Bulletin 3180 - January 31, 2025

State of Connecticut
Department of Banking

The Department of Banking News Bulletin

Bulletin # 3180 - Week Ending January 31, 2025

This Bulletin constitutes the only official notification you will receive from this office concerning any of the following applications. Any observations you may have are solicited. Any comments should be directed to Jorge L. Perez, Banking Commissioner. Written comments will be considered only if they are received within ten business days from the date of this bulletin.

SECURITIES AND BUSINESS INVESTMENTS DIVISION ACTIVITY

Vanguard Marketing Corporation (CRD No. 7552) and The Vanguard Group, Inc.
(CRD No. 105958)

On January 17, 2025, the Banking Commissioner announced that Connecticut had led a taskforce of state securities regulators in investigating the activities of Vanguard Marketing Corporation, a broker-dealer registered under the Connecticut Uniform Securities Act, and The Vanguard Group, Inc., a Securities and Exchange Commission-registered investment adviser and parent company of Vanguard Marketing Corporation. Each of the firms is located at 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. The state investigations were coordinated with a parallel investigation conducted by the U.S. Securities and Exchange Commission. The state investigations were conducted under the auspices of the North American Securities Administrators Association, Inc. Connecticut led the multistate investigations in coordination with the New York Attorney General’s Office and New Jersey’s Bureau of Securities.

The state and federal investigations uncovered evidence that the firms failed to supervise certain registered individuals and failed to disclose to investors the potential tax consequences of changing their investment minimums for certain target date retirement funds. More specifically, in 2020, Vanguard lowered the investment minimums for its Institutional Target Retirement Funds (TRFs). As a result of the lowered investment minimums, a large number of 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.

5,580 investors in Connecticut were affected. Remediation to those investors will be coordinated through the SEC which will notify affected investors and administer remediation through the SEC's Fair Fund program. Remediation will be accomplished based on each investor’s individual situation. Globally, the firms agreed to a $106 million settlement to resolve the issues.

Commissioner Perez emphasized that "This multistate settlement represents our ongoing efforts to protect Connecticut investors by conducting thorough investigations. 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.”

Dated: Tuesday, February 4, 2025

Jorge L. Perez
Banking Commissioner