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WSJ: Vanguard To Pay $6 Million To Investors Hit With Big Tax Bills

Tuesday, July 12, 2022


By Paul Caron 1.1kShares

Following up on my previous posts:


A Vanguard Group subsidiary will pay about $6 million to Massachusetts investors who were whacked last year with unexpectedly painful tax bills.

Massachusetts securities regulators on Wednesday reached a $6.25 million settlement with Vanguard Marketing Corp., a subsidiary of Vanguard, following an investigation launched this year into changes the Malvern, Pa.-based financial giant made to its target-date funds.

Such funds are bundles of stocks, bonds and cash that automatically become more conservative as investors approach retirement. In January, The Wall Street Journal reported that big institutional clients abandoned some of Vanguard’s target funds in droves after the firm created an incentive for them to move their money to a different set of funds.

That forced the target funds to sell securities, generating capital gains, which by law must be distributed to the remaining holders. That didn’t affect small investors who held the target funds in retirement accounts, where gains aren’t currently taxed. But retail clients in taxable accounts were slammed with big tax bills. ...

As part of the settlement, Vanguard will establish a $5.5 million restitution account for eligible Massachusetts investors, the state’s Securities Division said. Vanguard also will cover $750,000 in costs for the state. In the agreement, Vanguard neither admitted nor denied wrongdoing.

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