North Dakota Joins $106M Vanguard Settlement for Investors

enforcement-actions

Filed February 21st, 2025

Detected March 17th, 2026

Summary

North Dakota has joined a multi-state settlement with Vanguard Marketing Corporation and The Vanguard Group Inc., resulting in a $106 million payment to investors. The settlement addresses failures to supervise registered persons and disclose potential tax consequences to investors following a change in investment minimums for certain retirement funds.

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What changed

The North Dakota Securities Department, alongside a taskforce of state securities regulators and the SEC, has finalized a $106 million settlement with Vanguard Marketing Corporation and The Vanguard Group Inc. The settlement resolves allegations that Vanguard failed to adequately supervise its registered personnel and did not disclose the potential tax implications to investors when investment minimums for certain target date retirement funds were lowered in 2020. This action led to significant capital gains taxes for retail investors in the Investor TRF when Vanguard sold appreciated assets to accommodate a migration to Institutional TRF shares.

Regulated entities, particularly those involved in investment advisory services and fund management, should review their internal supervision and disclosure practices. While Vanguard is addressing the remediation through the SEC's Fair Fund program, this action highlights the importance of clear communication regarding tax consequences of fund migrations or changes. Compliance officers should ensure that all potential tax impacts on retail investors are proactively disclosed and that supervisory procedures are robust enough to prevent similar occurrences.

What to do next

Review internal supervision policies for registered persons.
Assess disclosure practices regarding potential tax consequences of fund changes or migrations.
Ensure compliance with SEC and state-specific regulations on fund management and investor disclosures.

Penalties

$106 million settlement

Source document (simplified)

North Dakota Joins $106M Multi-State Settlement with Vanguard over Big Tax Bills, Remediation to Investors

<< All News Friday, February 21, 2025 **Categories:* Enforcement Actions* NEWS RELEASE | **** FOR IMMEDIATE RELEASE | **** Feb. 21, 2025

North Dakota Joins $106M Multi-State Settlement with Vanguard over Big Tax Bills, Remediation to Investors

BISMARCK, ND – The North Dakota Securities Department today announced 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 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 investigation revealed that in 2020, Vanguard lowered the investment minimums for its Institutional Target Retirement Funds (TRFs). As a result, 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.

"This settlement ensures that investors who were harmed by Vanguard's actions will see relief," said Commissioner Tim Karsky. "We are proud of the collaboration of state and federal securities regulators to achieve this resolution."

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 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 North Dakota Securities Department at 701-328-2910.

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