New Mexico Securities Division Settles for $106 Million with Vanguard Over Large Tax Bills
On Jan. 28, a significant settlement of $106 million was announced by the New Mexico Securities Division, in collaboration with a task force of state securities regulators and the U.S. Securities and Exchange Commission (SEC), with Vanguard Marketing Corporation and The Vanguard Group, Inc. (Vanguard). This settlement was a result of their failure to adequately supervise certain registered individuals and disclose potential tax implications to investors following a modification in investment minimums for specific target date retirement funds.
The SEC will take the responsibility of informing affected New Mexico investors about this development and will distribute the necessary remediation payments using its Fair Fund program to reimburse investors for the incurred capital gains taxes.
The origin of this settlement can be traced back to a thorough three-year investigation conducted by a multistate task force organized through the North American Securities Administrators Association’s Enforcement Section Committee alongside a parallel inquiry by the SEC.
The investigation brought to light that in the year 2020, Vanguard made adjustments to the investment minimums and fees for its Institutional Target Retirement Funds (TRFs). This alteration led a considerable number of retirement investors to redeem their Investor TRF shares to acquire Institutional TRF shares instead.
The significant volume of redemptions prompted Vanguard to offload highly appreciated assets in the Investor TRF, causing substantial capital gains taxes to be levied on hundreds of thousands of retail investors who retained their investments in the Investor TRF. Shockingly, Vanguard did not disclose the potential capital gains and tax implications to Investor TRF shareholders, ultimately leading to investor losses.
Should you find yourself with uncertainties or queries regarding your investments or financial advisor, do not hesitate to reach out to the New Mexico Securities Division at 505.476.4580.
