225, or visit ct.gov/dob.
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Media Contacts
Department of Banking:
Matt Smith
matthew.smith@ct.gov
203-996-1241 (cell)