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Montana Joins $106 Million Settlement with Vanguard Over Investor Tax Impact

February 2, 2025

Montana State Auditor and Commissioner of Securities and Insurance James Brown announced today that the Montana Commissioner of Securities and Insurance (CSI) has joined a multi-state task force and the U.S. Securities and Exchange Commission (SEC) in a $106 million settlement with Vanguard Marketing Corporation (VMC) and The Vanguard Group, Inc.

The settlement stems from Vanguard’s failure to properly supervise certain registered individuals and disclose potential tax consequences to investors following changes to investment minimums for target date retirement funds.

A three-year investigation, conducted through the North American Securities Administrators Association’s Enforcement Section Committee (NASAA) alongside the SEC, uncovered key missteps by Vanguard.

In 2020, Vanguard lowered investment minimums for its Institutional Target Retirement Funds (TRFs), prompting a mass shift of investors from the Investor TRF to the Institutional TRF. This large-scale movement led Vanguard to sell highly appreciated assets in the Investor TRF, triggering substantial capital gains taxes for hundreds of thousands of remaining investors. Vanguard failed to properly disclose these tax consequences before the changes occurred.

“This settlement underscores the importance of holding financial institutions accountable, especially when their actions impact the retirement savings of hard-working Montanans and investors nationwide,” said Commissioner Brown. “CSI is committed to working with other regulators and the SEC to uphold transparency and investor protection.”

Vanguard, a FINRA and state-registered broker-dealer, markets target retirement funds to investors in both tax-deferred and taxable accounts. Historically, capital gains distributions for Investor TRF shareholders were modest, but the 2020 shift resulted in unexpected tax liabilities.

The SEC’s Fair Fund program will notify impacted investors and administer compensation for those affected by capital gains taxes.

The Montana State Auditor, Commissioner of Securities and Insurance (CSI) oversees the regulation of the insurance and securities industries in Montana. James Brown, elected State Auditor in 2024, serves as an ex officio member of the Montana Board of Land Commissioners.

By: DNU staff

Filed Under: Featured, Home Featured, News

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