Thousands of CT investors could receive part of $106 million settlement with Vanguard

Paul Schott, The Hour, Norwalk, Conn.Hour

Jan. 21—Several thousand people in Connecticut will be eligible to receive a share of a $106 million national settlement with investment-management giant Vanguard, which was accused of inadequately disclosing changes to certain retirement funds that led to unexpected capital-gains taxes for hundreds of thousands of investors.

In 2020, Vanguard encouraged customers to move from investor Target Retirement Funds (TRF) to equivalent institutional funds by lowering the investment minimums for the latter funds, according to state and federal officials, including the Connecticut Department of Banking. When many people sold their investor TRF shares to purchase institutional TRFs, hundreds of thousands of retail investors who were in the investor TRFs were hit with significant capital-gains taxes, state officials said. But Vanguard did not disclose to investors the tax implications of the moves between the TRFs, the officials also asserted.

About 5,580 individual investors in Connecticut were affected by the TRF changes, according to state Banking Department officials. Affected investors in Connecticut and other states will be notified by the Securities and Exchange Commission, which will administer the settlement to compensate investors for the capital-gains taxes related to the TRF changes, they said adding that settlement amounts have not yet been determined.

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Banking Department officials said they led a multi-state investigation of Vanguard that was coordinated with state officials in New York and New Jersey.

"This multi-state settlement represents our ongoing efforts to protect Connecticut investors by conducting thorough investigations," Jorge Perez, the state's banking commissioner, said in a statement. "Consumer and investor protection is a priority at the Department of Banking, and I am extremely proud that our securities team took a lead role in this multistate investigation and that their diligence will result in remediation for Connecticut investors harmed."

The SEC conducted a parallel probe of Vanguard. The company did not admit or deny the SEC's findings, agency officials said.

"Materially accurate information about capital gains and tax implications is critical to investors saving for their retirements," Corey Schuster, chief of the SEC's Division of Enforcement's Asset Management Unit, said in a statement. "Firms must ensure that they are accurately describing to investors the potential risks and consequences associated with their investments."

The Malvern, Pennsylvania-based Vanguard responded with a statement that said it was "committed to supporting the more than 50 million everyday investors and retirement savers who entrust us with their savings. We're pleased to have reached this settlement and look forward to continuing to serve our investors with world-class investment options."