Business Registration

STATE OF HAWAIʻI

KA MOKU ʻĀINA O HAWAIʻI

 

DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS

KA ʻOIHANA PILI KĀLEPA

BUSINESS REGISTRATION DIVISION

 

JOSH GREEN, M.D.

GOVERNOR

KE KIAʻĀINA

 

NADINE Y. ANDO

DIRECTOR

KA LUNA HOʻOKELE

TY Y. NOHARA

COMMISSIONER OF SECURITIES

 

DCCA JOINS $106 MILLION MULTISTATE SETTLEMENT WITH VANGUARD

 

FOR IMMEDIATE RELEASE

January 17, 2025

 

HONOLULU — The Department of Commerce and Consumer Affairs (DCCA), through its Securities Enforcement Branch, has joined a task force of state securities regulators and the United States Securities and Exchange Commission (SEC) in a $106 million settlement with Vanguard Marketing Corporation and The Vanguard Group, Inc. (collectively Vanguard). The settlement addresses Vanguard’s failure to supervise certain registered persons and disclose potential tax consequences to investors following a change in investment minimums for certain target date retirement funds.

 

The settlement stems from a three-year multistate task force investigation coordinated through the North American Securities Administrators Association’s Enforcement Section Committee and conducted in parallel with a concurrent SEC investigation.

 

The investigation revealed that in 2020, Vanguard lowered the investment minimums for its Institutional Target Retirement Funds (TRF). As a result of the lowered investment minimums, many retirement plan investors redeemed their Investor TRF shares to purchase Institutional TRF shares. The large number of redemptions caused Vanguard to sell highly appreciated assets in the Investor TRF, which triggered significant capital gains taxes for hundreds of thousands of retail investors who remained invested in the Investor TRF. Vanguard did not disclose the potential capital gains and tax implications to Investor TRF shareholders, which was a consequence of the migration of shareholders from the Investor TRF to the Institutional TRF.

 

“We are pleased that this settlement will result in relief to those Hawaiʻi investors who held Investor TRF, received taxable capital gains distributions in 2021 attributable to the Investor TRF, and paid significant capital gains taxes attributable to the Investor TRF,” said Commissioner of Securities Ty Y. Nohara.

 

The Vanguard Group, Inc. is the parent company of Vanguard Marketing Corporation, a FINRA- and state-registered broker-dealer. Vanguard markets and sells target retirement funds to investors who hold shares in qualified accounts that offer special tax treatment, including deferred taxes, as well as to investors who hold shares in taxable accounts. Historically, the amount of capital gains distributions and resulting tax liability for shareholders in Investor TRF has been modest.

 

The SEC will notify investors impacted by this action and will administer remediation payments through its Fair Fund program, to compensate them for the capital gains taxes incurred.

 

If you have questions or concerns about your investments or a financial professional, please contact the DCCA Securities Enforcement Branch at 808-586-2740.

 

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Media Contact:

Communications Office

Department of Commerce and Consumer Affairs

Phone: 808-586-2760

Email: [email protected]