Vanguard Fined $800K Over Misleading Account Info

Vanguard Group, the No. 2 exchange-traded fund company, was fined $800,000 and censured after a U.S. regulatory agency found the firm overstated projected yield and annual income for nine money market funds on some 8.5 million customer statements. 

The Financial Industry Regulatory Authority said in a May 25 ruling that while the problem was due to a technical glitch, Malvern, Pennsylvania-based Vanguard was slow to fix the error even after some 50 customers notified Vanguard about the discrepancy by phone and email. 

The ruling stated that between November 2019 and September 2020, Vanguard “overstated projected yield and projected annual income for nine money market funds on approximately 8.5 million VMC account statements.”  

Finra also determined that from at least October 2019 to June 2021, account statements inaccurately reported appreciation and depreciation, and investment returns. The company also didn’t address customer reports about the problems, and as a result “failed to reasonably supervise its account statements.” 

Vanguard neither admitted nor denied wrongdoing, while at the same time it accepted and consented to Finra’s findings. The problems didn’t affect the customers’ actual returns, and Vanguard has corrected the errors.  

Vanguard, which has 82 ETFs traded on the U.S. markets holding $2.02 billion, wrote in an email that “the firm is pleased to have resolved this matter.” and that “Vanguard continues to make significant investments to improve our client and digital experience.”  

From November 2019 to September 2020, Vanguard failed to update its yield data to calculate the information correctly, which caused the overstatement, according to Finra. As an example, In September 2020, Vanguard accounts displayed an estimated yield of 1.87%, instead of the accurate percentage of 0.06, about 30 times less. 

Among the other problems were that when Vanguard’s customers deposited funds into their account on the last business day of the month, the account’s personal performance part erroneously identified the new funds as a rise in market value rather than what it was—a deposit.  

The customers’ “Investment Return” calculation showed up as incorrect, too, when account statements inaccurately reflected margin credits and debit.  

For some “50 corporate actions (e.g., stock splits), Vanguard account statements inaccurately reported differences in the value of shares before and after the corporate action as a purchase or withdrawal instead of market appreciation or depreciation, which also caused the ‘Investment Return’ line to be inaccurate.” 

BlackRock Inc.’s iShares is the largest U.S. ETF issuer. 

Follow Michelle Lodge on Twitter @lodgemich