Commonwealth of Pennsylvania Administrative Consent Order Regarding Vanguard Marketing Corporation and The Vanguard Group, Inc.

COMMONWEALTH OF PENNSYLVANIA
________________________________________ IN THE MATTER OF:
VANGUARD MARKETING CORPORATION
(CRD No. 7452), and THE VANGUARD
GROUP, INC. (CRD No. 105958)
Respondents.
ADMINISTRATIVE CONSENT
ORDER
BEFORE ERIC PISTILLI, DEPUTY SECRETARY OF THE DEPARTMENT OF BANKING AND SECURITIES Pursuant to the authority granted to ERIC PISTILLI, DEPUTY SECRETARY OF THE DEPARTMENT OF BANKING AND SECURITIES, COMMONWEALTH OF PENNSYLVANIA, under the PENNSYLVANIA SECURITIES ACT OF 1972, 70 P.S. §§ 1-101 et seq. 1972 Act statutory provisions set forth below, the ERIC PISTILLI, DEPUTY SECRETARY OF THE DEPARTMENT OF BANKING AND SECURITIES, COMMONWEALTH OF PENNSYLVANIA hereby finds that there is good cause, and it is in the public interest to enter n and The Vanguard Group, Inc. , which hereby agree to resolve any and all issues in controversy regarding the specific conduct described herein on the terms set forth in this Consent Order. WHEREAS, The Vanguard Group Inc. is registered with the as an investment adviser. VGI is one of the largest investment advisers in the world, is owned by its U.S. mutual funds, and provides FILED 2025 MAR 21 PM 3:20 PA DEPARTMENT OF BANKING AND SECURITIES Docket No. 250010 (SEC-ORD)

;
WHEREAS, (CRD No.7452), with a main address of 100 Vanguard Blvd., Malvern, Pennsylvania 19355, has been registered with COMMONWEALTH OF PENNSYLVANIA as a broker-dealer since APRIL 21, 1997. VMC maintains FOUR (4) branch office[s] in COMMONWEALTH OF PENNSYLVANIA. As an institutional brokerage firm, VMC offers portfolio management, financial planning and advisory services. VMC is a wholly-owned subsidiary of VGI; WHEREAS, parallel to a concurrent investigation conducted by the SEC, the North , with Connecticut, New Jersey, and New York among five other states, conducted an investigation into the circumstances surrounding the recommendation of VGI to , effective December 11, 2020, and the resulting capital gains tax distributions in December 2021 to shareholders of Investor TRFs s; WHEREAS, Vanguard has agreed to resolve the Investigation upon the terms specified in the Settlement Term Sheet executed as of January 15, 2025, between Vanguard and the participating NASAA jurisdictions, with all participating states and territories identified in WHEREAS, Vanguard consents to the form, content, and entry of this Consent Order; and WHEREAS, Vanguard neither admits nor denies the findings of fact contained herein; NOW, THEREFORE, the Bureau Chief, as administrator of the 1972 Act, hereby enters this Consent Order:

FINDINGS OF FACT

1. The Trust has been organized as a Delaware statutory trust since 1998. The Trust is
   registered with the SEC under the Investment Company Act as an open-end management investment company.
2. Except as otherwise expressly stated, the conduct described herein occurred during
   the approximate time period of December 1, 2019 . A. Reduction of the Institutional TRF Investment Minimum
3. Vanguard markets and distributes the TRFs to investors who hold TRF shares in
   qualified accounts that offer special tax treatment, including deferred taxes, as well as to investors who hold TRF shares in taxable accounts.
4. The TRFs are mutual fund investments designed for investors who plan to retire close
   . As an investor approaches the target retirement age, the TRFs moves toward more conservative investments.
5. During the Relevant Time Period, Vanguard marketed and distributed two suites of
   TRFs on behalf of the Trust: Institutional TRFs and Investor TRFs. Each suite offered 12 vintages of TRFs with different target retirement years. Each vintage of the Institutional and Investor TRFs distributed to shareholders virtually all of its net short- and long-term capital gains realized from . 6. During the Relevant Time Period, the Institutional TRFs had lower expense ratios than the Investor TRFs. Prior to December 2020, the investment minimum for the Institutional

TRFs was $100 million and the investment minimum for the Investor TRFs was $1,000.
7. VGI recoups the expenses it incurs for its investment advisory services to the Trust
from the expense ratios paid by TRF shareholders. VGI to ensure that any difference between the expense ratios and the costs VGI incurs to service the funds does not exceed certain guidelines.
8. By the middle of 2019, due in part to increased investments by small- and medium￾sized retirement plans, Investor TRF assets had grown substantially. The growth in assets resulted
in economies of scale that lowered VGI expenses in servicing the Investor TRFs, creating a gap between the expense ratios and VGI expenses. As a result, in early 2020 Vanguard formed a reduce the gap between the expense ratios and VGI expenses for the Investor TRFs, and to return value to shareholders.
9. VGI tasked the PWG with analyzing various options to return value to shareholders
and to recommend solutions to VGI Global Investment Committee which would in turn make a recommendation to the Trust . The PWG concluded its analysis in March 2020. At the time the PWG performed its analysis, the financial markets had suffered substantial losses due to the Covid-19 pandemic.
10. The PWG considered several options, but in October 2020 ultimately recommended
to the GIC lowering the minimum investment of the Institutional TRFs from $100 million to $5 million . In November 2020, the GIC which approved the change.
11. The PWG failed to update its March 2020 analysis regarding potential capital gains
impacts, or consider whether significant market appreciation could impact its evaluation of

potential capital gains or tax consequences from investors redeeming Investor TRF shares in 2021, when it made its recommendation to the GIC in October 2020. Thus, the GIC and the Board of Trustees relied on outdated data in approving the lowering of the Institutional TRF investment minimum. Accordingly, in making its recommendation to the GIC and ultimately to the Board of Trustees, the PWG failed to account for the significant market rebound that occurred between March and October 2020, and the potential for continued market appreciation, in its analysis of potential capital gains impacts to the Investor TRFs. As a result, the size of the capital gains distributions from the Investor TRFs in December 2021 was significantly larger than the PWG anticipated it would be based on market conditions in March 2020.
12. On December 11, 2020, Vanguard announced, via press release and Institutional TRF
prospectus supplement, the lowering of the investment minimum in Institutional TRFs from $100 million to $5 million, effective immediately.
13. After the December 11, 2020 announcement, and through the first half of 2021, a
substantial number of small- and medium-sized retirement plan investors in the Investor TRFs redeemed fund shares to switch to the Institutional TRFs due to the lower expense ratio. To meet these redemptions, the Investor TRFs had to sell underlying assets at elevated prices due to the rising financial markets that had rebounded from pandemic lows and reached new highs. As compared to prior years, the redemptions resulted in large capital gains distributions to investors holding the Investor TRFs in taxable accounts in December 2021.
14. In 2020, for example, Investor TRF shareholders holding the funds in taxable
accounts at Vanguard received long and short-term capital gains distributions of approximately $290 million. At the end of 2021, after VGI lowered the investment minimum for Institutional TRFs, Investor TRF shareholders holding the funds in taxable accounts at Vanguard received

approximately $2.5 billion in long- and short-term capital gains distributions. The TRFs distributed long and short-term capital gains to more than 16,271 COMMONWEALTH OF PENNSYLVANIA accounts.
15. In February 2022, the Trust merged the Investor and Institutional TRFs.
B. Supervisory System During the Relevant Time Period
16. The members of the PWG comprised individuals from various business groups
within Vanguard, including certain FINRA registered VMC agents. Among the options explored by the PWG was reducing the investment minimum of the Institutional TRFs, expense reductions, and merging the Institutional and Investor TRFs.
17. By March 2020, the PWG had identified that lowering the investment minimum of
the Institutional TRFs could potentially result in capital gains and tax consequences for shareholders holding the Investor TRFs in taxable accounts. The PWG estimated that approximately 5.79% or $17 billion of Investor TRF assets were held by investors in taxable accounts at Vanguard. The PWG further estimated that approximately 40% of total Investor TRF assets were held by investors in non-Vanguard brokerage accounts. Additionally, the PWG assumed that redemptions from the Investor TRFs would be staggered over time, potentially reducing the sale of assets to meet redemptions and related capital gains.
18. Merging the Institutional and Investor TRFs would have eliminated the gap
achieved with no capital gains or tax consequences for taxable investors, but the PWG decided not to recommend this option to the GIC because it would result in an immediate reduction in larger than the other options considered, and would s. The PWG determined that the potential capital gains and tax consequences to investors holding the Investor TRFs in

taxable accounts to lowering the investment minimum of the Institutional TRFs.
19. In March 2020, the PWG, including the FINRA registered VMC agents, settled on
the recommendation to reduce the Institutional TRF investment minimum from $100 million to $5 million and to also lower the Investor TRFs expense ratios.
20. On October 5, 2020, the PWG recommended to the GIC to lower the investment
minimum of the Institutional TRFs from $100 million to $5 million and to lower the Investor TRF expense ratios by 0.01% to 0.02%. The VMC agents who served on the PWG, however, failed to disclose to the GIC the risk that reducing the investment minimum of the Institutional TRFs could cause significant redemptions from the Investor TRFs, potentially resulting in high capital gains distributions and tax consequences for investors who held the Investor TRFs in taxable accounts.
21. VMC, through its registered agents, knew or should have known that reducing the
investment minimum for the Institutional TRFs could result in significant redemptions of shares from the Investor TRFs, and potential tax impacts in the form of historically large capital gains distributions to Investor TRF shareholders who held the funds in taxable accounts.
22. reasonably designed to ensure that the
registered VMC agents who served on the PWG would disclose to the GIC the risk that Investor TRF shareholders holding the funds in taxable accounts could potentially receive higher than usual capital gains distributions as a result of lowering the investment minimum for Institutional TRFs.
C. Potential Capital Gains Tax Consequences
23. VGI prepared the prospectuses for the Investor and Institutional TRFs, and
distributed the prospectuses to investors.
24. In the TRF prospectuses, VGI

25. However, VGI recommended lowering the Institutional TRF investment minimum
    in order to reduce expenses for a substantial number of small- and medium-sized retirement plans that would redeem Investor TRF shares to move to lower-cost Institutional TRFs. The resulting surge of redemptions in Investor TRFs, and historically high capital gains distributions, were not
26. Despite V knowledge that retail investors holding approximately 5.79% of
    Investor TRF assets could potentially experience substantially higher than normal capital gains distributions and taxes on those distributions, Vanguard failed to disclose this risk to investors, including in t December 11, 2020, press release.

CONCLUSIONS OF LAW
27. The preceding paragraphs are incorporated by reference as though set forth
verbatim herein.
28. Pursuant to 70 P.S. § 1-305 (a)(vii), it is a basis to deny, suspend, revoke, or
condition the registration of a registered broker-dealer firm that fails to establish and maintain a system to reasonably supervise its agents.
29. Pursuant to 70 P.S. § 1-301 (b), certain members of the PWG were registered agents
of VMC. The VMC registered agents knew or should have known of the risk that reducing the investment minimum for the Institutional TRFs could potentially result in higher than usual capital gains distributions to investors holding the Investor TRFs in taxable accounts and potentially cause adverse tax impacts on those investors.
30. VMC failed to have an adequate supervisory system to ensure that its agents
sufficiently communicated to the GIC the risk that investors holding the Investor TRFs in taxable accounts could potentially receive significant capital gains distributions and related tax obligations.
31. These failures by VMC constitute a failure to enforce a reasonably designed
supervisory system, which acts and conduct form a basis to deny, suspend, revoke, or condition the registration of VMC or to censure VMC pursuant to 70 P.S. § 1-305 (a)(vii). 32. resulting surge of redemptions from the Investor TRFs, and historically high capital gains distributions to shareholders of the Investor TRFs, were not normal investment activities and cash flows of the TRFs. potential for higher capital gains distributions

from lowering the investment minimum of the Institutional TRFs was materially misleading to investors holding Investor TRFs in taxable accounts.
33. Pursuant to 70 P.S. § 1-401 (b), it is a violation of the 1972 Act to
statement of a material fact or to omit to state a material fact necessary in order to make the . ORDER On the basis of the Findings of Fact, Conclusions of Law, and consent to the entry of this Order, IT IS HEREBY ORDERED:
34. Vanguard shall permanently cease and desist from conduct in violation of 70 P.S.
§ 1-301 (b); 70 P.S. § 1-305 (a)(vii); and 70 P.S. § 1-401 (b) as described herein;
35. On about January 15, 2025, Vanguard entered into the following settlement
agreements: (i) the Settlement Term Sheet; (ii) the Order Instituting Administrative and Cease￾and-Desist Proceedings against Vanguard Group, Inc., Admin. Proc. File No. 3-22435 with the SEC ; and (iii) the Assurance of Discontinuance, No. 25-003, with the Attorney General of the State of New York
36. Under the Settlement Agreements, Vanguard agreed to pay $135 million in
remediation to the SEC Fair Fund for the benefit of Harmed Investors . certain shareholders who held Investor TRFs as of December 28, 2021, in a taxable brokerage account at VMC, a taxable account directly through the VGI, or a taxable account through a third-party broker-dealer, and who received taxable capital

gains distributions in 2021 attributable to the Investor TRFs.1 Under the Settlement Agreements, Vanguard is entitled to receive the following offsets to the Remediation Payment:
i. the amount of $40 million for
class action against VGI and certain related parties pending in the U.S. District Court for the Eastern District of Pennsylvania captioned, In re Vanguard Chester Funds Lit., Case No. 2:22-cv-955-JFM, under a Stipulation of Settlement submitted by plaintiffs for preliminary and final Court approval
ii. the amount of $2.09 million for settlement of certain individual
investor arbitration claims filed or threatened to be filed against Vanguard or its affiliates before FINRA.
37. The total amount of remediation inclusive of the offsets in paragraph 36 is $92.91
million, which Vanguard paid into the Fair Fund on or about January 24, 2025.
38. In the event Vanguard does not pay the $40 million under the Class Action
Settlement, as a result of the termination or withdrawal of the Stipulation of Settlement or the Vanguard shall pay the $40 million into the Fair Fund within 10 days of such termination or rejection.
39. On or about January 24, 2025], Vanguard paid an administrative penalty of 1On July 6, 2022, the Massachusetts Securities Division and VMC entered into the Agreement and
changes to Institutional Vanguard Target-
- ts who held [Investor TRFs] as of
Agreement does not preclude Massachusetts investors who purchased through a broker dealer other than VMC from submitting claims to the SEC Fair Fund for the benefit of Harmed Investors and consistent with the SEC Order.

40. Pursuant to the terms of the SEC Order, Vanguard will pay disgorgement in the
    amount of $14,700,000, plus prejudgment interest in the amount of $3,500,000 into the SEC Fair Fund for distribution to Harmed Investors. These amounts in this paragraph 40 will be deemed 35-39 above.
41. Payment of the full Remediation Payment and the Penalty by Vanguard, less any
    offsets or credits to which Vanguard is entitled, concludes the investigation by DEPARTMENT OF BANKING AND SECURITIES into any other action that the DEPARTMENT OF BANKING AND SECURITIES could commence against Vanguard and its officers, directors, and present or former employees under applicable THE PENNSYLVANIA SECURITIES ACT OF 1972, 70 P.S. §§ 1-101 ET SEQ. on behalf of the COMMONWEALTH OF PENNSYLVANIA as it relates to the Findings of Fact and Conclusions of Law herein, provided however, that excluded from and not covered by this paragraph 41 are any claims by the DEPARTMENT OF BANKING AND SECURITIES contained herein.
42. If Respondents fail to comply materially with any of the terms set forth in this
    Order, DEPARTMENT OF BANKING AND SECURITIES may institute an action to have this Order declared null and void. In the event that a Jurisdiction believes that Respondents have defaulted in the performance of any obligation set forth in this Settlement, the Jurisdiction will provide written notice of such default to the designated representative of Respondents. Respondents shall then have fourteen (14) days to respond and an additional thirty (30) days to certify that any default has been cured, which periods may be extended by the Jurisdiction circumstances exist, the Jurisdiction will not initiate any civil action or other proceeding to enforce

or for violations of this Settlement until after the expiration of the Response and Cure Period. Upon issuance of an appropriate order, after a fair hearing, a Jurisdiction may reinstitute the actions and investigations referenced in this Settlement Term Sheet. CONSTRUCTION AND DEFAULT
43. This Order shall not (a) form the basis for any disqualifications of Respondent from
registration as a broker-dealer, investment adviser, or issuer under the laws, rules, and regulations of any state, or for any disqualification from relying upon the securities registration exemptions or safe harbor provisions to which Respondent or any of its affiliates may be subject under the laws, rules, and regulations of the settling states; or (b) form the basis for any disqualifications of Respondents under the laws of any state, the District of Columbia, Puerto Rico, or the U.S. Virgin Islands; under the rules or regulations of any securities or commodities regulator of self-regulatory organizations; or under the federal securities laws or the Commodity Exchange Act, including but not limited to, § 3(a)(39) of the Securities Exchange Act of 1934, Rule 262 of Regulation A and Rules 504 and 506(d) of Regulation D under the Securities Act of 1933 and Rule 503 of Regulation CF or safe harbor provisions; this Order is not a final order of any court; or (c) form the basis for disqualification of Respondent under the FINRA rules prohibiting continuance in membership or disqualification under other SRO rules prohibiting continuance in membership.
44. Except in an action by the DEPARTMENT OF BANKING AND SECURITIES to
enforce the obligations in this Order, this Order is not intended to be deemed or used as (a) an admission of, or evidence of, the validity of any alleged wrongdoing, liability, or lack of any wrongdoing or liability; or (b) an admission of, or evidence of, any such alleged fault or omission of Respondents in any civil, criminal, arbitration, or administrative proceeding in any court, administrative agency, or other tribunal. Nothing in this Order affects Respondents testimonial

obligations or right to take legal positions in litigation in which the DEPARTMENT OF BANKING AND SECURITIES is not a party. Evidence of any compromise offers and negotiations of the parties related to the Order, including the Order and its terms and any conduct or statements made during compromise negotiations, should not be used as evidence against any Party in any proceeding to prove or disprove the validity or amount of a disputed claim except in an action or proceeding to interpret or enforce the Order.
45. This Order shall be binding upon Respondents and their successors and assigns, as
well as to successors and assigns of relevant affiliates, with respect to all conduct subject to the provisions above and all future obligations, responsibilities, undertakings, commitments, limitations, restrictions, events, and conditions.