Wisconsin Joins $106 Million Multi-State Settlement with Dept. of Financial Institutions
The state of Wisconsin, represented by the Wisconsin Department of Financial Institutions (DFI) and in partnership with the North American Securities Administrators Association (NASAA), has recently participated in a substantial settlement action alongside a group of state securities regulators and the United States Securities and Exchange Commission (SEC). This collective effort led to a significant $106 million settlement with Vanguard Marketing Corporation (VMC) and The Vanguard Group, Inc. (Vanguard). The settlement was reached in response to allegations that Vanguard failed to appropriately supervise select individuals and neglected to inform investors of potential tax consequences arising from a modification in investment minimums for specific target date retirement funds.
The investigation that culminated in this settlement was a product of a meticulous three-year collaboration between a task force of state regulators and the SEC, organized under the umbrella of NASAA’s Enforcement Section Committee. The probe was kickstarted after Vanguard decided to reduce the investment minimums for its Institutional Target Retirement Funds (TRFs) in the year 2020. Consequently, numerous participants in retirement plans opted to exchange their Investor TRF shares for Institutional TRF shares. This maneuver led to Vanguard divesting itself of assets with significant appreciation in the Investor TRF, which, in turn, triggered substantial capital gains taxes for hundreds of thousands of ordinary investors who retained shares in the Investor TRF. The critical issue highlighted by the investigation was Vanguard’s failure to disclose the potential tax implications and capital gains to Investor TRF shareholders, a direct consequence of the shareholders’ switch from the Investor TRF to the Institutional TRF.
President of NASAA and DFI Securities Administrator Leslie Van Buskirk underscored the importance of this collective investigative endeavor, stating how it reaffirms the critical role that regulators play in safeguarding the interests of investors. She emphasized that the settlement exemplified the synergistic cooperation between state and federal authorities working together toward the common goal of ensuring investor protection.
The settlement and the subsequent restitution payments to investors impacted by these actions will be managed through the SEC’s Fair Fund program. Vanguard, through its subsidiary Vanguard Marketing Corporation, is responsible for marketing target retirement funds to investors with shares in qualified accounts that provide preferential tax treatment, including tax deferral, in addition to investors with taxable accounts. Previously, shareholders of Investor TRFs had typically faced modest capital gains distributions and resultant tax consequences. The concerted efforts of regulators through this enforcement action serve as a forceful reminder to all financial firms and professionals to remain in compliance with applicable securities laws.
Residents of Wisconsin with any queries, concerns, or seeking additional information regarding this settlement, their investments, or financial advisors, are encouraged to reach out to the DFI’s Division of Securities. They can connect with the Division either by phone at (608) 266-2139 or via email at [email protected]. Individuals can also access BrokerCheck® to delve into the background and credentials of various financial brokers, advisors, and entities.
