Illinois Residents Could Get Money as Part of $100M Settlement with Vanguard

About the Settlement

Some 9,000 Illinois residents could receive a chunk of a $106 million, multi-state settlement with mutual fund and retirement investor company Vanguard after a lawsuit said the company failed to disclose tax implications of its retirement fund, Illinois Secretary of State Alexi Giannoulis announced Wednesday.

According to the settlement, the Pennsylvania-based investment company – a popular choice among employers for employee retirement and investment accounts – failed to disclose potential tax consequences to users, which led to higher capital gains taxes for investors.

What Happened

In 2020, Vanguard lowered the investment minimum for its Institutional Target Retirement Funds, known as TRFs, from $100 million to $5 million. As a result, “a large number of retirement plan investors redeemed their Investor TRF shares to purchase Institutional TRF shares,” the announcement said.

The large number of redemptions ultimately 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.

Was Vanguard Wrong to Not Disclose?

According to Giannoulis, Vanguard did not disclose the potential capital gains and tax implications to shareholders.

What Is Being Done?

More than 40 states are part of the settlement, including Illinois, Indiana, Wisconsin, and Minnesota. The Securities Exchange Commission (SEC) will handle remediation payments and notify investors who were impacted.

How Do You Know If You Are Part of the Settlement?

According to Giannoulis, the SEC will notify investors who were impacted, and compensate them through its “Fair Fund” program.

It wasn’t immediately clear how much money investors could get, or when they might start seeing funds.

What’s Next?

The investigation, which ran for three years, was conducted parallel to a concurrent investigation by the U.S. Securities Exchange Commission. The outcome of the investigation is a welcome relief for those affected.

Conclusion

The Illinois Secretary of State’s office has secured a major victory for the state’s investors, and those affected by the settlement can now look forward to receiving compensation.

Frequently Asked Questions

Q: How many people in Illinois will receive money?
A: Around 9,000 Illinois residents could receive compensation.

Q: How much money will investors get?
A: It’s not clear yet. The SEC will notify investors through its “Fair Fund” program.

Q: When will investors start seeing funds?
A: It’s unclear when investors can expect to start receiving funds.