UNITED STATES OF AMERICA
Agency decision
Ask Donna
What actually matters in this document.
Text
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
ADMINISTRATIVE PROCEEDING
File No. 3-22435
In the Matter of
The Vanguard Group, Inc.
Respondent.
I.
:
:
:
:
:
:
:
PROPOSED PLAN OF
DISTRIBUTION
OVERVIEW
1.
The Division of Enforcement submits this Proposed Plan of Distribution (the
“Plan”) to the United States Securities and Exchange Commission (the “Commission”) pursuant
to Rule 1101 of the Commission’s Rules on Fair Fund and Disgorgement Plans (the
“Commission’s Rules”), 17 C.F.R. § 201.1101. This Plan provides for the distribution of a Fair
Fund (the “Fair Fund”) comprised of settlement proceeds and civil money penalties paid by The
Vanguard Group, Inc. (the “Respondent” or “Vanguard”) in the above-captioned matter. 1
2.
As described more specifically below, the Plan seeks to compensate investors
who were harmed by the Respondent’s misleading statements about tax consequences to
investors in non-tax-advantaged investment accounts in certain Vanguard target retirement
funds. Based on information obtained by the Commission staff during its investigation and the
review and analysis of applicable records, the Commission staff has reasonably concluded that it
has sufficient records necessary to calculate each investor’s harm. As a result, the Fair Fund is
not being distributed according to a claims-made process, so procedures for making and
approving claims in accordance with Rule 1101(b)(4) of the Commission’s Rules, 17 C.F.R.
§ 201.1101(b)(4), are not applicable.
3.
As calculated using the methodology detailed in the Plan of Allocation (attached
as Exhibit A), investors in non-tax-advantaged investment accounts were allocated excess capital
gains by certain Vanguard target retirement funds listed in Table A (“Securities”) on December
See Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Section 8A of the Securities
Act of 1933, Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, and Section 9(f) of the Investment
Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order,
Securities Act Rel. No. 11359 (Jan. 17, 2025) (the “Order”).
1
30, 2021, due to Vanguard’s misconduct. 2 Vanguard’s misconduct caused the Securities to
accrue excess capital gains from January 1, 2021, through December 28, 2021 (the “Relevant
Period”), which increased investors’ tax liability on the allocation date.
4.
In the view of the Commission staff, this methodology constitutes a fair and
reasonable allocation of the Fair Fund.
5.
The Commission has custody of the Fair Fund and will retain control of the assets
of the Fair Fund. The Plan is subject to approval by the Commission, and the Commission
retains jurisdiction over its implementation.
II.
BACKGROUND
6.
On January 17, 2025, the Commission issued the Order instituting and
simultaneously settling administrative and cease-and-desist proceedings against the Respondent.
In the Order, the Commission found that Vanguard made misleading statements concerning
potential tax consequences to investors in the Vanguard Investor Target Funds (“Investor
TRFs”). In November 2020, Vanguard made a recommendation to lower the minimum initial
investment amount for a separate series of Vanguard target date retirement funds designed for
institutional investors (“Institutional TRFs”) that resulted in historically larger capital gains
distributions and tax consequences for certain retail investors in the Investor TRFs who held
them in taxable accounts. Vanguard distributed misleading statements in prospectuses for
Investor TRFs, that failed to disclose the potential for increased capital gains distributions for
certain investors resulting from the redemptions of fund shares by newly eligible investors
switching from the Investor TRFs to the Institutional TRFs. The Commission further found that
Vanguard failed to adopt and implement written policies and procedures reasonably designed to
prevent violations of the Advisers Act and rules thereunder with respect to the accuracy of the
funds’ disclosures.
7.
The Commission created a Fair Fund, pursuant to Section 308(a) of the SarbanesOxley Act of 2002, so that funds awarded through this action and through settlements in related
actions with state regulators (“State Regulator Settlements”) could be distributed to harmed
investors. The State Regulator Settlements required, in part, that Vanguard pay $92.91 million to
the Fair Fund, pursuant to Section 308(b) of the Sarbanes-Oxley Act of 2002. This amount
included an offset of $40 million that Vanguard had offered to settle a related class action suit in
the Eastern District of Pennsylvania. 3 The State Regulator Settlements set forth that if Vanguard
did not pay this $40 million through the class action suit, then it would pay it to the Fair Fund.
The court in the class action suit rejected the settlement and therefore Vanguard was required to
pay the additional $40 million to the Fair Fund.
8.
The Commission ordered the Respondent to pay $14.7 million in disgorgement
and $3.5 million in prejudgment interest, which was deemed satisfied by Vanguard’s $92.91
All capital gains allocated by the Securities in calendar year 2021 had a record date of December 28, 2021, and a
payable date of December 30, 2021. Shares purchased after the record date did not receive the excess capital gains
allocated on December 30, 2021.
3
In re Vanguard Chester Funds Lit., Case No. 2:22-cv-955-JFM (E.D. Pa.).
2
2
million and subsequent $40 million payments. The Commission also ordered the Respondent to
pay a $13.5 million civil money penalty.
9.
The Respondent has paid in full the amount of $146.41 million (the $92.91
million remediation payment plus the $40 million additional remediation payment that was not
paid through a class action settlement and the $13.5 million civil penalty). The Fair Fund has
been deposited in a Commission-designated account at the U.S. Department of the Treasury (the
“Treasury”), and any interest accrued will be added to the Fair Fund.
III.
DEFINITIONS
As used in this Plan, the following definitions will apply:
10.
“Administrative Costs” means any administrative costs and expenses, including
without limitation tax obligations, the fees and expenses of the Tax Administrator and the Fund
Administrator, bond premium expenses, and investment and banking costs.
11.
“Certification Date” means the date established in accordance with this Plan by
which a Preliminary Claimant’s Certification Form must be postmarked or submitted
electronically in order to be eligible to participate in this distribution. The Certification Date will
be sixty (60) days from the mailing of the Plan Notice.
12.
“Certification Form” means the form that must be completed and signed by each
Preliminary Claimant attesting to their name, mailing address, tax identification and other related
information from the Preliminary Claimant as determined necessary by the Fund Administrator
in coordination with the Tax Administrator. By signing the Certification Form, the Preliminary
Claimant swears or affirms that all information provided is accurate and complete to the best of
their knowledge and that they are not an Excluded Party as defined in paragraph 16, below. The
Certification Form may require additional information from Preliminary Claimants including
additional trade data and may be accompanied by tax forms, as required, relating to the tax
treatment of any distribution. All references to the Certification Form in this Plan incorporate by
reference any tax forms or other supporting documentation requested in the Plan Notice. If a
Preliminary Claimant fails to submit a Certification Form by the Certification Date, the
Preliminary Claimant may not be eligible to receive a Distribution Payment.
13.
“Determination Notice” means the notice sent within forty-five (45) days of the
Certification Date to any Preliminary Claimant whose Certification Form is deficient, in whole
or in part. The Determination Notice will provide the reason(s) for the deficiency and in the
event the Preliminary Claimant has been deemed an Excluded Party, the Determination Notice
will state the reason(s) for such. The Determination Notice will also notify the Preliminary
Claimant of the opportunity to cure any deficiency or request reconsideration of the
determination made by the Fund Administrator and provide instructions regarding what is
required to do so.
14.
“Distribution Payment” means a payment from the Fair Fund to a Payee in
accordance with the terms of this Plan.
3
15.
“Eligible Claimant” means a Preliminary Claimant, who is determined to have
suffered a Recognized Loss, pursuant to the Plan of Allocation, and who is not an Excluded
Party or an Unresponsive Preliminary Claimant.
16.
“Excluded Party” means (a) the Respondent; (b) any present or former officers
or directors of the Respondent or any assigns, creditors, heirs, distributees, spouses, parents,
dependent children or controlled entities of any of the foregoing Persons or entities; (c) any
employee or former employee of the Respondent or any of their affiliates who have been
terminated for cause or has otherwise resigned, in connection with the conduct described in the
Order; (d) any Person who, as of the Certification Date, has been the subject of criminal charges
related to the conduct described in the Order or any related Commission action; (e) the Fund
Administrator, their employees, and those Persons assisting the Fund Administrator in their role
as the Fund Administrator; and (f) any purchaser or assignee of another Person’s right to obtain a
recovery from the Fair Fund for value; provided, however, that this provision will not be
construed to exclude those Persons who obtained such a right by gift, inheritance or devise.
17.
“Fair Fund” means the fund created by the Commission pursuant to Section
308(a) of the Sarbanes-Oxley Act of 2002, for the benefit of investors harmed by Respondent’s
violations described in the Order.
18.
“Final Determination Notice” means the written notice sent to notify each
Preliminary Claimant that they have been determined to be either (a) an Eligible Claimant and
confirm their calculated amount of Recognized Loss; or (b) an Unresponsive Preliminary
Claimant or an Excluded Party and are not eligible for a distribution. A Final Determination
Notice will not be sent to a Preliminary Claimant if their Plan Notice was returned as
“undeliverable.” The Final Determination Notice will constitute the Fund Administrator’s final
ruling regarding the eligibility status and loss calculation and is not subject to appeal.
19.
“Net Available Fair Fund” means the Fair Fund, plus any interest or earnings,
less Administrative Costs.
20.
“Payee” means an Eligible Claimant whose distribution amount calculates, in
accordance with the Plan of Allocation, to a distribution amount equal to or greater than $25.00,
who will receive a Distribution Payment.
21.
“Person” means natural individuals as well as legal entities such as corporations,
partnerships, or limited liability companies.
22.
“Plan Notice” means the written notice sent to each Preliminary Claimant
regarding the Commission’s approval of the Plan, including, as appropriate: a statement
characterizing the distribution; a link to the approved Plan posted on the Commission’s website
and instructions for requesting a copy of the Plan; the Certification Form, along with
specification of any information needed from the Preliminary Claimant to prevent him, her or it
from being deemed an Unresponsive Preliminary Claimant; his, her or its calculated Recognized
Loss; a description of the tax information reporting and other related tax matters; the procedure
4
for the distribution as set forth in the Plan; and the name and contact information for the Fund
Administrator as a resource for additional information or to contact with questions regarding the
distribution.
23.
“Plan of Allocation” means the methodology used by the Fund Administrator to
calculate if a Preliminary Claimant has suffered a Recognized Loss. The Plan of Allocation is
attached as Exhibit A.
24.
“Preliminary Claimant” means a Person, or their lawful successors, identified
by the Fund Administrator based on their review and analysis of applicable records obtained by
the Commission staff during and/or after its investigation, who may have suffered a loss as a
result of increased income tax liabilities from excess capital gains accrued during the Relevant
Period and allocated to them by the Securities on December 30, 2021; or those Persons who
request a Plan Notice, as described in paragraph 47, below, who are determined by the Fund
Administrator to have suffered a loss as a result of increased income tax liabilities from excess
capital gains accrued during the Relevant Period and allocated to them by the Securities on
December 30, 2021.
25.
“Recognized Loss” means the amount of loss calculated in accordance with the
Plan of Allocation.
26.
“Relevant Period” is January 1, 2021 through December 28, 2021.
27.
“Securities” means Vanguard Target Retirement Income Fund (VTINX),
Vanguard Target Retirement 2015, 2020, 2025, 2030, 2035, 2040, 2045, 2050, 2055, 2060,
and/or 2065 Funds (VTXVX, VTWNX, VTTVX, VTHRX, VTTHX, VFORX, VTIVX, VFIFX,
VFFVX, VTTSX, and VLXVX, respectively).
28.
“Unresponsive Preliminary Claimant” means (a) a Preliminary Claimant whose
address the Fund Administrator is not able to verify by the Certification Date; or (b) a
Preliminary Claimant who does not timely return the Certification Form and any other
information or documentation requested in the Plan Notice, or as specified in their Determination
Notice. Unresponsive Preliminary Claimants will not be eligible for a Distribution Payment.
IV.
TAX COMPLIANCE
29.
On May 9, 2025, the Commission appointed Miller Kaplan Arase LLP as the tax
administrator (the “Tax Administrator”) for the Fair Fund to handle the tax obligations of the
Fair Fund. 4 The Tax Administrator will be compensated for reasonable fees and expenses from
the Fair Fund in accordance with their 2025 Engagement Letter Agreement with the
Commission.5
See Order Appointing Tax Administrator, Exchange Act Rel. No. 103020 (May 9, 2025).
See Omnibus Order Extending the Engagement of Two Tax Administrators for Appointment on a Case-By-Case
Basis in Administrative Proceedings that Establish Distribution Funds, Exchange Act Rel. No. 101986 (Dec. 19,
2024).
4
5
5
30.
The Fair Fund constitutes a Qualified Settlement Fund (“QSF”) under Section
468B(g) of the Internal Revenue Code of 1986, as amended, 26 U.S.C. § 468B(g), and related
regulations, 26 C.F.R. §§ 1.468B-1 through 1.468B-5. The Tax Administrator is the
administrator of such QSF for purposes of Treas. Reg. § 1.468B-2(k)(3)(I) and will satisfy the
tax-related administrative requirements imposed by Treas. Reg. § 1.468B-2, including, but not
limited to:
(a)
Obtaining a taxpayer identification number;
(b)
Requesting funds necessary for the timely payment of all applicable taxes,
the payment of taxes for which the Tax Administrator has received funds,
and the filing of applicable returns; and
(c)
Fulfilling any information reporting or withholding requirements imposed
on distributions from the Fair Fund, including but not limited to Foreign
Account Tax Compliance Act (FATCA).
31.
All tax obligations will be paid from the Fair Fund, subject to the review and
approval of Commission staff.
V.
FUND ADMINISTRATOR
32.
On March 2, 2026, the Commission appointed Simpluris as the fund administrator
for the Fair Fund (the “Fund Administrator”), and the Fund Administrator has obtained a bond in
the amount of $146,410,000, as ordered. 6 Pursuant to Rule 1105(a) of the Commission’s Rules,
17 C.F.R. § 201.1105(a), the Fund Administrator may be removed at any time by order of the
Commission or hearing officer.
33.
The Fund Administrator will be responsible for administering the Fair Fund in
accordance with the Plan.
34.
To carry out the purposes of this Plan, the Fund Administrator is authorized to
make and implement immaterial changes to the Plan upon agreement of the Commission staff. If
a change is deemed to be material by the Commission staff, Commission approval is required
prior to implementation by amending the Plan.
35.
The Fund Administrator may extend any procedural deadline contained in the
Plan for good cause shown, if agreed upon by the Commission staff.
36.
When administering this Plan, the Fund Administrator, and its designees, agents
and assigns, may rely on: all applicable law; orders issued by the Commission, including orders
issued by delegated authority; orders issued by an administrative law judge, if any, appointed in
this proceeding; and any records, including records containing investor information, provided by
Commission staff.
See Order Appointing Fund Administrator, Setting Administrator's Bond Amount, and Authorizing the Approval
and Payment of the Fees and Expenses of Administration, Exchange Act Rel. No. 104916.
6
6
37.
The Fund Administrator is authorized to enter into agreements with third parties
as may be appropriate or necessary in the administration of the Fair Fund, provided such third
parties are not excluded pursuant to other provisions of this Plan. In connection with such
agreements, the third parties will be deemed to be agents of the Fund Administrator under this
Plan.
38.
The Fund Administrator will be entitled to payment from the Fair Fund of
reasonable fees and expenses, including the bond premium, incurred in the performance of their
duties (including any such fees and expenses incurred by agents, consultants or third parties
retained by the Fund Administrator in furtherance of their duties).
VI.
PLAN PROCEDURES
Specification of Preliminary Claimants
39.
Using information obtained during and/or after its investigation, the Commission
staff have identified the Preliminary Claimants. Preliminary Claimants are limited to only those
Persons who may have suffered a loss as a result of increased income tax liabilities from excess
capital gains accrued during the Relevant Period and allocated to them by the Securities on
December 30, 2021.
40.
The Fund Administrator will use its best efforts to contact broker-dealers and
investment advisors to seek additional information about Preliminary Claimants as necessary to
supplement incomplete information obtained as described in the above paragraph.
Procedures for Locating and Notifying Preliminary Claimants
41.
Within forty-five (45) days of Commission approval of the Plan, the Fund
Administrator will:
(a)
Establish and maintain a website, www.VanguardSECFairFund.com,
devoted solely to the Fair Fund. The Fair Fund’s website will make
available a copy of the approved Plan, include a copy of the Plan Notice
and Certification Form, and related materials in downloadable form, and
such other information that the Fund Administrator believes will be
beneficial to Preliminary Claimants;
(b)
Establish and maintain a toll-free telephone number, (866) 221-3033, for
Preliminary Claimants to call and speak to a live representative of the
Fund Administrator during their regular business hours or, outside of such
hours, to hear pre-recorded information about the Fair Fund;
(c)
Establish and maintain a traditional mailing address, P.O. Box 25417
Santa Ana CA 92799 and an email address,
info@VanguardSECFairFund.com, which will be listed on all
7
correspondence from the Fund Administrator to Preliminary Claimants as
well as on the Fair Fund’s website;
(d)
Establish and maintain a case specific database of all Preliminary
Claimants based upon information provided to and obtained by the Fund
Administrator, including their last known physical and email addresses;
(e)
Run a National Change of Address search to retrieve updated addresses
for all records in the database, thereby ensuring the mailing information
for Preliminary Claimants is up to date; and
(f)
Send a Plan Notice and Certification Form to each Preliminary Claimant’s
last known email address (if known) and/or mailing address.
42.
The Fund Administrator will publish the Summary Notice on the internet and/or
in print media acceptable to the Commission staff one (1) time and it will appear within ten (10)
days of the initial mailing of the Plan Notice.
43.
The Commission staff retains the right to review and approve any material posted
on the Fair Fund’s website, any communication with investors, and any scripts used in
connection with communications with investors.
Undeliverable Mail
44.
The Fund Administrator will attempt to locate any Preliminary Claimant whose
mailing is returned as “undeliverable” and will document all such efforts. The Fund
Administrator will use their best efforts to make use of commercially available resources and
other reasonably appropriate means to obtain updated addresses in response to “undeliverable”
notices and forward any returned mail for which an updated address is provided or obtained.
The Fund Administrator will make available, upon request by the Commission staff, a list of all
Preliminary Claimants whose Plan Notice have been returned as “undeliverable” due to incorrect
addresses and for which the Fund Administrator has been unable to locate current addresses. If
the mailing is returned again, and the Fund Administrator, despite best practicable efforts, is
unable to find a Preliminary Claimant’s correct address, the Fund Administrator, in their
discretion, may deem such Preliminary Claimant an Unresponsive Preliminary Claimant.
45.
The Fund Administrator, with Commission staff approval, may engage a third
party search firm to conduct more rigorous searches for Persons whose mailings are returned as
undeliverable.
46.
Any Preliminary Claimant who relocates or otherwise changes contact
information after receipt of the Plan Notice must promptly communicate any change in address
or contact information to the Fund Administrator.
Procedures to Request Plan Notice
8
47.
Any Person who does not receive a Plan Notice and Certification Form, but is
aware of this Plan (e.g., through other Preliminary Claimants or on www.sec.gov) and believes
they should be included as a Preliminary Claimant should contact the Fund Administrator within
seventy-five (75) days from the approval of the Plan to establish that they should be considered a
Preliminary Claimant. Such Person should include with that communication, documentation
sufficient to support their assertion that they should be considered a Preliminary Claimant, as
well as contact information (physical address, telephone number, and email address, if available)
for responsive communications. The Fund Administrator will send the Person a Plan Notice and
Certification Form within fifteen (15) days of receiving the Person’s documentation, if the Fund
Administrator determines that the Person should be classified as a Preliminary Claimant.
Certification Requirement and Failure to Respond to Plan Notice
48.
To maintain classification as a Preliminary Claimant, a completed Certification
Form, together with all supporting documentation as requested in the Plan Notice, must be
signed by the Preliminary Claimant and returned to the Fund Administrator by the Certification
Date. The Certification Form must be executed by the Preliminary Claimant, unless the Fund
Administrator accepts such Certification Form from a successor, heir, administrator, or other
Person authorized to act on the Preliminary Claimant’s behalf. Those authorized to act on behalf
of a Preliminary Claimant will be eligible to participate in the distribution to the same extent the
original investor would have been eligible under the terms of the Plan.
49.
The Fund Administrator will review all Certification Forms. Each Preliminary
Claimant has the burden of proof to establish their identity as a Preliminary Claimant or their
successor. The Fund Administrator may request, and the Preliminary Claimant has the burden of
providing, any additional information and/or documentation deemed relevant by the Fund
Administrator.
50.
If a Preliminary Claimant fails to return the Certification Form or any requested
supporting documentation within sixty (60) days from the initial mailing of the Plan Notice, the
Fund Administrator will make no fewer than two attempts to contact the Preliminary Claimant
by mail, telephone or email, if known. The second attempt will in no event take place more than
ninety (90) days from the initial mailing of the Plan Notice. If a Preliminary Claimant fails to
respond to the Fund Administrator’s contact attempts as described in this paragraph, the Fund
Administrator, in its discretion, may deem such Preliminary Claimant an Unresponsive
Preliminary Claimant.
Dispute Process
51.
Disputes will be limited to calculation of Recognized Loss. If a Preliminary
Claimant disagrees with the Recognized Loss listed in the Plan Notice, such dispute must be
detailed on the Certification Form and returned to the Fund Administrator along with any
supporting documentation by the Certification Date. The Fund Administrator will investigate the
dispute, and such investigation will include a review of the written dispute as well as any
supporting documentation.
9
Review of Certification Forms and Deficiency Process
52.
The Fund Administrator will provide a Determination Notice within forty-five
(45) days of the Certification Date to any Preliminary Claimant whose Certification Form is
deficient, in whole or in part. The Determination Notice will provide the reason(s) for the
deficiency and in the event the Preliminary Claimant is determined to be an Excluded Party, the
Determination Notice will state the reason(s) for such. The Determination Notice will also
notify the Preliminary Claimant of the opportunity to cure any deficiency or request
reconsideration of the determination made by the Fund Administrator and provide instructions
regarding what is required to do so.
53.
Any Preliminary Claimant with a deficient Certification Form or missing required
documentation will have thirty (30) days from the date of the Determination Notice to cure any
deficiencies identified in the Determination Notice.
54.
Any Preliminary Claimant seeking reconsideration of the Fund Administrator’s
determination made in the Determination Notice must advise the Fund Administrator in writing
within thirty (30) days of the date of the Determination Notice. All requests for reconsideration
must include the necessary documentation to substantiate the basis upon which the Preliminary
Claimant is requesting reconsideration of the Fund Administrator’s determination.
55.
The Fund Administrator has the authority, in their sole discretion, to waive
technical deficiencies in the Certification Form.
Final Determination Notices
56.
The Fund Administrator will make their final eligibility determination only after
reviewing timely responses received to the Determination Notices and investigating any disputes
indicated on the Certification Forms regarding the Recognized Losses listed in the Plan Notices.
57.
Within one hundred twenty (120) days of the Certification Date, a Final
Determination Notice will be sent to notify each Preliminary Claimant of their final eligibility
determination. The Final Determination Notice will notify each Preliminary Claimant that they
have been determined to be either (a) an Eligible Claimant and confirm their calculated
Recognized Loss; or (b) an Unresponsive Preliminary Claimant or an Excluded Party and are not
eligible to receive a Distribution Payment. A Final Determination Notice will not be sent to a
Preliminary Claimant if their Plan Notice was returned as “undeliverable.” The Final
Determination Notice will constitute the Fund Administrator’s final ruling regarding the
eligibility status and loss calculation and is not subject to appeal.
Distribution Methodology
58.
The Fund Administrator will calculate each Preliminary Claimant’s Recognized
Loss in accordance with the Plan of Allocation. All Preliminary Claimants who are determined
to have a Recognized Loss, and who are not deemed an Excluded Party or an Unresponsive
Preliminary Claimant will be deemed Eligible Claimants.
10
59.
No Distribution Payments will be made for less than $25.00. If an Eligible
Claimant’s distribution amount, in accordance with the Plan of Allocation, calculates to a
distribution amount less than $25.00, that Eligible Claimant will be deemed ineligible to receive
a Distribution Payment and their distribution amount will be reallocated on a pro-rata basis to
Eligible Claimants whose distribution amounts are greater than or equal to $25.00. All Eligible
Claimants whose Recognized Loss calculates to a distribution amount equal to or greater than
$25.00 will be deemed a Payee and receive a Distribution Payment.
Establishment of a Reserve
60.
Before determining the amount of funds available for distribution and calculating
each Payee’s Distribution Payment, the Fund Administrator, in conjunction with the Tax
Administrator, will establish a reserve to pay Administrative Costs and to accommodate any
unexpected expenditures (the “Reserve”).
61.
After all Distribution Payments are made and Administrative Costs paid, any
remaining amounts in the Reserve will become part of the Residual described in paragraph 83.
Preparation of the Payment File
62.
Within one hundred eighty (180) days of Commission approval of the Plan, the
Fund Administrator will compile and send to the Commission staff the Payee information,
including the name, address, calculated Recognized Loss, and the amount of the Distribution
Payment for all Payees (the “Payee List”). The Fund Administrator will also provide a
Reasonable Assurances Letter to the Commission staff, representing that the Payee List: (a) was
compiled in accordance with the approved Plan; (b) is accurate as to Payees’ names, addresses,
Recognized Losses and amounts of their Distribution Payment; (c) includes the number of
Payees compensated; (d) the percentage of the Payee’s Recognized Loss being compensated by
the disbursement from the Fair Fund, and if applicable, the total percentage to include all prior
disbursements; (e) the total amount of funds to be disbursed, and if applicable, the total amount
of such funds to be withheld pursuant to paragraph 72; and (f) provides all information necessary
to make a payment to each Payee.
The Escrow Account
63.
Prior to the disbursement of funds from the Net Available Fair Fund, the Fund
Administrator will establish an escrow account (the “Escrow Account”) with a United States
commercial bank that is a well-capitalized financial institution as defined by the Federal Reserve
Act, Subpart D, 12 C.F.R. § 208.43 and that is not unacceptable to the Commission staff (the
“Bank”), pursuant to an escrow agreement (the “Escrow Agreement”) to be provided by
Commission staff.
64.
The Fund Administrator, pursuant to the Escrow Agreement, will also establish
with the Bank a separate deposit account (e.g., controlled distribution account, managed
distribution account, linked checking and investment account) (the “Distribution Account”),
11
insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the guaranteed FDIC pass
through limit. The Distribution Account will be linked with the Escrow Account and will be
named, and records maintained, in accordance with the Escrow Agreement.
65. During the term of the Escrow Agreement, the portions of the Fair Fund transferred
to the Escrow Account (the “Escrow Property”) will be invested and reinvested in short-term
U.S. Treasury securities backed by the full faith and credit of the U.S. Government or an agency
thereof. The investment will be, of a type and term necessary to meet the cash liquidity
requirements for payments to Payees and to pay Administrative Costs, including investment or
reinvestment in a bank account insured by the FDIC up to the guaranteed FDIC limit, or in
money market mutual funds registered under the Investment Company Act of 1940 that invest
100% of their assets in direct obligations of the U.S. Government.
66. The Fund Administrator will provide duplicate original bank and/or investment
statements on any accounts established by the Fund Administrator to the Tax Administrator on a
monthly basis and will assist the Tax Administrator in obtaining mid-cycle statements, as
necessary.
67. The Fund Administrator, in consultation with the Commission staff, will work with
the Bank on an ongoing basis to deposit or invest funds in the Escrow and Distribution Accounts
so as to result in the maximum reasonable net return, taking into account the safety of such
deposits or investments and tax implications; and to determine an allocation of funds between the
Escrow and Distribution Account.
68.
All interest, dividends, and/or income earned by the Escrow Property will accrue
for the benefit of the Escrow Property. All Administrative Costs associated with the Escrow and
Distribution Accounts will be the responsibility of the Fund Administrator, who may be
reimbursed for said costs as provided in this Plan. No such Administrative Costs may be paid to
the Bank, their agents, or their affiliates from the Escrow Property.
Distribution of the Fair Fund
69.
Upon the Commission’s staff’s receipt, review, and acceptance of the Payee List
and Reasonable Assurances Letter from the Fund Administrator, the Commission staff will seek
an order from the Commission pursuant to Rule 1101(b)(6) of the Commission’s Rules, 17
C.F.R. § 210.1101(b)(6), to disburse funds from the Net Available Fair Fund to the Bank in
accordance with the Payee List for distribution by the Fund Administrator in accordance with the
Plan. All disbursements will be made pursuant to a Commission Order.
70.
Upon issuance of an order to disburse, the Commission staff will direct the
transfer of funds in accordance with the Payee List to the Bank. The Fund Administrator will
then use their best efforts to commence mailing Distribution Payment checks and/or effect
electronic payments within ten (10) business days of the release of the funds into the Escrow
Account. All efforts will be coordinated to limit the time between the Escrow Account’s receipt
of the funds and the issuance of Distribution Payments.
12
71.
All checks will be issued by the Fund Administrator from the Distribution
Account. All checks will bear a stale date of ninety (90) days from the date of issuance.
Reissuance of a check must be requested before the stale date, and such request is governed by
paragraph 77.
72.
All Distribution Payments will be preceded or accompanied by a communication
that includes, as appropriate: (a) a statement characterizing the distribution; (b) a statement that
the tax treatment of the distribution is the responsibility of each Payee and that the Payee should
consult their tax advisor for advice regarding the tax treatment of the distribution; however, any
backup withholding required under IRC § 3406(a) and the regulations promulgated thereunder,
or withholding required with respect to nonresident aliens (“NRAs”) under Chapter 3 of the IRC,
or FATCA-subject Payees under Chapter 4 of the IRC, will be withheld as required from the
Distribution Payment and remitted to the Internal Revenue Service on the Payee’s behalf; (c) a
statement that checks will be void and cannot be reissued after ninety (90) days from the date the
original check was issued; and (d) contact information for the Fund Administrator for questions
regarding the Distribution Payment. The letter or other mailings to Payees characterizing a
Distribution Payment will be prepared by the Tax Administrator and provided to the
Commission staff for review and approval.
73.
All Distribution Payments, either on their face or in the accompanying mailing,
will clearly indicate that the money is being distributed from the Fair Fund established by the
Commission to compensate investors for harm as a result of securities law violations.
74.
At the discretion of the Fund Administrator, certain costs that were not factored
into the Reserve, such as bank fees for the return of a payment, may reduce the Payee’s
Distribution Payment. In such situations, the Fund Administrator will immediately notify the
Tax Administrator of the reduction in the Distribution Payment.
75.
Bank fees charged by the intermediary or designation bank selected by the Payee
may reduce a Payee’s Distribution Payment.
Post Distribution; Handing of Returned or Uncashed Checks; and Reissues
76.
The Fund Administrator will use their best efforts to make use of commercially
available resources and other reasonably appropriate means to locate all Payees whose checks
are returned to the Fund Administrator as “undeliverable.” If new address information becomes
available, the Fund Administrator will repackage the distribution check and send it to the new
address. If, within ninety (90) days of the initial mailing of the distribution check, new address
information is not available after a diligent search or if the distribution check is returned again,
the Fund Administrator will void the distribution check, and at the discretion of the Fund
Administration the Payee may be removed from the distribution and the allocated Distribution
Payment will remain in the Fair Fund for distribution, if feasible, to the remaining Payees.
77.
The Fund Administrator will reissue distribution checks to Payees upon the
receipt of a valid, written request from the Payee prior to the initial stale date. In cases where a
Payee is unable to endorse a distribution check as written (e.g., name changes, IRA custodian
13
changes, or recipient is deceased) and the Payee or a lawful representative requests the
reissuance of a distribution check in a different name, the Fund Administrator will request, and
must receive, documentation to support the requested change. The Fund Administrator will
review the documentation to determine the authenticity and propriety of the change request. If,
in the discretion of the Fund Administrator, such change request is properly documented, the
Fund Administrator will issue an appropriately redrawn distribution check to the requesting
party. Reissued checks will be void at the later of ninety (90) days from issuance of the original
check or thirty (30) days from the reissuance, and in no event will a check be reissued after stale
date of the original check without the approval of Commission staff.
78.
The Fund Administrator will work with the Bank and maintain information about
uncashed checks and any returned items due to non-delivery, insufficient addresses, and/or other
deficiencies. The Fund Administrator is responsible for researching and reconciling errors and
reissuing payments when possible. The Fund Administrator is also responsible for accounting
for all payments. The amount of all uncashed and undelivered payments will continue to be held
in the Fair Fund.
79.
The Fund Administrator will make and document their best efforts to contact
Payees to follow-up on the status of uncashed distribution checks over $100 (other than those
returned as “undeliverable”) and take appropriate action to follow-up on the status of uncashed
checks at the request of Commission staff. The Fund Administrator may reissue such checks,
subject to the time limits detailed herein. If a distribution check remains uncashed after the stale
date the Fund Administrator will instruct the Bank to issue a stop payment on the distribution
check. The Fund Administrator, in their discretion, may remove such Payee from the
distribution, and the allocated Distribution Payment will remain in the Fair Fund for distribution,
if feasible, to the remaining Payees.
Administrative Costs
80.
All Administrative Costs will be paid from the Fair Fund in accordance with the
Commission’s Rules. Upon completion of the final distribution, the Fund Administrator will
make arrangements, in consultation with the Commission staff, for the final payment of all
Administrative Costs.
Receipt of Additional Funds
81.
Should any additional funds be received pursuant to Commission or Court order,
agreement, or otherwise, prior to the Commission’s termination of the Fair Fund, such funds will
be added to the Fair Fund and distributed, if feasible, in accordance with the Plan, pursuant to the
Commission’s Rules.
Disposition of Undistributed Funds
82.
If funds remain following the initial distribution, the Fund Administrator, in
consultation with the Commission staff, may seek subsequent distribution(s) of any available
remaining funds, in a manner consistent with this Plan and in accordance with the Commission’s
14
Rules.
83.
A residual within the Fair Fund will be established for any amounts remaining
after the final disbursement to Payees from the Fair Fund (the “Residual”). The Residual may
include funds from, among other things, amounts remaining in the Reserve, distribution checks
that have not been cashed, checks or electronic payments that were not delivered or were
returned to the Commission, and tax refunds due to the Fair Fund’s overpayment of taxes or for
waiver of IRS penalties.
84.
Within one hundred eighty (180) days of the stale date of the distribution
payments, the Fund Administrator, in consultation with the Commission staff, will determine
whether further distribution of the Fair Fund to investors is feasible. Within 10 days of the
determination that further distribution is infeasible, the Fund Administrator will direct the Bank
to stop payment on all uncashed Distribution Payments, and within 45 days, the Fund
Administrator will return any funds remaining in the Escrow and Distribution Accounts to the
Commission to become part of the Residual.
85.
All funds remaining in the Residual that are infeasible to distribute to investors
will be returned to the Commission and transferred to the Treasury, subject to Section 21F(g)(3)
of the Securities Exchange Act of 1934 (the “Exchange Act”), after the final accounting is
approved by the Commission.
Accountings
86.
In accordance with Rule 1105(f) of the Commission’s Rules, during the first 10
days of each calendar quarter after funds have been transferred to the Bank, the Fund
Administrator will file with the Commission, on a standardized accounting form provided by the
Commission staff, an accounting of all monies earned or received and all monies spent in
connection with the administration of the Plan.
87.
Upon completion of all distributions to Payees and the payment of all
Administrative Costs pursuant to the procedures described above, the Fund Administrator will
submit a final accounting for approval by the Commission on a standardized form provided by
the Commission staff. The Fund Administrator will also submit a report to the Commission staff
containing the final distribution statistics regarding distributions to individuals and entities, and
such other information requested by the Commission staff.
Wind-down and Document Retention
88.
The Fund Administrator will shut down the website, P.O. Box and customer
service telephone line(s) established specifically for the administration of the Fair Fund upon the
transfer of any remaining funds to the Commission, as described in paragraph 85, above.
89.
The Fund Administrator will retain all materials submitted by Preliminary
Claimants in either paper or electronic form for a period of 6 years from the date of approval of a
final fund accounting. Materials maintained in electronic form must be accessible and readable
15
for the duration of retention. Pursuant to the Commission staff's direction, the Fund
Administrator will either turn over to the Commission or destroy all materials, including
documents in any media, upon expiration of this period.
Termination of the Fair Fund
90.
The Fair Fund will be eligible for termination and the Fund Administrator will be
eligible for discharge after all of the following have occurred (a) a final accounting, in a standard
accounting format provided by the Commission staff, has been submitted by the Fund
Administrator and approved by the Commission; (b) all Administrative Costs have been paid;
and (c) any amount remaining in the Fair Fund has been returned to the Commission for transfer
to Treasury. Once the Commission has approved the final accounting, the Commission staff will
seek an order from the Commission authorizing: (a) the transfer of the Residual that is infeasible
to return to investors, and any amounts returned to the Fair Fund in the future that is infeasible to
return to investors, to the general fund of the Treasury, subject to Section 21F(g)(3) of the
Exchange Act; (b) discharge of the Fund Administrator; (c) cancellation of the Fund
Administrator’s bond; and (d) termination of the Fair Fund.
VII.
NOTICE OF PROPOSED PLAN AND OPPORTUNITY FOR COMMENT
91.
The Notice of the Proposed Plan of Distribution and Opportunity for Comment
(the “Notice”) will be published on the Commission’s website
https://www.sec.gov/litigation/fairfundlist.htm. Any Person wishing to comment on the Plan
must do so in writing by submitting their comments within 30 days of the date of the Notice (a)
to the Office of the Secretary, United States Securities and Exchange Commission, 100 F Street,
N.E., Washington, D.C. 20549-1090; (b) by using the Commission’s Internet comment form
(https://www.sec.gov/litigation/admin.shtml); or (c) by sending an e-mail to rulecomments@sec.gov. Comments submitted by e-mail or via the Commission’s website should
include “Administrative Proceeding File No. 3-22435 in the subject line. Comments received
will be publicly available. Persons should only submit comments that they wish to make
publicly available.
16
Exhibit A
PLAN OF ALLOCATION
This Plan of Allocation 1 is designed to compensate investors in non-tax-advantaged investment
accounts who were allocated excess capital gains by certain Vanguard target retirement funds listed in
Table A (“Securities”) on December 30, 2021, due to Vanguard’s misconduct. 2 Vanguard’s misconduct
caused the Securities to accrue excess capital gains from January 1, 2021, through December 28, 2021
(the “Relevant Period”), 3 which increased investors’ tax liability on the allocation date. Shares of the
Securities (1) purchased on or after December 29, 2021, (2) held in a tax-advantaged account, or (3) held
by an Excluded Party are ineligible to recover under this Plan.
During its investigation, Commission staff obtained the following information to be used in
calculating the estimated value of the income tax liabilities on excess capital gains allocated to each
Preliminary Claimant: 4
•
•
•
For each share of a Security, the dollar amount of the excess short-term and long-term
capital gains allocated to that Security for tax year 2021 and attributed to the misconduct
of the Respondent (“Excess ST Capital Gains” and “Excess LT Capital Gains”,
respectively).
For each share of a Security, the “Present Value Factor” for discounting taxes that would
have been paid in the future back to their value as of December 28, 2021. The Present
Value Factor for each Security is (1 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅)𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 , where Discount
Rate is the Security’s expected annual return 5 and Holding Period is the expected number
of years until the capital gains would have been allocated absent the misconduct.
For each US state and territory, the highest marginal state income tax rate and federal
income tax rate on short-term capital gains for tax year 2021. The combined state and
federal rates are the “ST Tax Rate.” 6 The Fund Administrator will assign each
Preliminary Claimant a ST Tax Rate according to the claimant’s residence in 2021.
All capitalized terms used herein but not defined shall have the same meanings ascribed to them in the Plan.
All capital gains allocated by the Securities in calendar year 2021 had a record date of December 28, 2021, and a
payable date of December 30, 2021. Shares purchased after the record date did not receive the excess capital gains
allocated on December 30, 2021.
3
According to the Order (paragraph 2), the prospectuses for the Securities that were effective and distributed by the
Respondent in 2020 and 2021 were materially misleading. However, Commission staff economists have determined that
the misconduct caused only a de minimis amount of excess capital gains accruals in calendar year 2020. Therefore, the
Plan of Allocation considers only capital gains accrued in calendar year 2021.
4
The Fund Administrator is aware that each Preliminary Claimant’s tax liability depends on numerous factors (income,
filing status, and retirement status, among others) that interact in complicated ways with the tax code. It would be
impractical to collect and process the relevant information from each Preliminary Claimant to accurately calculate the tax
liability attributable to the Respondent’s excess capital gains allocations. The Fund Administrator believes that the
Recognized Loss calculation captures the most salient elements for a reasonable approximation: the excess capital gains
allocated to each Security; federal as well as state income tax rates; differences between short- and long-term capital
gains tax rates; and an approximation of the proper timing of the capital gains allocations that would have been made
absent the misconduct.
5
The Discount Rate is calculated using the Vanguard Capital Markets Model’s® forecasts of the annualized 10-year
return for various asset classes as of December 31, 2022, and each Security’s asset class allocation as of the same date.
6
The ST Tax Rate for Preliminary Claimants domiciled outside the U.S. and its territories will be equal to the highest
marginal federal income tax rate on short-term capital gains for tax year 2021, and similarly for the LT Tax Rate.
1
2
Similarly, “LT Tax Rate” is defined and will be assigned for long-term capital gains.
The Excess ST Capital Gains, Excess LT Capital Gains, and Present Value Factor are
presented in Table A for each Security. The ST Tax Rate and LT Tax Rate are presented in Table B
for each U.S. state and territory and for non-U.S. locations.
I.
The Methodology
This methodology provides an estimate of a Preliminary Claimant’s harm from income tax
liability in tax year 2021 attributable to the Respondent’s excess capital gains allocations in 2021, as
the difference between (a) an estimate of the tax owed in tax year 2021 on the excess capital gains
allocated to the Preliminary Claimant, and (b) the present value (PV) of the taxes on those same
allocations had they occurred at their proper time in the future, including adjustments for short-term
gains that would be long-term gains if paid out in the future and for the sale of shares before any
future capital gains allocations. 7 The calculation is first done at the share level, then aggregated
across shares. Table C provides a step-by-step example of how to calculate Recognized Loss for a
hypothetical investor.
A. For each share of a Security held by a Preliminary Claimant on December 28, 2021, the
Fund Administrator will calculate:
1. “ST Tax Owed” as the Excess ST Capital Gains multiplied by the Preliminary
Claimant’s ST Tax Rate.
2. “LT Tax Owed” as the Excess LT Capital Gains multiplied by the Preliminary
Claimant’s LT Tax Rate.
3. “PV of Deferred ST Tax” as the ST Tax Owed multiplied by the Present Value
Factor.
4. “PV of Deferred LT Tax” as the LT Tax Owed multiplied by the Present Value
Factor.
5. “PV of Tax Difference,” which recognizes that short-term gains in 2021 would
instead be taxed at a lower rate as long-term gains if allocated in the future, as the
product of (a) the Excess ST Capital Gains, (b) the difference of the Preliminary
Claimant’s ST Tax Rate minus the claimant’s LT Tax Rate, and (c) the Present Value
Factor.
B. The Fund Administrator will then calculate the amount of loss for each share of a Security
held by a Preliminary Claimant (“Recognized Loss per Share”) as follows:
1. For each share of a Security held on December 28, 2021, and sold before the close of
trading on December 27, 2022 8
For shares of the Securities held as of December 28, 2021 (the record date of the 2021 capital gains allocation) and
sold before the close of trading on December 27, 2022 (the record date of the 2022 capital gains allocation), the present
value of the taxes on properly timed allocations is $0 because the shares did not participate in subsequent capital gains
allocations.
8
Preliminary Claimants would not have accrued capital gains taxes on properly timed allocations for these shares
because the shares had already been sold. Transfers to a tax-advantaged account will be treated as if they were sales. For
7
2
a. The recognized loss per share from short-term capital gains (“ST
Recognized Loss per Share”) is
𝑆𝑆𝑆𝑆 𝑇𝑇𝑇𝑇𝑇𝑇 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 ∗ (1 − 𝐿𝐿𝐿𝐿 𝑇𝑇𝑇𝑇𝑇𝑇 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅).
b. The recognized loss per share from long-term capital gains (“LT
Recognized Loss per Share”) is
𝐿𝐿𝐿𝐿 𝑇𝑇𝑇𝑇𝑇𝑇 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 ∗ (1 − 𝐿𝐿𝐿𝐿 𝑇𝑇𝑇𝑇𝑇𝑇 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅).
2. For each share of a Security held on December 28, 2021, and still held at the close
of trading on December 27, 2022
a. The ST Recognized Loss per Share is
(𝑆𝑆𝑆𝑆 𝑇𝑇𝑇𝑇𝑇𝑇 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 − 𝑃𝑃𝑃𝑃 𝑜𝑜𝑜𝑜 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑆𝑆𝑆𝑆 𝑇𝑇𝑇𝑇𝑇𝑇) ∗ (1 − 𝐿𝐿𝐿𝐿 𝑇𝑇𝑇𝑇𝑇𝑇 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅)
+ (𝑃𝑃𝑃𝑃 𝑜𝑜𝑜𝑜 𝑇𝑇𝑇𝑇𝑇𝑇 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷).
b. The LT Recognized Loss per Share is
(𝐿𝐿𝐿𝐿 𝑇𝑇𝑇𝑇𝑇𝑇 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 − 𝑃𝑃𝑃𝑃 𝑜𝑜𝑜𝑜 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿 𝑇𝑇𝑇𝑇𝑇𝑇) ∗ (1 − 𝐿𝐿𝐿𝐿 𝑇𝑇𝑇𝑇𝑇𝑇 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅).
3. For each share of a Security, the Recognized Loss per Share is ST Recognized
Loss per Share plus LT Recognized Loss per Share.
II.
Calculating Recognized Loss
Recognized Loss will be the sum of the Recognized Loss per Share, as calculated above, on
all shares of the Securities held at the close of trading on December 28, 2021. If the Recognized
Loss calculates to a negative number, reflecting a gain, then the Recognized Loss will be $0.00.
III.
Becoming An Eligible Claimant
A Preliminary Claimant, who is not an Excluded Party, who submits a valid Claim Form and
has suffered a Recognized Loss, as calculated above, will be deemed an Eligible Claimant.
IV.
Allocation of Funds
If the Net Available Fair Fund is equal to or exceeds the sum of Recognized Losses of all
Eligible Claimants, each Eligible Claimant’s distribution amount will equal his, her, or its
Recognized Loss, plus any “Reasonable Interest” awarded. If the Net Available Fair Fund is less
than the sum of the Recognized Losses of all Eligible Claimants, each Eligible Claimant’s
distribution amount will equal his, her or its “Pro-Rata Percentage” of the Net Available Fair Fund.
In either case, the distribution amount will be subject to the “Offset for Prior Recovery” and
“Minimum Distribution Amount.”
the special case of the Vanguard Target Retirement 2015 Fund, which merged into the Vanguard Target Retirement
Income Fund on July 8, 2022, the merger is not treated as a sale.
3
A.
Calculating an Eligible Claimant’s Pro-Rata Percentage
This computation is intended to measure Eligible Claimants’ Recognized Losses against one
another. Each Eligible Claimant’s Pro-Rata Percentage will be calculated as the ratio of his, her, or
its Recognized Loss to the sum of Recognized Losses of all Eligible Claimants.
B.
Offset for Prior Recovery
To avoid payment of a windfall, an Eligible Claimant’s distribution amount will be no larger
than his, her, or its Recognized Loss minus the amount of any compensation for the loss that resulted
from the conduct described in the Order that was received from another source (e.g., class action
settlement), to the extent known by the Fund Administrator (“Prior Recovery”), plus any Reasonable
Interest awarded. That is, the distribution amount will be capped at the Recognized Loss less the
Prior Recovery, plus any Reasonable Interest awarded.
C.
Reasonable Interest
If the Net Available Fair Fund exceeds the amount necessary to pay all Eligible Claimants
their Recognized Loss (minus any Prior Recovery) in full, the Fund Administrator, in consultation
with the Commission staff, may include interest in the distribution amount to compensate for the
time value of money. Reasonable Interest will be calculated using the Short-term Applicable
Federal Rate plus three percent (3%), compounded quarterly from the end of the Relevant Period
through the approximate date of the disbursement of the funds. If there are insufficient funds to pay
Reasonable Interest in full to all Eligible Claimants, Reasonable Interest will be awarded from the
excess funds in proportion to each Eligible Claimant’s Recognized Loss.
D.
Minimum Distribution Amount
The Minimum Distribution Amount will be $25.00. An Eligible Claimant whose distribution
amount is less than the Minimum Distribution Amount will be deemed ineligible and his, her, or its
distribution amount may be reallocated on a pro-rata basis to Eligible Claimants whose distribution
amounts are greater than or equal to the Minimum Distribution Amount.
E.
Payee and Distribution Payment
An Eligible Claimant whose distribution amount equals or exceeds the Minimum
Distribution Amount will be deemed a Payee, and will receive a Distribution Payment equal to his,
her, or its calculated distribution amount. In no event will a Payee receive from the Fair Fund more
than his, her, or its Recognized Loss, less any Prior Recovery, plus any Reasonable Interest.
4
Table A: Security-Level Inputs
Security
Vanguard Target Retirement Income Fund
Vanguard Target Retirement 2015 Fund
Vanguard Target Retirement 2020 Fund
Vanguard Target Retirement 2025 Fund
Vanguard Target Retirement 2030 Fund
Vanguard Target Retirement 2035 Fund
Vanguard Target Retirement 2040 Fund
Vanguard Target Retirement 2045 Fund
Vanguard Target Retirement 2050 Fund
Vanguard Target Retirement 2055 Fund
Vanguard Target Retirement 2060 Fund
Vanguard Target Retirement 2065 Fund
CUSIP
92202E102
92202E300
92202E805
92202E409
92202E888
92202E508
92202E870
92202E607
92202E862
92202E847
92202E839
92202E680
Trading
Symbol
VTINX
VTXVX
VTWNX
VTTVX
VTHRX
VTTHX
VFORX
VTIVX
VFIFX
VFFVX
VTTSX
VLXVX
5
Excess ST
Capital Gains
$0.00110
$0.00074
$0.00210
$0.00182
$0.00124
$0.00569
$0.06275
$0.04406
$0.08482
$0.11645
$0.21945
$0.00000
Excess LT
Capital Gains
$0.25288
$0.32284
$1.41680
$1.08757
$2.61630
$1.84403
$3.55973
$1.81650
$2.55230
$2.44922
$0.96434
$0.00000
Present
Value Factor
0.78793
0.81468
0.80817
0.74787
0.72505
0.69686
0.70346
0.67997
0.69643
0.69419
0.71779
0.70272
Table B: Highest Marginal Tax Rates on Capital Gains for Tax Year 2021 by State / Territory
State / Territory
Alaska
ST Tax
Rate
37.00%
LT Tax
Rate
20.00%
State / Territory
North Dakota
ST Tax
Rate
39.90%
LT Tax
Rate
22.90%
Alabama
42.00%
25.00%
Nebraska
43.84%
26.84%
Arkansas
43.00%
25.90%
New Hampshire
37.00%
20.00%
Arizona
41.50%
24.50%
New Jersey
47.75%
30.75%
California
50.30%
33.30%
New Mexico
42.90%
25.90%
Colorado
41.50%
24.50%
Nevada
37.00%
20.00%
Connecticut
44.00%
26.99%
New York
47.90%
30.90%
District of Columbia
45.95%
28.95%
Ohio
41.80%
24.80%
Delaware
43.60%
26.60%
Oklahoma
42.00%
25.00%
Florida
37.00%
20.00%
Oregon
46.90%
29.90%
Georgia
42.75%
25.75%
Pennsylvania
40.07%
23.07%
Hawaii
48.00%
27.25%
Rhode Island
42.99%
25.99%
Iowa
45.53%
28.53%
South Carolina
44.00%
27.00%
Idaho
43.93%
26.93%
South Dakota
37.00%
20.00%
Illinois
41.95%
24.95%
Tennessee
37.00%
20.00%
Indiana
40.23%
23.23%
Texas
37.00%
20.00%
Kansas
42.70%
25.70%
Utah
41.95%
24.95%
Kentucky
42.00%
25.00%
Virginia
42.75%
25.75%
Louisiana
43.00%
26.00%
Vermont
45.75%
28.75%
Massachusetts
49.00%
25.00%
Washington
37.00%
20.00%
Maryland
42.75%
25.75%
Wisconsin
44.65%
27.65%
Maine
44.15%
27.15%
West Virginia
43.50%
26.50%
Michigan
41.25%
24.25%
Wyoming
37.00%
20.00%
Minnesota
46.85%
29.85%
American Samoa
39.60%
39.60%
Missouri
42.40%
25.40%
Guam
37.00%
20.00%
Mississippi
42.00%
25.00%
Puerto Rico
33.00%
15.00%
Montana
43.90%
26.90%
US Virgin Islands
37.00%
20.00%
North Carolina
42.25%
25.25%
Outside the US
37.00%
20.00%
6
Table C: Calculation of Recognized Loss for a Hypothetical Investor
Hypothetical Example
An investor residing in Oregon held 1,000 shares of the 2025 Fund in a non-tax-advantaged account on December 28, 2021,
and sold 300 shares before December 27, 2022.
Inputs
2025 Fund’s Excess Capital Gains,
per share (from Table A)
2025 Fund’s Present Value Factor
(from Table A)
Oregon Tax Rates (from Table B)
Calculation of
Recognized Loss per Share
ST and LT Tax Owed, per share
Present Value (PV) of Deferred ST
and LT Tax, per share
PV of Tax Difference, per share
Short Term (ST)
Long Term (LT)
$0.00182
$1.08757
0.74787
0.74787
46.90%
29.90%
Short Term (ST)
$0.00182 * 46.90% = $0.000854
Long Term (LT)
$1.08757 * 29.90% = $0.325183
$0.000854 * 0.74787 = $0.000638
$0.325183 * 0.74787 = $0.243195
$0.001820 * (46.90% - 29.90%) *
0.74787 = $0.000231
N/A
For each share held on Dec 28, 2021, and sold on or before Dec 27, 2022
ST and LT Recognized Loss per Share
$0.000854 * (1 - 29.90%) = $0.000598
Recognized Loss per Share
$0.325183 * (1 - 29.90%) = $0.227954
$0.000598 + $0.227954 = $0.228552
For each share held on Dec 28, 2021, and still held on Dec 27, 2022
ST and LT Recognized Loss per Share
($0.000854 - $0.000638) *
(1 - 29.90%) + $0.000231 = $0.000382
Recognized Loss per Share
Calculation of Recognized Loss
Recognized Loss per Share
Number of Shares
Recognized Loss
($0.325183 - $0.243195) *
(1 - 29.90%) = $0.057474
$0.000382 + $0.057474 = $0.057856
For shares held on Dec 28, 2021,
and sold on or before Dec 27, 2022
$0.228552
300 shares
$0.228552 * 300 = $68.57
Recognized Loss
For shares held on Dec 28, 2021,
and still held on Dec 27, 2022
$0.057856
700 shares
$0.057856 * 700 = $40.50
$68.57 + $40.50 = $109.07
7
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.