Vanguard Agrees to $106 Million Multistate Settlement

FL OFR Press Releases

Filed January 17th, 2025

Detected February 12th, 2026

Summary

Vanguard has agreed to a $106 million multistate settlement with state securities regulators and the SEC for failing to supervise registered persons and disclose tax consequences to investors. The settlement aims to compensate over 10,000 Florida investors and potentially hundreds of thousands nationwide for capital gains taxes incurred due to fund changes.

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What changed

Vanguard Marketing Corporation and The Vanguard Group, Inc. have reached a $106 million settlement with a multistate task force of state securities regulators and the U.S. Securities and Exchange Commission (SEC). The settlement resolves allegations that Vanguard failed to adequately supervise certain registered individuals and did not disclose the potential tax consequences to investors when investment minimums were lowered for certain target date retirement funds in 2020. This action led to significant capital gains taxes for retail investors in the Investor TRF class of funds when Vanguard sold appreciated assets to meet redemption requests.

Regulated entities, particularly those managing or advising on retirement funds, should review their disclosure practices regarding potential tax implications arising from fund structure changes or asset sales. While the SEC will administer remediation payments, the settlement underscores the importance of robust supervision and transparent communication with investors about tax liabilities. The exact amount of compensation for individual investors will be determined by the SEC's Fair Fund program, and affected parties should follow SEC guidance for claims. The settlement highlights the risk of enforcement actions for inadequate disclosure and supervision in the securities industry.

What to do next

Review disclosure policies for potential tax implications of fund changes.
Assess supervision protocols for registered persons involved in fund management and sales.
Ensure transparent communication with investors regarding capital gains and tax consequences.

Penalties

$106 million settlement

Source document (simplified)

$106 Million Multistate Settlement Reached with Vanguard

01/17/2025

Tallahassee, Fla. — Today, the Office of Financial Regulation (OFR), as part of a task force of state securities regulators, and the United States Securities and Exchange Commission (SEC) announced a $106 million settlement agreement with Vanguard Marketing Corporation 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.

Florida is estimated to have more than 10,000 Florida investors who may be eligible for compensation under the settlement. The SEC will notify the investors impacted by this action and administer the remediation payments through its Fair Fund program to compensate investors for the capital gains taxes.

“The Office of Financial Regulation will continue to work with our partners to strengthen the integrity of the securities marketplace,” said Russell C. Weigel, III. “We remain dedicated to upholding the highest standards of compliance and customer service to Floridians.”

The settlement stems from a three-year multistate task force investigation coordinated through the North American Securities Administrators Association’s Enforcement Section Committee and 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, many 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.

Florida residents with questions about the settlement should contact the OFR at (850) 487-9687. Floridians can also visit www.flofr.gov to verify that a financial services company is licensed to do business in Florida and view past enforcement actions.

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