Central ND News

The North Dakota Securities Department has joined a multi-state settlement with Vanguard Marketing Corporation and The Vanguard Group Inc., amounting to $106 million. This settlement addresses issues related to supervision failures of certain registered persons and the nondisclosure of potential tax consequences to investors following changes in investment minimums for specific target date retirement funds.

This resolution results from a three-year investigation by a task force composed of state securities regulators and the U.S. Securities and Exchange Commission (SEC), coordinated through the North American Securities Administrators Association’s Enforcement Section Committee. A concurrent SEC investigation ran parallel to this effort.

In 2020, Vanguard reduced investment minimums for its Institutional Target Retirement Funds (TRFs). Consequently, many retirement plan investors switched from Investor TRF shares to Institutional TRF shares. This transition led Vanguard to sell appreciated assets in the Investor TRF, incurring significant capital gains taxes for retail investors who retained their investments in these funds. Vanguard failed to inform Investor TRF shareholders about these potential capital gains and tax implications arising from this shareholder migration.

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

Vanguard Group Inc., parent company of Vanguard Marketing Corporation, is a FINRA- and state-registered broker-dealer marketing target retirement funds to both tax-deferred qualified accounts and taxable account holders. Historically, capital gains distributions and associated tax liabilities for shareholders in Investor TRFs have been minimal. The SEC plans to notify affected investors and manage remediation payments via its Fair Fund program, compensating them for incurred capital gains taxes.

For inquiries or concerns regarding investments or financial professionals, individuals are encouraged to contact the North Dakota Securities Department at 701-328-2910.