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BEFORE

THE

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

PETITION FOR RULEMAKING REGARDING

MATERIALLY MISLEADING INVESTMENT FUND

DISCLOSURES AND SYSTEMATIC FALSE FORM 1099DIV REPORTING

FILED UNDER:

Administrative Procedure Act § 553(e)

SEC Rule of Practice 192 (17 C.F.R. § 201.192)

FILED WITH:

The Secretary

U.S. Securities and Exchange Commission

100 F Street NE, Washington, DC 20549

PETITIONER:

Jeremy Thomas Roseberry

DATE:

3.19.2026

Table of Contents

I. INTRODUCTION ..................................................................................................................... 1

A. The Fraud ............................................................................................................................... 1

B. The Mechanism ...................................................................................................................... 3

C. The Fix They Killed ............................................................................................................... 5

D. The Gatekeepers Who Looked Away .................................................................................... 8

E. The Constitution Has Spoken ............................................................................................... 16

F. The Defenses That Aren't ..................................................................................................... 18

G. The Reckoning ..................................................................................................................... 23

II. PETITIONER'S INTEREST AND STANDING ................................................................ 32

A. Injured Investor with Measurable, Ongoing Harm .............................................................. 32

B. Sole Subject-Matter Expert Who Quantified the Harm and Built the Solution ................... 33

C. Protected Whistleblower Under Federal Securities and Tax Law ....................................... 34

D. Fact Witness Who Exposed the Problem to Every Relevant Stakeholder ........................... 35

E. Sworn Attestation Under Penalty of Perjury ........................................................................ 37

F. Standing to Seek These Remedies ........................................................................................ 37

G. Public Interest, Not Private Advantage ................................................................................ 38

H. Why This Factual Record Is Necessary: The Industry's Demonstrated Refusal to SelfCorrect....................................................................................................................................... 39

III. FACTUAL BACKGROUND: HOW 'BUYING A DIVIDEND' WORKS ..................... 41

A. What Is 'Buying a Dividend'? .............................................................................................. 41

B. The Scope of Harm: Who Loses and How ........................................................................... 45

C. Why the Taxation Is Unjust: The Economic Reality ........................................................... 45

D. Illustrative Example: The $100 Share .................................................................................. 47

E. Scaling the Harm: From One Share to One Thousand ......................................................... 49

F. The Timing Lie: Risk Exists Nearly Every Day ................................................................... 50

G. The Fee Extraction: Everyone Wins Except the Investor .................................................... 54

H. The Vicious Feedback Loop: Harm That Never Ends ......................................................... 55

I. Quantifying the Harm: Four Formulas for Investor Loss ...................................................... 57

J. Modeling Fund-Level Losses ................................................................................................ 59

K. Estimating Market-Wide Losses .......................................................................................... 60

L. Why This Demands Commission Action ............................................................................. 61

IV. COMMISSION-LEVEL INTERPRETIVE GUIDANCE: SIXTEEN QUESTIONS

THAT ADMIT OF ONLY ONE ANSWER ............................................................................. 63

A. The Framework That Compels Truth................................................................................... 63

B. Three Definitions.................................................................................................................. 66

C. The Questions For SEC Interpretive Guidance .................................................................... 67

D. What These Answers Compel .............................................................................................. 77

E. The APA Requires Substantive Engagement ....................................................................... 80

V. LEGAL ANALYSIS: WHY CURRENT DISCLOSURES VIOLATE FEDERAL

SECURITIES LAW .................................................................................................................... 83

A. The Materiality Standard: Certainty, Not Probability.......................................................... 85

B. Half-Truths Are Actionable: The Supreme Court Has Already Decided This Question ..... 87

C. Investment Company Act and Advisers Act Violations ...................................................... 90

D. The Foundational Misrepresentation: The Definition of Price Itself ................................... 93

E. The Twenty-Three Prospectus Deficiencies: A Pattern, Not An Accident .......................... 94

F. The GAAP Compliance Fallacy: Why Accounting Standards Do Not Excuse Securities

Fraud ......................................................................................................................................... 96

G. The Industry Practice Fallacy: Why "Everyone Does It" Is An Indictment, Not A Defense

................................................................................................................................................... 98

H. Scienter: The Industry Knew, And The Record Proves It ................................................. 100

I. The Magnitude of Harm: One Thousand Times Vanguard—Every Year, Forever ............ 102

J. The Law Is Clear. The Facts Are Documented. The Commission Must Act...................... 105

VI. NEARLY EIGHT YEARS OF NOTICE AND INDUSTRY-WIDE COMPLIANCE

FAILURE................................................................................................................................... 107

A. The Record of Engagement: Universal Notice, Universal Silence .................................... 108

B. What Executives Said Behind Closed Doors: Confessions of an Industry ........................ 111

C. The Gatekeeper Breakdown: Every Line of Defense Failed at Once ................................ 115

D. The Securities Law Firms: Converted from Counsel to Witnesses ................................... 119

E. The Cover-Up: Silent Edits That Prove Consciousness of Guilt ....................................... 123

F. The Structural Failure: Why Self-Policing Was Designed to Fail ..................................... 125

G. The Verdict: Unprecedented Failure Requiring Unprecedented Response ....................... 127

H. The Governance Failure: How Management Neutralized the Last Line of Defense ......... 129

I. The Commission's Resource Allocation .............................................................................. 149

VII. TAX LAW IMPLICATIONS: THE SELF-PROVED VIOLATION .......................... 152

A. A Note on What Follows ................................................................................................... 152

B. The Constitutional Framework: What “Income” Means.................................................... 154

C. The Anti-Duplication Principle: One Dollar, One Taxpayer, One Tax ............................. 155

D. The Statutory Framework: What the Code Actually Says ................................................. 156

E. Treasury Already Applies This Principle: The Bond Precedent ........................................ 158

F. The Industry’s Defense and Why It Fails ........................................................................... 161

G. The Investor Cannot Cure the Filer’s Error ....................................................................... 167

H. The Industry’s Confession: In Their Own Words.............................................................. 169

I. The Industry Created This Problem—And Profits From It ................................................. 169

J. The Devastating Conclusion: The Industry Cannot Dispute What It Has Admitted .......... 172

K. Why Confession Eliminates the Need for Investigation .................................................... 173

L. The Penalty Framework: Mandatory, Not Discretionary ................................................... 174

M. The “Shall” Commands: Why Enforcement Is Mandatory ............................................... 176

N. The Statute of Limitations: Debts Expiring Daily ............................................................. 177

O. The Harm to Investors: 160 Million Americans Overtaxed .............................................. 179

P. Conclusion: The Legal Case Is Complete—And the Industry Has Already Conceded It .. 180

Q. Coordinated Enforcement .................................................................................................. 183

VIII.

COMPETITION AND MARKET INTEGRITY: WHY MARKET FORCES

CANNOT SELF-CORRECT ................................................................................................... 185

A. The Commission’s Statutory Mandate Requires Competition Analysis ........................... 186

B. The Economic Logic: A Hidden Overcharge That Aligns Every Fee-Taker Against

Correction ............................................................................................................................... 187

C. The Technology Existed—And Was Uniformly Refused.................................................. 189

D. The Admissions: What the Industry Confessed in Its Own Words ................................... 190

E. The Structure: Why No Firm Can Break Ranks ................................................................. 194

F. Regulatory Capture: The Pattern Extends Beyond the SEC ............................................... 199

G. What the Pattern Proves ..................................................................................................... 201

H. The Market Structure the Commission's Mission Was Created to Prevent ....................... 203

I. Referral to the Department of Justice .................................................................................. 205

J. The Commission’s Choice .................................................................................................. 208

IX. RELIEF REQUESTED ..................................................................................................... 211

A. Immediate Public Communications to Investors (Within 7 Days) .................................... 216

B. Market-Facing Communications to Registrants and Intermediaries (Within 14 Days) ..... 222

Staff Statement Reminding Registrants of Existing Obligations ............................................ 222

C. Commission-Level Interpretive Guidance (Within 21 Days) ............................................ 228

D. Examination Initiative (Within 30 Days) ........................................................................... 233

E. SRO Coordination and Market Gatekeeper Engagement (Within 7 Days) ........................ 238

iii

F. Enforcement Action: Referral, Injunctive Relief, Emergency Authority, and Criminal

Transmission (Within 7 Days) ................................................................................................ 247

G. Interagency Coordination and Oversight Body Notification ............................................. 257

G.1 Mandatory Duties Triggered by This Petition ................................................................. 258

G.2 Tax Administration Referrals........................................................................................... 261

G.3 Inspector General and Oversight Body Referrals ............................................................ 263

H. Proposed Rule: Point-of-Sale Risk Disclosure (Emergency Interim Rule Within 60 Days;

Final Rule Within 180 Days) .................................................................................................. 265

I. Procedural Requests ............................................................................................................ 269

J. The Standard of Review: Why Delay Is Already Unreasonable ......................................... 273

X. LEGAL AUTHORITY FOR REQUESTED RELIEF ................................................... 278

A. Procedural Basis for This Petition ..................................................................................... 278

B. Constitutional Protections for This Petition ....................................................................... 279

C. Commission Authority to Grant Every Category of Relief Requested .............................. 279

D. Substantive Legal Standards Governing the Violations .................................................... 280

E. Whistleblower Protections.................................................................................................. 281

F. Judicial Review Authority .................................................................................................. 282

XI. TO THE OFFICERS AND DIRECTORS OF EVERY COMPANY IDENTIFIED IN

THIS PETITION ...................................................................................................................... 282

A. What Is Already True ......................................................................................................... 282

B. What the Government Already Knows .............................................................................. 283

C. What Happens If You Do Not Enter the Program ............................................................. 285

D. A Personal Note to the Professionals Reading This Petition ............................................. 290

E. The Path .............................................................................................................................. 296

F. The Terms That Remain — And Why They Favor the Companies That Move First ........ 300

G. Why the Decision Cannot Wait ......................................................................................... 305

H. The Decision ...................................................................................................................... 310

I. Relief Requested .................................................................................................................. 312

XII. NOTICE REGARDING WHISTLEBLOWER PROTECTIONS AND

RETALIATION ........................................................................................................................ 315

A. This Petition Cannot Be Used Against Petitioner .............................................................. 315

B. Petitioner's Contributions Are Without Precedent ............................................................. 316

C. Structural Retaliation Risk ................................................................................................. 318

D. Whistleblowers Pay With Their Lives ............................................................................... 319

E. Notice to the Industry ......................................................................................................... 320

F. Partnership Remains Available........................................................................................... 321

XIII. CONSTITUTIONAL CONSIDERATIONS: THE GOVERNMENT'S DUTY UPON

NOTICE OF ILLEGAL EXACTION .................................................................................... 322

A. Two Failures — Two Liabilities — One Constitutional Framework ................................ 322

B. The Constitutional Framework........................................................................................... 323

C. The Industry's Accrued Liability: Two Penalties Per Return, No Cap, No Escape ........... 327

D. The Inescapable Constitutional Box .................................................................................. 328

E. The Calendar ...................................................................................................................... 330

XIV. INDEPENDENT AND SEVERABLE REQUESTS ..................................................... 332

A. The Severability Principle.................................................................................................. 332

B. The Independent Categories ............................................................................................... 333

C. Anticipated Defenses and Their Refutation ....................................................................... 335

D. The Constitutional Floor .................................................................................................... 338

E. Itemized Response Required .............................................................................................. 338

F. The Minimum Acceptable Response .................................................................................. 340

XV. CONCLUSION: THE PUBLIC RECORD AND THE CONSTITUTIONAL

RECKONING ........................................................................................................................... 340

A. The SEC's Founding Mission............................................................................................. 341

B. The Permanent Record ....................................................................................................... 341

C. The Constitutional Architecture: Two Agencies, One Supreme Law................................ 342

D. The Human Stakes: Americans at Their Most Vulnerable ................................................ 345

E. What This Record Enables ................................................................................................. 346

F. The Arithmetic of Inevitability ........................................................................................... 346

G. Petitioner's Position: Partnership Offered, All Remedies Preserved ................................. 347

H. The Whistleblower's Commitment .................................................................................... 348

I. The Landscape This Petition Creates .................................................................................. 348

J. Conclusion ........................................................................................................................... 349

DECLARATION OF JEREMY THOMAS ROSEBERRY ................................................. 351

I. DECLARANT’S IDENTITY AND QUALIFICATIONS .................................................. 351

II. AUTHORSHIP, AUTHENTICATION, AND CERTIFICATION OF THE PETITION . 352

III. WHAT I PERSONALLY DID: SUMMARY OF OUTREACH AND ENGAGEMENT 354

IV. WHAT THEY SAID: THE INDUSTRY'S OWN WORDS ............................................ 359

V. GOVERNMENT OFFICIALS WHO RECEIVED NOTICE ........................................... 363

VI. PROFESSIONAL ESTIMATES AND OPINIONS......................................................... 372

VII. EVIDENCE PRESERVATION AND PRODUCTION.................................................. 372

VIII. WHISTLEBLOWER PROTECTIONS AND RETALIATION NOTICE .................... 373

IX. EXECUTION ................................................................................................................... 373

I. INTRODUCTION

A. The Fraud

Every year, the American fund industry files hundreds of millions of tax returns it knows

to be false.

The returns are transmitted via United States mail to investors and via electronic wire to

the Internal Revenue Service. The institutions that file them admit, in their own SEC-filed

prospectuses, that the reported amounts are wrong. They have known for nearly eight years that a

technological correction exists, and they have coordinated to suppress it — because the false

reporting is the necessary instrument of a pricing methodology that inflates fund values, generates

billions in excess advisory fees, and extracts over $100 billion per year from 160 million

Americans whose retirement savings are held in trust by the very institutions defrauding them. The

industry's own executives have explained why the scheme persists: "Our investors don't know it is

happening."

This Petition places the entire evidentiary record on a permanent federal docket —

available to every prosecutor, every class action attorney, every state attorney general, every

pension fund trustee, and every journalist in America. The private remedies are exhausted. The

public reckoning has begun. The only question remaining is whether the Commission leads the

correction — or whether private litigants, state enforcers, and federal courts arrive first.

This harm is not speculative. It is not a theory. It is not a matter upon which reasonable

minds may differ. In nearly eight years of direct engagement with the largest financial institutions

in the world, with three SEC Commissioners, with dozens of Commission staff across multiple

divisions, and with the Internal Revenue Service — not one person has denied the existence of this

harm. Not one has challenged the mathematics. Not one has offered a legal justification for its

continuation. The industry admits it. The SEC knows it. The IRS knows it. The DOJ knows it. Yet

the harm continues. And with each tax cycle that closes, more of it becomes permanently

irrecoverable — not because the evidence was insufficient, but because the applicable limitations

periods expired before corrective action was taken.

The admissions are buried — but they exist, and they are fatal to every defense the industry

will raise. In fine print in SEC-filed prospectuses, the largest financial institutions in the world

acknowledge what this Petition alleges: that initial distributions to purchasing investors include

amounts that are, in economic substance, return of their capital — not income — and that taxing

those amounts generates what BlackRock calls "an unnecessary tax bill." That is a binding

admission against interest. It concedes the central premise of this Petition: that the Forms 1099DIV these same institutions file with the Internal Revenue Service overstate the taxable income of

160 million Americans. And then, knowing this, they file the forms anyway — reporting every

dollar as fully taxable ordinary dividend income.

Both statements cannot be true. If the distributions include return of capital, as every major

fund complex has stated in documents filed with federal regulators, then the Forms 1099-DIV are

false — hundreds of millions of false federal information returns, transmitted via United States

mail to investors and via electronic wire to the Internal Revenue Service, filed with knowledge of

their falsity, and sustained for decades because correcting them would end the inflated-NAV

pricing from which the enterprise derives its excess fee revenue. If the Forms 1099-DIV are

accurate, then the published admissions are false statements in documents filed with the

Commission — material misrepresentations to a federal regulator on a scale without precedent.

The industry must choose which of its own statements to repudiate. It cannot escape this

contradiction. It can only select which liability to face.

When a filer publishes that a payment is not income and then files a federal information

return reporting it as income — knowing the return is false, filing it anyway, across hundreds of

millions of forms, year after year — the Internal Revenue Code has a name for that conduct:

intentional disregard. Treasury regulations define the standard with precision: a failure is due to

intentional disregard when required information is withheld "voluntarily" rather than "accidentally

or unconsciously." That definition does not require inference here. The industry's own admissions

satisfy it. And intentional disregard carries a consequence Congress designed to be severe —

uncapped penalties of 10% of all amounts required to be reported correctly, under both IRC § 6721

and § 6722, independently, cumulatively, for every false return filed and every false statement

furnished. The industry's exposure is not measured in millions. It is measured in tens of billions

— accruing now, for every year the forms remain uncorrected.

B. The Mechanism

The prospectus disclosures are no different — admission and concealment in the same

breath. Prospectuses acknowledge the risk of "buying a dividend" and then immediately

mischaracterize it, describing the risk as arising "shortly before" or "just prior to" a distribution —

as though it were a narrow timing window prudent investors can sidestep. That characterization is

materially false. The risk is structural — embedded in every fund's net asset value on every trading

day, calculable to the penny, unavoidable without data the industry refuses to provide. The funds

intentionally withhold the single data point that would allow investors to quantify their exposure:

the per-share amount of embedded realized income that inflates the fund's net asset value ("NAV"),

which will generate an unnecessary tax bill upon distribution. That timing mischaracterization is

only the most visible of twenty-three material misstatements and omissions this Petition identifies

in Section V.

Every fund calculates its realized income — the accumulated dividends and capital gains

embedded in its share price — daily, for its own accounting purposes. It does not share that figure

with investors. This is by design. Disclosing to investors that they are overpaying for fund shares

and will be taxed on income they never earned is not a viable marketing strategy — so the industry

buries the admission in language no investor understands or can act on, omits the data every

investor would need, and continues collecting fees on the inflated NAV. This Petition seeks to end

that asymmetry by compelling disclosure of the data the industry already possesses, so that 160

million Americans can see what they are losing before they lose it.

"Buying a dividend" is the name the industry gave to a risk it manufactured, profits from,

and refuses to correct. Investment funds systematically overstate their share prices by accounting

for 'payable distributions' — money the fund already owes and is obligated to distribute — as

'assets' in the net asset value, inflating the price investors see, the fees the industry charges, and

the taxes the government collects.

Under Subchapter M of the Internal Revenue Code, a regulated investment company must

distribute substantially all of its realized income to shareholders each year to maintain its passthrough tax status — these are not discretionary payments but legal obligations, enforceable

conditions of the fund's existence. Under Generally Accepted Accounting Principles, a liability

exists when an entity has an obligation to transfer assets arising from past events, and the amount

can be reliably estimated. Pending fund distributions satisfy every element of that definition: the

obligation is mandated by federal statute, the triggering event — realization of income — has

already occurred, the amount is calculated to the penny every business day, and the fund knows

exactly when the payment will be made. By any rational measure, these are liabilities.

Yet the industry does not account for them as liabilities. It accounts for them as assets —

embedding the largest obligation the fund owes into the price every new investor pays. The result

is a net asset value that is, by definition, overstated: inflated by the precise amount the fund is

legally required to pay out and has no right to retain.

And the concealment begins with the price itself. Every prospectus in America publishes

the same formula: total assets minus total liabilities, divided by shares outstanding. Investors read

that formula and reasonably conclude that the price reflects a complete accounting — that every

obligation the fund owes has been subtracted before the number reaches them. It has not. The

fund's largest known obligation — the realized income it must distribute under federal law — is

not subtracted as a liability. It is embedded in the "assets" figure as though it were portfolio the

investor will retain. The formula that purports to show investors what they are buying is the first

thing that misleads them.

The overvaluation reveals itself the moment a distribution is paid: the fund's net asset value

drops by exactly the amount distributed — a decline that has nothing to do with the performance

of any security the fund owns, and everything to do with the fact that the price included a liability

— money the fund already owed and was obligated to distribute.

What this means for the investor is simple: after purchasing fund shares, her first

distributions — dividends, short-term capital gains, long-term capital gains — simply return a

portion of the money she just invested. She puts money in. The fund sends some of it back.

Receiving your own money back is a return of capital, and because nothing was earned, it is not

taxable. The Internal Revenue Code says so. The Supreme Court has said so for ninety years. The

industry itself says so in its own published materials.

But the investor will receive a Form 1099-DIV reporting it as income, and she will pay

taxes on it.

Consider a single share. An investor pays $100. The fund has a pending $3.00 distribution

baked into that price. Of her $100, only $97 will remain invested in the portfolio — the other $3.00

is earmarked for a distribution she is about to receive. When the fund pays it, the share price drops

from $100 to $97, and the $3.00 she just invested comes back to her — labeled as a distribution.

She now holds a $97 share plus $3.00 in cash — exactly what she started with. $100. No income

was earned.

This is a classic shell game. Money moves from the investor's pocket into the fund and

back again. Wall Street knows it simply returned what she put in — it invented the term for this

maneuver. But when her money comes back, it arrives disguised as income: a 1099-DIV in her

mailbox, a tax bill from the IRS, and a liability for earnings that never existed.

C. The Fix They Killed

Beginning in 2018, Petitioner set out to fix this. He did not write a white paper. He did not

convene a panel. He built the technology. He built a product to correct the overvalued NAV —

eliminating both the inflated fees and the false tax forms simultaneously, because they are products

of the same accounting distortion. He built a separate product to correct the overstated Forms 1099DIV for any income-producing security. And when it became clear that no institution in America

would correct either the pricing or the reporting, he built disclosure software — tools that would

at minimum show investors what they were losing, so they could attempt to protect themselves.

Three products. Three paths to compliance. Three chances for the industry to do the right thing.

The technology was plug-and-play. It operated on data that every fund already maintains.

Implementation required uploading existing files and configuring settings. The marginal cost of

adoption approached zero. The barrier to protecting 160 million Americans was not technological.

It was never technological.

The initial response confirmed it. At firm after firm, senior executives described the

solution as "groundbreaking," "revolutionary," something that would "redefine financial markets."

Tax directors engaged with the details. Fund accountants reviewed the mechanics. No one disputed

the analysis. No one questioned the feasibility. No one denied the harm. One senior tax director at

a major fund complex stated what everyone in the room already understood: "If you can get just

one fund to do this, all other funds will be forced to fix this within 12 months.”

One fund. One honest actor. That is all it would have taken. A single firm that chose to

price its shares accurately, file truthful tax returns, and tell its investors the truth. Competitive

pressure would have done the rest — investors would have migrated to the fund complex offering

accurate pricing and honest disclosure, and every competitor would have been forced to follow or

explain to its own shareholders why it chose not to. In a functioning market, with fiduciaries legally

bound to act in their clients' interests, rational firms would have raced to be first.

Yet, every firm ran the other way.

Not a single major fund complex adopted the technology. Not one agreed to pilot it on a

test fund. Not one conducted a cost-benefit analysis. Not one brought it to a fund board — the

independent directors who exist, by statute, to protect shareholders from exactly this kind of

conflict. After initial enthusiasm was escalated to senior management — or after gatekeepers

"checked with their clients" — every firm reversed course. The pattern was not varied. It was

identical: engagement, recognition, enthusiasm, then silence.

Behind closed doors, the silence had a voice. One executive at a dominant industry player

reviewed the analysis, did not dispute a word of it, and described the situation as "perfectly fine."

Another explained that the industry does not consider this a problem — "because our investors

don't know it is happening." A senior fund administrator — whose own transfer-agent system

already contained the configuration setting needed to correct the NAV — explained why that

switch would never be flipped: "Investment managers would never go for it. Investment managers

bill on the inflated NAV."

Read those words again, because the Commission will be asked to act on them. "Perfectly

fine" — while 160 million Americans are overtaxed on their own money. "Our investors don't

know it is happening" — from a fiduciary, legally obligated to ensure that investors do know.

"Investment managers bill on the inflated NAV" — a confession that the entire industry profits

from the overvaluation and that no firm will end it because no firm wants to stop profiting from it.

And when Petitioner offered a large registered investment adviser disclosure software that would

reveal, before any trade was executed, exactly how much harm that trade would impose on the

client — a three-second check, automated, requiring no manual calculation, built to give a

fiduciary the one piece of information every fiduciary should demand before placing a client's

money at risk — the firm declined. Not because the software didn't work. Not because the analysis

was wrong. Because, in the firm's judgment, none of its advisors would spend even three seconds

to learn whether a trade would harm the client they are legally obligated to protect. Three seconds.

A fiduciary, sitting across the desk from a client who trusts him with her retirement, will not pause

for three seconds to determine whether the transaction he is about to execute will cost her money

she will never recover. He will execute the trade, collect his fee, and never tell her what he chose

not to learn — because learning it would obligate him to act on it, and acting on it would cost him

revenue. These are not the Petitioner's allegations. These are the industry's own words, spoken by

its own executives, in rooms where they believed no accountability would follow. They were

wrong.

At one firm, the pattern was not merely identical — it was personal. Petitioner flew across

state lines, rented a car, and drove to the headquarters of one of the largest fund complexes in the

world — at personal expense, on personal time — to sit across a table from its executives and

explain, with mathematical precision, how their investors were being harmed and how the harm

could be eliminated. The executives did not dispute the problem. They did not challenge the

mathematics. They did not question the feasibility of the fix. They agreed that the harm was real.

Petitioner left that meeting believing he had found the honest actor the industry's own tax director

said was all it would take.

He was wrong. When Petitioner attempted to contact senior executives to follow up — to

set a path forward, to move from agreement to action — the firm's response came not from the

executives eager to protect their investors, but from a corporate attorney. The message was not "let

us investigate." It was not "we need time to consider this." It was: cease further contacts. A citizen

flew a thousand miles, at his own expense, to tell a fiduciary that its clients were being harmed —

and demonstrated how to stop the harm — and the fiduciary's answer, delivered through counsel,

was: stop calling. The executives who agreed the problem was real were walled off. And the firm

— managing trillions of dollars of American retirement savings — went back to collecting fees on

the inflated NAV, filing the false forms, and telling its investors nothing.

The industry did not merely decline to correct the harm. It did not merely refuse three

separate technological solutions. It coordinated to ensure that the one honest actor — the single

defection that would have forced industry-wide correction within twelve months — never

emerged. Instead of uniting to protect investors, the industry united against them. It suppressed the

technology. It blocked the disclosure. It preserved the silence.

And the coordination was structural — the largest fund complexes hold controlling voting

power in the very exchanges, transfer agents, and market utilities that could have forced correction,

ensuring that no intermediary would act without the permission of the firms that profit from

inaction. This was not negligence. This was not a difference of professional judgment. This was a

coordinated enterprise acting to protect its revenue — competitors and gatekeepers organized

around a common purpose: maintaining the inflated-NAV pricing from which every participant

profits. The technology suppression was the enterprise's enforcement mechanism. The false Forms

1099-DIV were its operational cost — imposed on 160 million taxpayers because the enterprise's

fee revenue depends on a pricing methodology that mechanically produces false tax forms. The

enterprise chose to impose that cost on others rather than surrender the revenue it generates.

These firms market themselves as putting "investors first." Behind closed doors, they

decided that investors would be last — last to know, last to be told, last to be protected. And they

made that decision because protecting investors would have cost them money.

D. The Gatekeepers Who Looked Away

Congress did not entrust investor protection to a single institution. It constructed a multilayered architecture of oversight — redundant by design — so that if one gatekeeper failed, another

would catch the violation. Petitioner tested every layer. Every layer failed. Not one gatekeeper, in

nearly eight years, at any level of the architecture Congress built, chose to protect a single investor.

The only person who tried to stop the harm is the person who filed this Petition.

What makes this record extraordinary is not merely the universality of the failure. It is the

character of it. Over nearly eight years of engagement with some of the largest financial institutions

in the world — firms controlling over $30 trillion in assets under management, the institutions that

hold America's retirement savings, pension funds, 401(k) plans, and college savings accounts —

Petitioner did not encounter a single expression of concern for the investors being harmed. Not

one executive asked how many Americans were affected. Not one asked what happens to a retiree

who pays taxes on income she never earned. Not one expressed discomfort with the gap between

what their firms promise investors in marketing materials and what they do for investors in

practice. The harm was discussed as one would discuss a rounding convention—clinically,

dispassionately, as though the 160 million Americans on the other end of these false tax forms

were not people but line items. These institutions hold themselves out as fiduciaries. When

presented with proof that their clients were being systematically overtaxed, they expressed no

concern for their clients. Their only concern was maintaining the status quo — and avoiding the

liability the truth would create.

Petitioner presented the mathematics. They did not dispute it. He quantified the harm. They

acknowledged it. He demonstrated the fix. They declined to implement it. He then carried the same

evidence, the same mathematics, and the same offer of a technological solution to every other

institution Congress empowered to prevent exactly this kind of harm. What follows is the record

of what each of those institutions chose to do with the truth.

The self-regulatory organizations — the exchanges, the clearing agencies, the frontline

enforcers Congress created to police market integrity — were notified. One exchange escalated

the technology to its executive committee. The executive committee declined to implement it —

not in the interest of the investors the exchange exists to protect, but in the interest of the fund

companies whose fee revenue the technology threatened. Then its executives quietly deleted every

digital connection to Petitioner, the institutional equivalent of destroying the visitor's log. These

are the organizations Congress entrusted with frontline investor protection. Their response to

documented evidence of systematic harm was not an investigation. It was sanitization.

The Big Four accounting firms — the "public watchdogs" the Supreme Court has said owe

"ultimate allegiance" to investors and "complete fidelity to the public trust" — were sent formal

notification. Petitioner met personally with three of them. No inquiry followed. No disclosure

deficiency was flagged. No auditor resigned. No Section 10A report was filed with this

Commission, as the law requires when auditors discover illegal acts and the board fails to take

remedial action. The firms whose entire professional purpose is to detect and report fraud chose,

when confronted with documented evidence of one, to look the other way.

One Big Four accounting executive went further — not merely looking away, but providing

the intellectual justification for the industry's refusal to act. The Supreme Court has held that

independent auditors serve as "public watchdogs" whose "ultimate allegiance" is to the investing

public and whose function demands "complete fidelity to the public trust." This partner's fidelity

ran in the opposite direction. Presented with the mathematics of investor harm — harm he did not

dispute, derived from data he did not challenge — this partner offered a justification that captures

the moral collapse of the entire gatekeeping architecture: "Investors should just 'accept' these losses

because investment funds offer convenience." A public watchdog, charged by the Supreme Court

with ultimate allegiance to investors, told Petitioner that the investors should accept being

overtaxed on their own money as the cost of doing business.

The losses Petitioner documented — taxes on income that was never earned, fees on values

that are deliberately inflated — reframed as a service charge. The price of admission. As though

160 million Americans had consented to be overtaxed in exchange for the privilege of participating

in the fund industry. They did not consent. They were not asked. They were not told.

And when Petitioner informed the room that he had met with the Securities and Exchange

Commission and that, in his assessment, the Commission was taking the matter seriously, a senior

executive laughed out loud. That is the sound of an industry that has been protected from

consequences for so long that it cannot imagine consequences arriving. It is the sound of a system

so confident in its own impunity that the mere suggestion of regulatory accountability is a

punchline. The "convenience" the industry offers investors is the convenience of not knowing what

is being done with your money — which is not convenience at all, but the condition on which the

entire scheme depends. And the laughter will echo differently when this Petition is read into the

public record.

Some of the most prominent securities law firms in America — firms that draft these

prospectuses and advise fund complexes on disclosure obligations — were sent formal

notifications. Petitioner met personally with several. Not one advised its clients to correct the

disclosures. Not one reported the violations to this Commission. Several continued drafting the

very prospectuses this Petition identifies as materially false — after receiving written notice of the

falsity. Those firms are no longer counsel. They are fact witnesses. And they face disqualification

from representing the clients they helped mislead, because an attorney cannot simultaneously

defend conduct and testify about her own participation in it.

Fund administrators and transfer agents — the firms that calculate NAV, process

distributions, and generate the very tax forms this Petition proves are false — were notified. But

one firm's response stands apart — not for what it denied, but for what it admitted and then refused

to act on. A dominant market utility reviewed Petitioner's analysis and technology independently.

Its executives did not dismiss the concerns. They did not claim the technology was unworkable.

They acknowledged, in writing, that "the problem is real" and that the industry has "simply ignored

it." This firm could have ended this. A single decision to support the corrective technology would

have carried it across the industry overnight — because when the infrastructure provider that

generates the tax forms decides those forms should be accurate, the forms become accurate.

Instead, the firm declined to implement the technology, declined to support it, declined to distribute

it, and continued generating false Forms 1099-DIV for tens of millions of Americans. An executive

offered an explanation more revealing than any legal brief: "industry perception can kill

reputations." A firm with the reach to correct the reporting for virtually every fund in America

understood that doing so would antagonize the fund complexes whose business sustains it. It

weighed investor protection against client relationships, and investors never had a chance.

Then Petitioner tested the last line of defense: the 15,266 chief compliance officers

registered in the SEC's Investment Adviser Registration Depository — every CCO in America

whose sole professional function is to ensure that securities firms comply with the law. Petitioner

sent formal compliance notices to the contact information each officer had filed on SEC Form

ADV — the address each had certified, under penalty of law, as the proper channel for receiving

compliance communications. The notice identified the specific violation. It quantified the harm. It

offered a path to remediation. It was structured to legally require a response.

Not one responded. Not one scheduled a meeting. Not one requested additional

information. Not one initiated an investigation. Not one forwarded the notice to a fund board, as

Rule 38a-1 requires for material compliance matters. So many ‘compliance’ officers marked the

formal compliance notice as junk mail that the email platform suspended Petitioner's account for

triggering spam filters. The compliance officers of the American financial industry — the fifteen

thousand professionals whose entire reason for existence is to prevent exactly this — classified a

formally written fraud warning as spam. Some went further still, flagging it as "inappropriate

content" — a filtering category designed for pornography and other explicit material. A

documented notice that 160 million Americans are being illegally overtaxed on their own money,

classified alongside ‘explicit content’ and blocked from reaching a single person within the

organization. In the judgment of the American fund industry's compliance apparatus, a warning

that their clients are being defrauded is more offensive than pornography.

This is not a compliance failure. This is the compliance architecture performing exactly as

the industry designed it to perform — not as a system for detecting and preventing fraud, but as a

system for ensuring that fraud, once reported, never reaches anyone with the authority or the

inclination to stop it. The architecture is a cartel's immune system. It was engineered not to protect

investors but to protect the institutions that profit from investor ignorance — to ensure that no firm

breaks ranks, no gatekeeper defects, no compliance officer escalates, and no regulator receives

information that would compel action.

The nation learned this lesson at a cost of $18 billion and the shattered lives of 37,000

investors across 136 countries. The Madoff fraud — which Congress called the worst regulatory

failure in the Commission's history — involved one man, one fund, and approximately $700

million to $1 billion in actual losses per year sustained over two decades. Harry Markopolos, the

whistleblower who alerted the SEC to the fraud on multiple occasions, was asked on national

television why executives at the biggest investment houses on Wall Street who knew something

was wrong did not go to the SEC. His answer: "Because people in glass houses don't throw stones.

And self-regulation on Wall Street doesn't work." 1

Congress responded with oversight hearings and structural reform. After examining how

documented warnings had gone unaddressed for a decade, Congress mandated creation of the SEC

Whistleblower Program — designed to ensure that the next time a citizen brought the Commission

evidence of fraud, the Commission would act on it promptly. It was the single institutional reform

to emerge from the worst regulatory failure in the Commission's history — a promise, backed by

a new institution, that it would never happen again. The Commission staked its credibility on the

premise that the program would work.

The architect and founding Chief of that program was Sean X. McKessy. He designed it.

He built it. He ran it. He knows precisely how it is supposed to function — what evidence it

requires, what channels it uses, what obligations it triggers.

In June 2020, Sean McKessy, now in private practice, filed Petitioner's whistleblower tip

with the Commission — through the program he created, in the format he designed, supported by

the kind of evidentiary record the program was built to receive. The designer of the post-Madoff

reform hand-delivered the evidence, through his own system, to the institution that promised

Congress it would never ignore documented fraud again.

Nearly six years later, the Commission has not acted on it. Not one member of the

Enforcement Division has contacted Petitioner. Not one subpoena has been issued. Not one

document demand has been served. Three Commissioners were personally briefed — this was not

a written warning lost in the bureaucracy, the way Markopolos's letters were. The evidence reached

the highest level of the institution. And the highest level of the institution did nothing.

Consider what this means. The single institutional reform Congress demanded after Madoff

— the one mechanism built specifically so that documented fraud reported by a credible

whistleblower would not be ignored — was put to its most important test by the man who built it.

The Man Who Figured Out Madoff's Scheme, CBS News (60 Minutes), Feb. 27, 2009,

https://www.cbsnews.com/news/the-man-who-figured-out-madoffs-scheme-27-02-2009/.

And it failed. Not because the tip was deficient. Not because the evidence was ambiguous. Not

because the program lacked the capacity to process it. It failed because the institution on the

receiving end has not acted on it — a sequence that parallels the Commission's documented

handling of the Markopolos submissions, the pattern the Whistleblower Program was specifically

designed to prevent.

Except this time, the comparison is not close. Madoff was $18 billion over two decades —

roughly $1 billion per year, one fund, one man, 37,000 victims. The fraud documented in this

Petition exceeds $100 billion every year. Not one fund — every fund. Not one man — every major

financial institution in the US. Not 37,000 victims — 160 million Americans. Madoff harmed

thousands of investors, many of them wealthy, across 136 countries. This harms every American

with a fund investment — the teacher, the firefighter, the first-generation saver putting away $50

a paycheck.

Madoff's victims have recovered 94% of their principal. The victims here have recovered

nothing — because no one has told them they are victims. The system that failed to catch a single

con man running a single fund has now failed to act on an industry-wide fraud that is, by every

measure — annual harm, number of victims, duration, institutional involvement — one hundred

times larger. And it was not reported by an outsider whose warnings could be dismissed as

eccentric. It was reported by the man the Commission itself chose to build the program — the man

whose professional judgment the Commission trusted to design the architecture of whistleblower

protection for the entire American securities market.

If his tip, filed through his program, supported by this evidence, does not produce action,

then the program has not fulfilled the purpose for which Congress created it, and the promise the

Commission made after Madoff remains unfulfilled.

The glass houses still stand. Self-regulation still does not work. And the only thing that has

changed since 2009 is the scale of the harm, the number of Americans paying for it, and the

certainty with which the Commission knows.

Petitioner then attempted direct outreach — individual phone calls and personal emails to

the CCOs of registered investment advisers, the fiduciaries who recommend these very funds to

their clients and who owe duties of care and loyalty that this conduct breaches with every

transaction. No one returned his calls. No one answered his emails. The one compliance officer

who picked up the phone hung up on Petitioner — after Petitioner identified himself and asked

whether he could report a compliance matter adversely affecting the firm's clients. A compliance

officer. Receiving a compliance tip. About harm to the clients he is legally obligated to protect.

Hung up the phone. That moment — a single phone call, a single refusal to listen — captures the

entire architecture in miniature. At every level of the system Congress constructed, the answer was

the same: we do not want to know. Because we do not care. And knowing would obligate us to

act. And acting would cost us money.

Nearly eight years. Thirty trillion dollars in affected assets. Fifteen thousand two hundred

sixty-six compliance officers. National securities exchanges. Clearing agencies. The Big Four

accounting firms. The nation's most prominent securities law firms. Fund administrators. Transfer

agents. Board members. State securities regulators. State attorneys general. Members of Congress.

Firms that admitted in writing that the problem is real, and the industry has simply ignored it.

Universal notice. A ready technological solution, the industry itself called "groundbreaking" and

"revolutionary." A problem so clear that one honest actor would have forced industry-wide

correction within twelve months.

And the result: not one honest actor. Not one. In nearly eight years. Across an industry that

exists, by statute and by solemn promise, to safeguard the financial welfare of the American public.

The industry's own tax director predicted it: "If you can get just one fund to do this, all other funds

will be forced to fix this within 12 months." The prediction was proved correct — in the negative.

The absence of a single honest actor in nearly eight years is not evidence of independent

professional judgment arriving at a common conclusion. It is evidence that no firm was permitted

to break ranks — because the system was designed to ensure that none would.

Not one institution, not one gatekeeper, not one officer, not one director chose to protect a

single investor over a single dollar of fee revenue. The entire system Congress built to protect 160

million Americans failed — not because the evidence was ambiguous, not because the solution

was unavailable, not because the harm was uncertain — but because every gatekeeper looked to

every other gatekeeper, and every gatekeeper saw the same thing: silence. And silence, in an

industry conditioned by decades of consequence-free violation, by a revolving door that makes

regulators and regulated indistinguishable, by the settled expectation that misconduct of this

magnitude will never be prosecuted because it implicates everyone — silence was permission.

Silence was a strategy. Silence was the product.

That silence ends with this Petition. Three SEC Commissioners have been personally

briefed. Dozens of Commission staff across multiple divisions have been briefed. Not one has

challenged the factual premises. Not one has disputed the mathematics. Not one has contested that

investors are being harmed. In nearly six years since Petitioner's whistleblower tip was filed, not

a single member of the Commission's Enforcement Division has contacted him. Petitioner is the

fact witness to the industry admissions, the executive statements, the technology demonstrations,

and the coordinated suppression documented in this Petition — and the division responsible for

investigating securities fraud has never asked him a single question. No subpoena has been issued.

No testimony has been requested. No document demand has been served. Petitioner has received

no indication that any enforcement investigation has been opened. It is this absence that compels

this Petition. The Commission has known for nearly six years. During that time, the only person

who has acted to protect investors from this harm is the person filing this Petition. The question is

no longer whether the Commission is aware of these violations. The question is what action the

Commission's awareness requires — a question this Petition is designed to place squarely on the

record.

Somewhere in America, as this Petition is filed, a young woman is investing her first

paycheck in a taxable brokerage account — doing what every financial advisor, every retirement

guide, and every institution in the system tells her to do. She has chosen a diversified fund. She is

starting early. She is being responsible. She does not know that the share price she will pay tonight

is inflated by realized income the fund is obligated to distribute. She does not know that her first

distribution will return a portion of her own investment, disguised as taxable income. She does not

know that the Form 1099-DIV she will receive next January will overstate her earnings by the

precise amount the fund overcharged her today. She does not know any of this — because every

institution in the system described above chose not to tell her. By the time you finish reading this

Petition, she will have paid taxes she does not owe, on income she did not earn, reported on a form

the industry admits is false — and no one in the architecture Congress built to protect her will have

lifted a finger to prevent it.

E. The Constitution Has Spoken

Everything described to this point — the industry's fraud, the gatekeepers' silence, and the

government's failure to act on nearly six years of documented evidence — is the factual record.

What follows is the constitutional framework that makes continued inaction unlawful.

The taxation of the return of an investor’s capital as income is unconstitutional. The

Supreme Court settled this seventy years ago. Commissioner v. Glenshaw Glass Co. holds that

income requires "undeniable accessions to wealth, clearly realized." An investor who pays $100,

receives $3 of her own money back, and holds the same $100 she started with has experienced no

accession to wealth. She has received a refund of her purchase price. The Internal Revenue Code

does not tax that. The Supreme Court does not permit it. The industry itself admits it in SEC filings.

And yet hundreds of millions of Forms 1099-DIV report it as taxable income every year — and

the government collects on every one.

When the government collects taxes it knows are not owed, the Constitution has a name

for it: illegal exaction. Justice Owen Roberts: "[T]he unjust retention is immoral and amounts in

law to a fraud on the taxpayer's rights.” Bull v. United States. And McKesson: "the Due Process

Clause requires the State to afford taxpayers meaningful backward-looking relief" — and good

faith reliance on facially valid returns does not excuse continued retention after notice. And Reich:

the government cannot "hold out what plainly appears to be a 'clear and certain' post-deprivation

remedy and then declare, only after the disputed taxes have been paid, that no such remedy exists."

Tyler v. Hennepin County, decided unanimously in 2023 — nine Justices, zero dissents, zero

concurrences limiting the holding: government retention of amounts exceeding what is lawfully

owed is a "classic taking." Chief Justice Roberts traced the principle to Magna Carta: "The

government may not take more from the taxpayer than she owes."

Four cases. Four walls. No door — except corrective action.

These are not recommendations to the executive branch. They are commands of the

supreme law of the land. The Constitution sits above the SEC, above the IRS, above the

Department of Justice, above every enforcement priority, every resource constraint, and every

institutional preference for inaction. When the Fifth Amendment speaks, enforcement discretion

is extinguished. There is no prosecutorial judgment that permits the continued taxation of citizens

on income they did not earn. There is no administrative convenience that justifies retaining funds

that the government has no constitutional authority to hold. There is no enforcement discretion to

authorize an ongoing illegal exaction from 160 million Americans. The question is not whether

these agencies should act. The Constitution has answered that question. They shall.

And Congress reinforced the command four times, in language that admits of no ambiguity.

Section 6721(a): filers who fail to file correct returns "shall pay a penalty." Section 6201(a): the

Secretary "is authorized and required" to assess. Section 6301: the Secretary "shall collect."

Section 6303(a): notice and demand "shall" issue within sixty days. The Supreme Court has held

that "shall" creates "an obligation impervious to judicial discretion." Lexecon Inc. v. Milberg

Weiss. The IRS cannot decline to assess these penalties. It cannot forgive them. It cannot let them

expire. Congress did not say "may." Congress said "shall" — and said it four times because

Congress understood that agencies, left to their own preferences, will choose inaction over

confrontation with the industries they regulate. The statute exists to foreclose that choice.

The industry bears liability for every false return filed before the date of this Petition —

under §§ 6721 and 6722, independently, cumulatively, at uncapped penalties of 10% of all amounts

required to be reported correctly, for every form filed and every statement furnished. That liability

is measured in tens of billions of dollars. It exists today.

This Petition shifts the constitutional burden to the government. Before today, the

government processed returns as filed. That was defensible. From today forward, it is not. The

government now possesses irrefutable evidence — supported by the industry's own admissions

and the unanimous precedent of the Supreme Court — that the Forms 1099-DIV are false and that

the taxes collected on them include amounts the Constitution forbids the government to retain.

Every principle identified above — illegal exaction, due process, takings, mandatory enforcement

— attaches with full force from the moment this document is delivered. The government's

exposure accrues prospectively, beginning now, compounding daily, and crystallizing irreversibly

with each tax cycle that closes.

The calendar quantifies what government inaction has already cost. Since Petitioner first

reported these violations in June 2020, five full years of mandatory penalties have expired — tax

years 2017 through 2021 — billions of dollars Congress commanded the Treasury to collect,

forfeited because no agency acted in time. Tax year 2022 expires on March 31, 2026. Weeks from

today. Billions more will be permanently lost. And each expiration does not merely forfeit revenue

owed to the Treasury. It extinguishes the rights of American taxpayers — investors whose refund

claims, amended returns, and legal remedies die with each statute that lapses. Every door that

closes, closes on an American who overpaid and will now never be made whole. Not because she

did anything wrong. Because every institution obligated to protect her chose not to act in time.

The consequences of further inaction are not abstract. They are legal, constitutional, and

inescapable. Continued collection on known-false returns is an illegal exaction actionable in the

Court of Federal Claims. Failure to assess mandatory penalties is agency action unlawfully

withheld, compellable under APA § 706(1). Permitting the 2026 tax year to proceed without

corrective guidance — while possessing this Petition — is a due process violation under McKesson

and Reich, a taking under Tyler, and a fraud on the taxpayer's rights under Bull. Petitioner will

pursue each of these claims. The government's choice is not whether to act. It is whether to act on

its own timeline — or on a court-ordered one.

The 2026 tax year has already begun. Investors are purchasing fund shares today, at prices

inflated by the same distortion this Petition documents. They will receive their own capital back,

disguised as income. They will receive false Forms 1099-DIV. They will pay taxes they do not

owe. And for the first time, that entire cycle will occur with the government's full, documented,

undeniable knowledge that it is happening. The IRS can issue corrective guidance now — before

the forms are prepared, before another round of false reporting locks in, before another year of

Americans' rights begins its three-year countdown toward extinction. The statute commands it.

The Constitution requires it. Continued inaction is no longer a policy choice. It is a constitutional

violation — with named plaintiffs, quantified damages, and a record that will not improve with

age.

F. The Defenses That Aren't

The industry's response to nearly eight years of documented fraud was not to correct the

fraud. It was not to fix the tax forms. It was not to implement the technology that would have ended

the harm overnight. It was not to warn a single one of the 160 million Americans whose money it

manages. It was to hire lawyers — and hope the lawyers could confuse a judge.

The lawyers are trying. Having no honest defense to offer — because there is no honest

defense when the client has confessed in its own published materials — counsel has adopted the

only strategy available: make the simple look complicated. Recast a disclosure fraud as an

accounting dispute. Bury a straightforward question under so many layers of jargon that the court

loses sight of what is actually being asked. The strategy depends entirely on the assumption that

no one in the courtroom will do the math. This Petition ensures that assumption is no longer safe.

The first industry defense is that GAAP compliance immunizes the filing of false federal

tax returns and excuses the obligation to disclose the consequences to investors. It does not — and

understanding why requires understanding what GAAP actually is, because the industry's lawyers

are counting on courts not knowing. GAAP is a classification system. It tells a fund which numbers

go in which buckets—how to categorize revenue, how to record income, and how to present

financial statements in a standardized format. It does not tell a fund what to disclose to investors

about the consequences of those classifications. It does not override federal securities law. It does

not amend the Internal Revenue Code. And it does not — and has never — granted any registrant

an exemption from the obligation to tell investors the truth about what is being done with their

money. The industry's argument, stated plainly — which is why its lawyers never state it plainly

— is this: because we classify realized income in a manner consistent with GAAP, we are exempt

from the federal laws that require us to tell investors what that classification does to their money.

No court has accepted that theory. No statute supports it. The SEC itself has stated repeatedly that

GAAP compliance does not preclude a finding of materially misleading disclosure. The principle

is obvious: an accounting classification can be technically compliant, and the disclosure of its

consequences to investors can be materially false. Both things are true here. The funds' internal

bookkeeping may satisfy GAAP. The prospectuses that describe what that bookkeeping does to

investors are provably, mathematically, demonstrably wrong — and Petitioner has provided the

funds' own data to prove it. A kindergartner with a calculator can disprove the current disclosures.

The industry has dispatched the most expensive lawyers in America to argue that the kindergartner

is wrong. That is not advocacy. It is an attempt to prevent a court from seeing what every investor

would see if anyone told them the truth.

But the GAAP defense is not merely wrong. It is fraudulent on its own terms — because

GAAP does not require what the industry claims it requires. The industry argues that it must book

realized income to NAV because GAAP compels it. GAAP does no such thing. The fund industry

itself has operated daily dividend accrual accounting — the method that removes realized income

from NAV before investors purchase shares — since the 1970s. Money market funds use it. Certain

bond funds use it. The technology exists. The accounting infrastructure exists. It has existed for

over fifty years. The industry did not reject daily accrual because GAAP prohibited it. The industry

chose, from two available and equally GAAP-compliant accounting methods, the one that inflates

the NAV, because a higher NAV generates higher advisory fees. That choice was not compelled

by any accounting standard. It was compelled by revenue. And when a fiduciary selects, from two

available options, the accounting method that harms its clients and enriches itself — and then

conceals the existence of the alternative and the consequences of its choice — that is not an

accounting convention. It is a conflict of interest, undisclosed, that the securities laws have

prohibited since the day they were enacted. The GAAP defense does not merely fail to excuse the

industry's conduct. It illuminates the conduct, because the industry is not arguing that it had no

choice. It is arguing that the choice it made, to enrich itself at the expense of its investors, is none

of its investors' business.

The second industry defense is even worse — not because it is more sophisticated, but

because it is less. Universal practice, the argument goes, proves acceptable practice. Because every

major fund books realized income to NAV, no individual fund can be liable for doing so. Because

every major fund uses substantially identical prospectus language, no individual fund's disclosure

can be materially misleading. These propositions refute themselves the moment they are stated

aloud. The first converts coordinated fraud into standard practice — the more firms that commit

the violation, the stronger the defense becomes. The second converts uniform deception into

adequate disclosure — the more funds that repeat the same misleading language, the less

misleading it becomes. The industry's most sophisticated legal minds, backed by the most

expensive law firms in America, have arrived at the defense every child reaches for when there is

nothing left to say: “Everyone was doing it.” It was not a defense in kindergarten. It is not a

defense in federal court.

A uniformly bad disclosure does not cure the deficiency. It compounds it. It means 160

million Americans received the same misleading information from the same industry using the

same carefully chosen words — and not one of them had access to a truthful alternative, because

the industry ensured that no truthful alternative existed. When every fund uses the same false

characterization — describing a structural, permanent, daily risk as arising "shortly before" a

distribution — the uniformity is not evidence of independent professional judgment arriving at a

common conclusion. It is evidence of a common decision, made at the industry level, to minimize

a risk the industry knows cannot honestly be minimized. The industry's own tax director confirmed

the dynamic: one honest disclosure would have forced every competitor to match it within twelve

months. The industry made certain that honest disclosure never appeared — and now sends

lawyers to argue that the absence of honesty proves honesty was never required.

The industry cannot sustain both sides of its own contradiction. It cannot file prospectuses

with the SEC, admitting that distributions include return of capital, and then file Forms 1099-DIV

with the IRS reporting those same amounts as fully taxable income. It cannot tell investors in

buried fine print that they face "an unnecessary tax bill" and then tell federal judges that no one is

being overtaxed. It cannot acknowledge the harm in private and deny it in public. And its lawyers

cannot stand before a court and argue, with a straight face, that filings the industry's own executives

have described as "perfectly fine" — while 160 million Americans are overtaxed on their own

money — filings those executives refused to correct because "our investors don't know it is

happening" — constitute adequate disclosure. The fact that 160 million investors do not know it

is happening is not evidence that the disclosure is adequate. It is proof that it is not. These are not

defenses. They are the same confessions that created the liability, dressed in a suit, delivered in a

courtroom, and billed at $2,000 an hour.

And the industry has already conceded the point — not in words, but in conduct. After

receiving Petitioner's compliance notices, multiple fund complexes quietly stripped the challenged

language from their prospectuses — deleting the very phrases Petitioner had identified as false,

without filing corrective supplements, without issuing press releases, without notifying affected

investors, and without acknowledging the change. Accurate disclosures are not silently deleted.

Confident defendants do not quietly destroy evidence. The silent edits are consciousness of guilt

documented in the industry's own filing history — visible to anyone who compares prospectuses

year over year, undeniable once the comparison is made. And they prove something the industry's

lawyers will wish they did not: the industry received notice, concluded internally that the

challenged language could not be defended, removed it in a manner calculated to avoid creating a

public record — and continued processing sales and collecting fees as though the prior harm had

never occurred. The duty under the securities laws is to correct and warn — not to erase and forget.

If either defense gains acceptance, the damage extends far beyond these investors and this

industry. Any industry that coordinates its noncompliance achieves immunity from the securities

laws. Any disclosure, no matter how misleading, becomes adequate the moment enough firms

adopt it. Any fiduciary that chooses, from two available options, the one that enriches itself and

harms its clients can immunize that choice simply by ensuring every competitor makes the same

one. The honest actor who breaks ranks is punished — exposed to liability for admitting the

deficiency while competitors shelter behind the uniformity that conceals it. The securities laws

would protect investors only against aberrant fraud — the lone bad actor, the rogue firm.

Systematic, coordinated, industry-wide fraud — the kind that causes the greatest harm to the

greatest number — would be untouchable. This is precisely why Congress enacted the Racketeer

Influenced and Corrupt Organizations Act — to reach coordinated schemes that individual fraud

statutes cannot adequately address, and to provide treble damages and attorney's fees to private

plaintiffs willing to prosecute what the government will not. When the industry's defense to

individual claims is "everyone was doing it," the industry has identified its own conduct as the

organized, enterprise-level activity that RICO was designed to prosecute. Congress did not

construct the disclosure regime of 1933 so that it would buckle the moment Wall Street presented

a unified front. But that is precisely the regime these defenses would create — and it is precisely

what these lawyers are attempting to build, brief by brief, motion by motion, in courtrooms across

this country — arguments that gain weight with each day they go unrebutted by the agency

Congress charged with enforcing the disclosure laws.

This Petition does not ask the Commission to create new law. It asks the Commission to

defend the law that exists — before these lawyers dismantle it. The industry is not mounting a

defense. It is conducting an assault on the disclosure framework, attempting to establish through

litigation what it could never achieve through legislation: the principle that an accounting

classification excuses disclosure fraud, that a fiduciary's choice to enrich itself at its clients'

expense requires no disclosure if the choice is widespread enough, and that an industry willing to

coordinate its deception can place itself permanently beyond the reach of the securities laws. The

Commission's continued silence is not neutral. Silence, from the agency Congress charged with

enforcing these laws, is indistinguishable from agreement. And every day these arguments go

unrebutted, they gain weight — migrating from desperate motions into cited authority, from cited

authority into settled expectation, from settled expectation into the permanent understanding that

fraud of sufficient scale and sufficient uniformity is simply how business is done. The industry's

attorneys are constructing that reality one filing at a time. The Commission can end it today.

This Petition requests that the Commission issue interpretive guidance on the true nature

and timing of "buying a dividend" risk — so that the public receives what the Commission owes

them and what the industry has spent nearly eight years withholding: the truth. Investors are relying

on disclosures that characterize this risk as a narrow timing window they can avoid — a

characterization the industry knows is false, that the funds' own data disproves, and that misleads

160 million Americans into believing a structural, permanent, daily risk rarely exists. A single

interpretive statement — clarifying what the industry's own data already proves — would do more

to protect American investors than every dollar the Commission has spent on enforcement in the

last decade. The obligation to tell investors the truth does not yield to an accounting classification,

does not yield to industry consensus, and does not yield to the collective preference of the most

powerful financial institutions in the world to keep 160 million Americans in the dark about what

is being done with their own money.

G. The Reckoning

In January 2025, the Commission charged Vanguard with securities violations for

misleading disclosures about tax consequences and imposed a $106.41 million penalty. The Chief

of the Enforcement Division's Asset Management Unit stated the governing principle: "Materially

accurate information about capital gains and tax implications is critical to investors saving for their

retirements."

The Commission is right. Now apply it.

The Vanguard violation was episodic — one fund complex, one event, over. The violation

here is continuous — every fund complex, every trading day, no end. The Vanguard harm was

unintentional — a consequence Vanguard failed to anticipate, not a practice it designed and carries

out daily. The harm here is calculated to the penny before the investor purchases the share. The

Vanguard disclosures used general language the Commission found misleading. The disclosures

here use language that is affirmatively false — language the industry has already conceded cannot

be defended, by silently deleting it from its own prospectuses. The Vanguard penalty was $106

million. The annual harm here exceeds $100 billion. One thousand to one. Every year. If the

Commission's reasoning in Vanguard is correct — and it must be, because the Commission stated

it publicly twelve months ago — then the disclosures this Petition challenges are materially

misleading as a matter of law, and the Commission's failure to apply the same standard to harm

one thousand times greater is incoherent. The Commission cannot credibly tell a federal court that

a $106 million episodic disclosure failure warranted emergency enforcement while a $100 billion

annual disclosure failure warranted silence.

The Commission will not claim it lacked resources. Two successive administrations found

institutional capacity to pursue ambitious initiatives at the contested periphery of their statutory

authority — climate disclosure rulemaking that consumed years of staff work before being

judicially stayed and withdrawn; a Commission-wide "Project Crypto" initiative that the current

Chairman declared "job one," complete with a dedicated task force, multiple rounds of staff

guidance, proposed amendments to the Exchange Act, and approved listings for tokens such as

DOGE, SOL, and XRP — all for an asset class over which the Commission's jurisdiction remains

actively contested and for which Congress has not enacted enabling legislation. The Commission

built an entirely new regulatory framework for assets it may not have authority to regulate. Yet it

has not issued a single interpretive statement about the false tax reporting documented in this

Petition — false reporting by an industry it has regulated since 1940, an industry that holds the

retirement savings of 160 million Americans, an industry that the Commission's own Enforcement

Division already sanctioned for materially misleading tax-consequences disclosures twelve

months ago in Vanguard. The Commission found ample resources to regulate meme coins. It has

not yet found the resources to protect retirement savings.

The Commission's "job one" is not crypto. Unless Congress has amended the Securities

Exchange Act since the date of this Petition, the Commission's job one — its only job, the reason

it exists — is protecting investors. Any other allocation of institutional priority, while these

violations remain unaddressed, raises questions about institutional consistency that this Petition's

public record will invite oversight bodies to examine.

But the Commission's enforcement discretion on this matter has been extinguished. This is

no longer a question of institutional priorities. The constitutional framework documented in this

Petition — illegal exaction, due process, takings, mandatory statutory commands — does not

permit the Commission to hold this matter in a queue while it builds ‘token taxonomies.’

Constitutional violations are not competing priorities to be balanced against blockchain

roundtables. They are imperatives that override every other consideration, including the

Commission's preference for inaction. Evidence of widespread, ongoing false federal information

returns — the systematic filing of hundreds of millions of forms, admitted by the filers, sustained

for years, generating tens of billions in mandatory statutory penalties — cannot be administered

as one item among many on an enforcement agenda. This is not a disclosure deficiency awaiting

staff review. This is an ongoing abuse of the United States tax system, affecting more Americans

than any tax fraud in the nation's history, documented by the industry's own confessions, and

compounding daily.

The Commission's obligations upon receipt of this Petition are not discretionary, and they

are not sequential. They are concurrent, mandatory, and immediate. The Commission must act to

protect investors under the authority Congress vested in it — the authority that is its reason for

existence. The Commission must refer this matter to the Internal Revenue Service, which has

mandatory, non-discretionary duties to assess penalties under the "shall" commands of §§ 6721,

6722, 6201, 6301, and 6303 — duties it cannot decline, defer, or delegate. The Commission must

refer this matter to the Department of the Treasury, which oversees the integrity of the information

reporting system this Petition proves has been systematically compromised. The Commission must

refer this matter to the Department of Justice for evaluation of criminal liability under IRC §§

7206(1) and 7206(2) — because the knowing filing of false federal information returns is not

merely a civil penalty matter; it is a federal crime, and the Commission has an obligation not to sit

on evidence of criminal conduct while statutes of limitations expire. And the Commission must

refer this matter to the relevant Inspectors General — because when a federal agency possesses

documented evidence of systematic fraud affecting 160 million Americans and billions in Treasury

revenue, and has possessed that evidence for nearly six years without acting, the question of why

is one the Inspector General exists to answer.

While these obligations accrue and these referrals await, the human cost compounds.

Public employee pension funds — the retirement security of teachers, firefighters, police officers,

and municipal workers — hold trillions in the funds this Petition documents. Every dollar of

inflated NAV generates advisory fees that flow from those pension funds to the asset managers

that overvalue them — enriching every participant in the asset management food chain at the

direct, daily expense of the workers whose retirement savings are diminished by the very

institutions hired to grow them. Those workers will retire with less. Their pensions will pay less.

Their quality of life in retirement — the reward for decades of public service — is reduced every

day by an industry that profits from the scheme and a regulator that has permitted it for nearly six

years.

Consider what this means for a single American doing the responsible thing — investing

for retirement in a taxable brokerage account, contributing every paycheck, diversified across eight

funds as every financial advisor recommends. Each contribution purchases shares at an inflated

NAV. Each fund makes distributions — ordinary dividends, short-term capital gains, long-term

capital gains — that include return of her own capital. Across twenty-six bi-weekly contributions

and a portfolio of eight funds, with three distribution types each, she receives six hundred

and twenty-four separate phantom tax charges per year. Six hundred and twenty-four. None

of them owed. Every one of them reported to the IRS as taxable income on a Form 1099-DIV the

industry admits is false. She will not know they are false. She will not know they are avoidable.

She will pay them — because the industry chose not to tell her, and no one has required them to.

How is this acceptable?

Americans are struggling to put food on the table. They are choosing between groceries

and prescriptions, between rent and retirement, between heating their homes and saving for their

children. While they make those choices — while they do the responsible thing, the thing every

institution tells them to do, the thing the securities laws were designed to make safe — the fund

industry collects fees on deliberately inflated values and files tax forms it has admitted are false.

And the Commission hosts blockchain roundtables.

Working Americans saving for retirement did not ask for token taxonomies. Crypto

lobbyists did. They did not ask for innovation exemptions or crypto task forces. They asked for

one thing — the thing the securities laws promise, and the Commission's mission statement

guarantees: the truth. Accurate prices. Honest tax forms. Disclosures that do not mislead them into

losing money they cannot afford to lose. The industry has refused to provide it. Every gatekeeper

has refused to demand it. And the Commission — for nearly six years, across two administrations,

while Americans' savings are extracted through false reporting and inflated fees — has directed its

institutional energy elsewhere. The Commission must now direct it here. Not because Petitioner

demands it. Because the Constitution commands it, the statutes require it, the industry's own

admissions compel it, and 160 million Americans — who trusted every institution in this system

to do its job — deserve at least one institution that will.

This Petition is now public. The facts it documents — the admissions, the mathematics,

the industry's own words — are permanently available, to any person, for any lawful purpose. That

single fact changes everything. For every participant in the system this Petition has exposed, the

calculus that governed the last nearly eight years — silence is safe, inaction is costless, no one will

ever know — has inverted. Silence is now the most dangerous option available. And the clock has

started.

The industry's executives face personal criminal exposure under IRC §§ 7206(1) and

7206(2) for the knowing filing of false federal information returns — and under the mail and wire

fraud statutes, 18 U.S.C. §§ 1341 and 1343, for the transmission of those false returns via United

States mail and electronic wire. The industry faces civil liability under multiple bodies of federal

law — including federal racketeering and antitrust statutes — for the coordinated suppression of

the only technology capable of correcting the harm. The conduct constitutes a group boycott: the

industry excluded the sole market participant offering corrective technology, blocked investorprotective innovation from reaching the market, and preserved an anticompetitive pricing structure

that benefits every incumbent at the expense of every investor. Petitioner holds the evidence to

prove it — years of contemporaneous emails, meeting notes, and documented admissions from

some of the most senior executives in the financial services industry. That evidence, once filed on

a public docket, will be available to every class action firm in America.

That exposure cannot be indemnified. It cannot be insured. It cannot be resolved by

corporate settlement or absorbed as a cost of doing business.

The directors-and-officers liability insurance every executive assumes will protect them

may already be compromised. Standard D&O policies contain prior-knowledge exclusions and

notice-of-circumstances provisions that the industry's years of concealment have almost certainly

triggered. Firms that received Petitioner's compliance notices in 2023 and renewed their policies

without disclosing them may have procured coverage through material misrepresentation — a

basis for rescission that voids the policy from inception, leaving every insured without coverage

for any claim during that period.

The contemporaneous records — the emails, the meeting notes, the documented

admissions from senior executives — once part of the public record, will provide carriers with

proof of prior knowledge sufficient to rescind. The industry's silence did not merely create the

liability. It simultaneously destroyed the insurance that was supposed to cover it. Directors and

officers who assumed they were protected will discover they are not.

The independent fund directors and the independent directors of the management

companies that advise them face a choice with only one rational answer. Act now — retain

personal counsel, demand the information this Petition documents, notify the D&O carrier, request

a formal Section 15(c) review, cooperate with any examination — and establish good faith,

preserve whatever coverage remains, earn the cooperation credit the Commission's framework

provides, and set the standard against which every other director will be measured. Or wait — and

explain to a federal court why documented evidence of harm to 160 million Americans did not

constitute a "material compliance matter" requiring board action. The first director to act writes

the standard. The last director to act fails it. There is no third option. There is no safe middle

ground. There is only the mathematics of a prisoner's dilemma in which every rational player

moves first — because every day of delay compounds personal exposure, erodes insurance

coverage, and narrows the distance between "uninformed fiduciary" and "complicit participant."

The same mathematics cascade through every level of the system. The first fund complex

to adopt the corrective technology captures the competitive advantage that the industry's own tax

director predicted and forces every competitor to match it or explain, under oath, why it chose not

to. The first CCO to escalate this Petition to a fund board fulfills the duty that 15,266 others

abandoned — and earns the protection that cooperation confers. The first auditor to file a Section

10A report honors the "public watchdog" function the Supreme Court described — and shifts the

liability to every firm that continued certifying. The first law firm to advise its clients to correct

the disclosures fulfills the obligation Part 205 imposes — and escapes the disqualification that

awaits every attorney who kept drafting after notice. At every node, the dominant strategy is

identical: move first. The prisoner's dilemma this Petition creates has one rational move, and every

game theorist, every litigator, every D&O carrier, and every criminal defense attorney who

examines this matrix will reach the same conclusion. The first to cooperate defines the standard.

The last to cooperate faces it.

This Petition does not depend on the industry's voluntary correction — because nearly eight

years have established, beyond any doubt, that voluntary correction will not come. This Petition

was built to ensure it is no longer needed. Every class action firm in America now holds a threehundred-page evidentiary roadmap — fact-heavy, opinion-lite, constructed on the industry's own

admissions — sufficient to survive any motion to dismiss.

The exposure is not limited to class actions. Section 7434 of the Internal Revenue Code

provides every individual American with a private right of action against any person who willfully

files a fraudulent information return with respect to that taxpayer — with damages of the greater

of $5,000 or actual damages sustained, plus costs and reasonable attorney's fees. The industry has

filed hundreds of millions of Forms 1099-DIV that its own published materials acknowledge

overstate taxable income. Each form is a separate willful act. Each affected investor is a separate

plaintiff. The arithmetic is not complicated: 160 million Americans, each holding a federal

statutory cause of action, each entitled to a minimum of $5,000, plus costs, plus fees. The industry's

total exposure under § 7434 alone — before penalties, before class actions, before state

enforcement, before RICO — is measured not in billions but in hundreds of billions.

Every FINRA arbitrator now has access to mathematical proof that investor losses are not

speculative but calculable to the penny before the trade executes. Every public pension fund —

every state teachers' retirement system, every municipal workers' fund, every first responders'

pension board — now possesses documented evidence that the advisory fees it pays are calculated

on deliberately inflated values and that the fiduciaries it hired to protect its members' retirement

have been extracting from it instead. Every state attorney general and every state securities

regulator now holds the factual record to pursue enforcement under state consumer protection and

blue sky laws — actions that require no federal cooperation, cannot be blocked by federal inaction,

and will proceed whether or not a single federal agency lifts a finger.

This Petition was structured so that the failure of every institution Petitioner has already

tried — and every institution has failed — does not leave 160 million Americans without recourse.

The American legal system has other doors. This Petition opens all of them.

The federal agencies, however, do not have the option of watching from the sidelines while

private litigants and state enforcers do their work. This Petition has placed the SEC, the IRS, the

Department of the Treasury, and the Department of Justice on formal constitutional notice of an

ongoing illegal exaction from 160 million American citizens. The duties that attach are not

discretionary. They are not agenda items. They are not competing priorities to be ranked against

crypto task forces and blockchain roundtables. They are constitutional commands — and

constitutional commands do not wait.

The SEC must act to protect investors — not eventually, not when resources permit, but

now, because investors are being harmed today, this trading day, and the Commission has

possessed the evidence for nearly six years. The IRS must assess the mandatory penalties that four

separate "shall" commands of the Internal Revenue Code require — penalties that are accruing

now, expiring year by year, billions already forfeited through inaction, billions more weeks from

permanent extinction. The Department of Justice must evaluate criminal liability for the systematic

falsification of hundreds of millions of federal information returns — because when an entire

industry knowingly files false returns with the United States Treasury, admits the falsity, rejects

available corrections, and coordinates to suppress the truth, that is not a civil regulatory matter. It

is an ongoing criminal abuse of the American tax system, and no agency has discretion to look the

other way.

The relevant Inspectors General must examine why agencies possessing this evidence for

nearly six years did not act — a question that falls squarely within their statutory mandate and that

the passage of time has made unavoidable. And each of these referrals — to the IRS, to Treasury,

to the DOJ, to the Inspectors General — must be made promptly, because evidence of systematic

false federal information returns cannot remain in a single agency's possession while statutes of

limitations expire and the harm compounds. The obligation to refer is not subordinate to the

obligation to investigate. It is concurrent with it. Both begin today.

For the removal of all doubt, Petitioner includes with this Petition a Declaration under

penalty of perjury, executed pursuant to 28 U.S.C. § 1746, attesting to the events described in this

introduction and throughout this document — including the industry meetings, the executive

admissions, the gatekeeper engagements, the technology demonstrations, the universal rejection,

and Petitioner's extensive, years-long efforts to convince multiple federal agencies to act before

this Petition became necessary. The Declaration is attached as Exhibit 1 and incorporated by

reference in its entirety. Unless otherwise noted, factual assertions in this Petition regarding

Petitioner's personal outreach, industry statements, government engagement, and direct

observations are supported by the sworn testimony set forth therein.

Petitioner does not ask the Commission to take his word for it. He swears to it — under the

same penalties for false statement that the industry has exposed itself to by filing the very returns

this Petition challenges. The difference is that Petitioner's declaration is voluntary, made in the

service of truth, and offered to facilitate enforcement. The industry's false filings were involuntary

to no one — made knowingly, sustained deliberately, and designed to extract wealth from the

Americans they were supposed to protect.

The sections that follow provide the factual record, the legal analysis, and the specific relief

requested. They exceed three hundred pages. They cite the industry's own documents, the

industry's own admissions, and the industry's own data. They identify twenty-three material

misstatements and omissions in current prospectus disclosures. They provide the mathematical

proof that the Forms 1099-DIV are false — proof the industry cannot rebut because it is derived

from the industry's own numbers. They offer a technological solution the industry itself called

"groundbreaking" and "revolutionary" and then suppressed. They present a constitutional

framework built from unanimous Supreme Court precedent that no lower court can distinguish and

no agency can ignore. And they are designed to be used — by the Commission, by the IRS, by the

Department of Justice, by state regulators, by class action counsel, by arbitrators, by pension fund

trustees, by members of Congress, and by any American who believes that the law means what it

says and that the institutions created to enforce it should do their jobs.

The Government's choice is not whether to act. The Constitution has made that choice. The

Government's choice is whether to act now — on its own terms, in a manner of its choosing, with

the cooperation Petitioner has offered for nearly six years and continues to offer today — or to act

later, on a court-ordered timeline, after litigation that will be more costly, more public, and more

damaging to every institution involved than anything this Petition requests. Petitioner does not

prefer litigation. Petitioner prefers the outcome litigation would produce — delivered faster, at

lower cost, through the coordinated federal enforcement this Petition makes possible, and that this

moment demands.

But if the agencies Congress created to protect American investors will not protect them

— if the institutions designed to enforce the law will not enforce it — then Petitioner will assume

the role the law itself provides for exactly this circumstance: the Private Attorney General. It is a

role as old as the Republic — the citizen who stands up when the government stands down, who

enforces the law the government will not enforce, who carries into court the claims the public

cannot bring on its own behalf. It is the role for which Petitioner founded the Private Attorney

General Project — built for this case, for this moment, for the possibility, now confirmed, that

every institution in the system would fail and that a citizen would have to do what the government

would not. Petitioner will take these matters to the federal courts as a Private Attorney General

and as a United States Marine who swore an oath to support and defend the Constitution of the

United States against all enemies, foreign and domestic — an oath that carries no expiration date.

The enterprises documented in this Petition — enterprises that file hundreds of millions of false

federal returns, suppress corrective technology, and extract wealth from the Americans whose

savings they hold in trust — are the domestic threat that oath contemplates. Petitioner intends to

honor it.

The record is public. The truth is established. The Constitution has spoken. Congress has

commanded.

The agencies may act, or the courts will compel. But the outcome is no longer in question

— only the mechanism of its arrival.

II. PETITIONER'S INTEREST AND STANDING

Petitioner brings this action in four capacities: as an injured investor who has suffered the

harm firsthand, as a subject-matter expert who quantified the problem and built the solution, as a

protected whistleblower under federal securities and tax law, and as a fact witness who spent nearly

eight years documenting the industry's knowing refusal to protect investors. Each capacity

independently supports standing. Together, they establish something more: a record so thorough,

and Commission engagement so extensive, that no claim of ignorance or surprise can be credibly

advanced.

The record Petitioner built over nearly six years of Commission engagement — across

multiple Commissioners, dozens of staff, and hundreds of pages of documentation — establishes

with precision what the Commission was told, when it was told, and what it was given to evaluate.

No element of this Petition will be new to the Commission. The details are set forth below.

The Commission knows. The industry knows. What follows documents the record that

establishes both.

A. Injured Investor with Measurable, Ongoing Harm

Petitioner is an investor who has experienced a lifetime of the harm described in this

Petition. Like more than 160 million Americans who own funds, Petitioner has purchased

securities while relying on prospectuses that describe "buying a dividend" risk using timinglimited language—language suggesting the risk arises only "shortly before" distributions while

omitting the material consequences that exist continuously throughout the year.

The injury satisfies every requirement for standing. It is direct: Petitioner paid taxes on

amounts that were, in economic substance, return of his own invested capital—not income earned.

It is measurable: the tax loss is quantifiable to the penny using the formulas set forth in Section III

of this Petition. It is ongoing: the practice continues every trading day, the deficient disclosures

remain in circulation, and Petitioner—like millions of other Americans—remains exposed to

identical harm with each subsequent investment.

This is not a generalized grievance about regulatory policy. It is a concrete, particularized,

personal injury that Petitioner has suffered, that he can quantify, and that the requested relief would

prevent.

B. Sole Subject-Matter Expert Who Quantified the Harm and Built the Solution

Petitioner is also the CEO of FairShares, Inc., a technology firm that first quantified

"buying a dividend" harm across the entire fund industry and developed a turnkey technological

solution to correct it. He is the sole inventor of multiple U.S. and international patents covering

the technology required to eliminate this harm. To Petitioner's knowledge, no other person or

institution has conducted this analysis or developed comparable solutions. He is the sole subjectmatter expert on this problem worldwide. The research exists. The researcher has been sitting

across the table from Commissioners for nearly six years. The solution exists — patented, turnkey,

and demonstrated to the Commission's staff. Every element the Commission would need to act has

been provided.

This dual perspective—injured investor and technical expert—provides knowledge that

few possess. Petitioner understands both how the harm feels to those who suffer it and how the

accounting mechanics that cause it actually operate. He has first-hand knowledge of how

widespread the disclosure failure is, how much investors lose annually, and—critically—how

readily the problem can be solved.

The technology Petitioner developed accomplishes three things that current industry

practice fails to do: it enables funds to trade at fair value by segregating embedded realized income

from the tradeable share price; it generates accurate Forms 1099-DIV that properly characterize

return of capital rather than misreporting it as dividend income; and it delivers real-time point-ofsale disclosure—a simple data field showing investors the per-share amount of embedded realized

income and their estimated tax exposure before they click "buy."

The solution exists. It works. It was demonstrated to industry executives controlling

trillions of dollars in assets. It was offered for licensing and adoption.

The industry refused—not because the technology fails, but because it succeeds.

Implementing it would expose decades of overvaluation, end the fee extraction enabled by it, and

create a public record of what the industry has long known and concealed. That refusal,

documented extensively in Exhibit 1, is itself evidence of scienter.

Petitioner does not ask the Commission to mandate an untested remedy or impose

speculative burdens. The remedy is built, proven, and ready. The only missing element is the will

to require its use.

C. Protected Whistleblower Under Federal Securities and Tax Law

Petitioner is a protected SEC whistleblower under Exchange Act § 21F (15 U.S.C. § 78u6). In separate capacities, Petitioner is also an IRS whistleblower under 26 U.S.C. § 7623(b), a

DOJ whistleblower under the Department of Justice Whistleblower Awards Pilot Program (28

U.S.C. § 530C), and has filed a separate submission with the Antitrust Division of the Department

of Justice. See Exhibit 1, Declaration of Jeremy Thomas Roseberry ("Roseberry Decl.").

Four agencies. Four independent bodies of law. One set of facts.

The securities violations are complete at the moment of purchase: the investor acquires a

fund share at a price inflated by an undisclosed embedded tax liability, in reliance on a prospectus

that contains materially misleading statements about the tax consequences of purchasing fund

shares and omits the information necessary to evaluate them — that the investor will receive a

distribution consisting in part of the investor's own money back, reported as taxable ordinary

income on a federal information return the industry admits overstates the investor's tax obligation,

at a purchase price inflated by the very liability the prospectus fails to quantify. These are

disclosure failures under the Securities Act and the Investment Company Act — materially

misleading statements and omissions in connection with the offer and sale of securities.

The tax violations are analytically and temporally independent. They occur after the

securities transaction is complete, when the fund — in a separate act, through a separate

instrument, governed by a separate body of law — transmits a false Form 1099-DIV through

United States mail to the investor and via electronic wire to the Internal Revenue Service. The

Form 1099-DIV is a federal information return required under the Internal Revenue Code, not a

securities filing. The false statement is the mischaracterization of return of capital as taxable

ordinary dividend income — a false statement about tax classification on a tax document,

triggering tax obligations on income the investor never earned. Each false Form 1099-DIV is an

independent act of mail fraud (18 U.S.C. § 1341) and wire fraud (18 U.S.C. § 1343), and hundreds

of millions are filed annually. These predicate acts establish the pattern of racketeering activity

under the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. §§ 1961–1968).

The antitrust violations are structural and ongoing: an industry controlling more than $30

trillion in assets has coordinated to suppress corrective technology that has existed since the 1970s,

refused to license solutions that would eliminate the false reporting, and maintained inflated net

asset values on which advisory fees are calculated — because accurate accounting would reduce

the assets on which every participant bills.

Different instruments. Different agencies. Different victims. Different injuries. Different

statutes. Different penalties. Each standing independently. Each documented independently. Each

filed independently. The Commission's decision on this Petition will not affect the pendency or

outcome of the other three submissions, but the other three submissions ensure that the conduct

documented in this Petition will be examined by federal authorities, whether or not the

Commission acts.

Petitioner asserts all rights and protections afforded under federal whistleblower statutes.

Any attempt to impede, intimidate, or retaliate against Petitioner for this Petition or related speech

— whether by the industry, by counsel, or by any other party — violates federal law, including

Exchange Act § 21F(h)(1)(A), Rule 21F-17, Sarbanes-Oxley § 806 (18 U.S.C. § 1514A), and 26

U.S.C. § 7623(d). Petitioner will refer any such conduct to the appropriate enforcement authorities.

D. Fact Witness Who Exposed the Problem to Every Relevant Stakeholder

Petitioner is a fact witness with direct, first-hand knowledge of the events,

communications, and industry practices documented in this Petition. This is not speculation,

hearsay, or secondhand reporting. It is testimony from someone who identified the problem, spent

nearly eight years alerting every relevant stakeholder, and meticulously documented both the

responses and the silence.

Engagement with the Securities and Exchange Commission. Petitioner has met

personally with three SEC Commissioners regarding this matter: Chairman Paul Atkins,

Commissioner Hester Peirce—both currently serving—and former Commissioner Allison Herren

Lee. Petitioner has also met with the SEC's FinHub group, with the Commission's Office of the

Chief Accountant, and with counsel to individual Commissioners and senior advisors to the Chair.

In these meetings, the materially false and misleading disclosures at issue were discussed at length

and in detail. This list is not exhaustive.

In total, Petitioner estimates he has interacted with approximately fifty SEC staff members

across multiple divisions over the past six years. He provided every document the Commission

requested. He answered every question posed. When Commissioners asked Petitioner to develop

a comprehensive action plan to remediate the harm and protect investors, he did so—and

transmitted that plan to SEC Commissioners and staff in 2022. The Commission did not merely

receive a complaint; it actively shaped the remediation proposal it was given.

Throughout these interactions — spanning years, dozens of meetings, and hundreds of

pages of documentation — not a single Commissioner or staff member challenged the factual

accuracy of Petitioner's analysis, disputed the mathematical formulas demonstrating investor harm,

or contested the premise that current disclosures are materially incomplete. That record speaks for

itself.

Engagement with the financial services industry. In parallel, Petitioner engaged

exhaustively with the private sector. He met with executives at firms controlling over $30 trillion

in assets under management. He presented to self-regulatory organizations, fund administrators,

transfer agents, auditors, custodians, compliance consultancies, and securities law firms. He

transmitted formal fraud and compliance notices to 15,266 chief compliance officers—every CCO

registered in the SEC's Form ADV database. He offered practical tools, demonstrated working

technology, and provided a clear, low-cost path to remediation.

The industry's response was uniform: acknowledgment of the problem, followed by a

deliberate refusal to act. Executives admitted the harm was real. They conceded the fix was

feasible. And they declined to implement it — because, as one candidly explained, "investment

managers bill on the inflated NAV."

The documented record. Petitioner preserved this engagement meticulously. The record

includes contemporaneous meeting notes, formal correspondence, certified mail receipts, email

delivery confirmations, internal communications, and recorded statements. This documentation is

compiled in Exhibit 1, the Declaration of Jeremy Thomas Roseberry, and the supporting exhibits

referenced therein. The record is available for Commission review, enforcement use, and—where

appropriate—public disclosure.

E. Sworn Attestation Under Penalty of Perjury

What this Petition alleges will challenge belief. Major financial institutions—fiduciaries

entrusted with Americans' retirement savings—systematically failing to disclose material tax

consequences. An entire industry refusing to correct known deficiencies despite years of formal

notice. Investors losing tens of billions of dollars annually while every gatekeeper stands down.

Regulators receiving detailed warnings but taking no public action. These allegations invite

skepticism. They should.

To overcome that skepticism, Petitioner submits Exhibit 1: a comprehensive declaration

under penalty of perjury pursuant to 28 U.S.C. § 1746. The declaration attests to eight years of

events, identifies individuals and institutions by name, and documents the breadth of fiduciary

failure across the nation's largest financial firms. It provides dates, documents, communications,

and specific facts—not characterizations, but evidence.

The declaration is offered not as advocacy but as proof. It is subject to the penalties of

perjury—up to five years' imprisonment under 18 U.S.C. § 1621—and to the full scrutiny of the

Commission's investigative authority. Petitioner submits it precisely because the facts are as stated

and because the Commission and the investing public are entitled to a record they can rely upon.

F. Standing to Seek These Remedies

Petitioner has standing to petition for rulemaking and related agency action under the

Administrative Procedure Act. The constitutional and statutory requirements are satisfied:

Concrete injury. Petitioner has paid measurable taxes on amounts that were, in economic

substance, return of his own capital—not income. The dollars left his account. The harm is not

hypothetical.

Particularization. Petitioner experienced this injury personally, in his own investment

accounts, with his own money. He is not asserting a generalized grievance on behalf of the public

at large; he is among the injured.

Traceability. The injury is directly traceable to the challenged conduct: materially

misleading prospectuses that omit the data investors need to assess their exposure and make

informed decisions.

Redressability. The requested relief—interpretive guidance clarifying disclosure

obligations and rulemaking requiring point-of-sale transparency—would prevent the injury by

enabling investors to see their exposure before committing capital.

Beyond Article III standing, Petitioner possesses the equitable interest that every investor

holds: the right to receive truthful, complete information about securities offered for sale. That

right is the foundation of the disclosure regime Congress enacted in 1933. This Petition seeks to

vindicate it—not for Petitioner alone, but for every American who invests while relying on

prospectuses that do not tell the whole truth.

G. Public Interest, Not Private Advantage

Although Petitioner has a direct interest as an injured investor and market participant, the

relief requested is a rule of general application sought in the public interest.

The goal is not compensation for Petitioner's individual losses. Private remedies exist for

that purpose, and Petitioner reserves all rights to pursue them. The goal here is different: materially

accurate, real-time, point-of-sale disclosure for all investors—ensuring that every American

receives complete information about the securities they purchase and the tax consequences those

purchases trigger.

What serves Petitioner serves every investor who has ever purchased—or will ever

purchase—while embedded realized income sits in net asset value, relying on a prospectus that

implies the risk exists only "shortly before" a distribution. That is tens of millions of transactions

per year. That is 160 million Americans. That is the investing public whose protection is the

Commission's statutory mission.

This Petition asks for prospective relief: interpretive guidance to clarify the law,

rulemaking to mandate disclosure, and immediate protective action to stop ongoing harm. It asks

the Commission to do what only the Commission can do. Private litigation cannot achieve

industry-wide reform. Individual arbitrations cannot establish disclosure standards. Only

regulatory action—by the agency Congress created for precisely this purpose—can protect

investors at the scale the problem demands.

H. Why This Factual Record Is Necessary: The Industry's Demonstrated Refusal to SelfCorrect

This Petition requests two categories of affirmative regulatory relief: interpretive guidance

clarifying how existing disclosure obligations apply to embedded realized income, and a rule

requiring funds to disclose their realized income to investors at the point of sale. Both requests are

filed pursuant to the Administrative Procedure Act, 5 U.S.C. § 553(e), and SEC Rule of Practice

192, 17 C.F.R. § 201.192.

A petition for rulemaking must demonstrate that the requested rule is necessary. The factual

record that follows—documenting the mechanics of the violations, the scope of investor harm, the

industry's knowledge, and the conduct of every gatekeeper in the system—serves that purpose. It

is not background. It is the legal predicate for the relief requested. Every section of this Petition

builds the evidentiary foundation establishing why the Commission's intervention is required:

because the industry has demonstrated, conclusively and over an extended period, that it will not

correct course without compulsion.

The record establishes three facts that, taken together, eliminate any basis for the Commission

to conclude that market forces or voluntary compliance will protect investors.

First, the industry has known about the harm for decades and has chosen to perpetuate it.

Executives at major fund complexes have admitted knowledge of investor harm in terms that leave

no room for interpretation. One stated that the problem is not considered serious "because our

investors don't know it is happening." Another explained why available corrective technology

would never be adopted: "We bill on the [inflated] NAV." These are not ambiguous statements

requiring construction. They are admissions that the industry understands the harm, understands

how to prevent it, and has chosen not to—because the current practice generates revenue.

Second, the industry was offered a remedy and uniformly refused it. Petitioner developed

technology that would have corrected the pricing distortion, generated accurate tax forms, and

provided real-time point-of-sale disclosure at de minimis cost. The technology was demonstrated

to firms across the industry. Not one adopted it. Not one agreed to pilot it. The refusal was not

varied or gradual, as one would expect from firms independently evaluating a business decision.

It was uniform—the response one expects from an industry that has collectively determined that

correction threatens shared revenue.

Third, every gatekeeper Congress empowered to protect investors received formal notice and

declined to act. In 2023, Petitioner served 15,266 chief compliance officers with written notice

identifying the disclosure deficiency, quantifying the harm, and offering a remediation path. The

response was silence. The Big Four accounting firms were notified. No inquiry followed. Major

securities law firms were notified. They continued drafting the same prospectuses this Petition

identifies as materially false. Market structure providers acknowledged in writing that "the

problem is real" and that the industry has "simply ignored it"—and then refused to implement

corrective technology because "industry perception can kill reputations."

This record does not merely support the requested relief. It compels it. If market forces could

correct this problem, nearly eight years of notice would have produced at least one honest actor

willing to gain competitive advantage through truthful disclosure. None emerged. If self-policing

could protect investors, at least one of the 15,266 compliance officers who received written notice

would have investigated. None did. If the legal profession's ethical obligations could prevent

ongoing fraud, at least one of the securities law firms that received notice would have advised its

clients to correct the disclosures. None did.

Every mechanism short of regulatory intervention has been tested. Every mechanism has

failed. The factual record that follows documents those failures—not to relitigate what the industry

did, but to establish beyond dispute that what the industry will not do voluntarily, the Commission

must now require.

No Plausible Deniability

After Madoff, the Commission faced hard questions about warnings ignored and red flags

missed. The agency undertook reforms. It pledged to do better.

This matter is different. There are no missed signals here, no tips lost in the queue, no

warnings that failed to reach decision-makers. Petitioner did not submit a form and hope for the

best. He met with Commissioners—three of them. He briefed staff across multiple divisions—

approximately fifty individuals. He provided extensive documentation, exposed the problems

point by point, and developed a remediation plan at the Commission's own request.

For nearly eight years, Petitioner did everything a citizen can do to bring a problem to the

government's attention through proper channels. The Commission engaged substantively. And in

all of that engagement—across years of meetings, hundreds of pages of materials, and dozens of

detailed discussions—not once did anyone at the Commission challenge the accuracy of the facts,

dispute the methodology, or contest that investors are being harmed.

The Commission knows. The industry knows. The question is no longer awareness. It is

action — and every day that passes without it is a day 160 million Americans continue to invest

under disclosures the Commission has known to be materially incomplete for nearly six years.

Petitioner has standing to ask. The Commission has authority—and, Petitioner respectfully

submits, the obligation—to answer. And 160 million American investors, most of whom have no

idea this harm is being inflicted on them, are waiting for someone to tell them the truth.

III. FACTUAL BACKGROUND: HOW 'BUYING A DIVIDEND' WORKS

This Section explains the mechanics of 'buying a dividend'—not as abstract theory, but as

a quantifiable, recurring harm that affects every American who invests in income-producing

securities. The mathematics are straightforward. The consequences are severe. And the industry's

own documents confirm both.

A. What Is 'Buying a Dividend'?

"Buying a dividend" is not a term critics invented—it is the financial services industry's

own name for the losses investors incur as a result of its backward accounting treatment of

dividends and capital gains. The industry didn't just discover this risk—it manufactured it, named

it, and then decided not to adequately disclose it.

Understanding this problem requires grasping one simple fact: after you purchase fund

shares, your first distributions—dividends, short-term capital gains, and long-term capital gains—

simply return a portion of the money you just invested. You put money in; the fund sends some of

it back. Receiving your own money back is a return of your capital, and because you earned

nothing, the IRS deems it not taxable. But you will receive a 1099-DIV reporting it as income—

and you will pay taxes on it. This problem flows directly from Wall Street's accounting choices:

funds treat liabilities—amounts they are obligated to distribute—as assets.

That backward accounting practice embeds upcoming distributions into the price you pay.

Part of your purchase price is simply parked, waiting to be returned to you as a distribution. For

example, you buy one share for $100, and the fund has a pending $3.00 distribution. Of your $100,

only $97 is actually invested in the portfolio—the other $3.00 is earmarked for the distribution you

are about to receive. When the fund pays the distribution, the share price drops from $100 to $97,

and you receive $3.00 in cash. You now hold a $97 share plus $3.00 in cash—exactly what you

started with—$100. No income was earned.

This is a classic shell game, and it is what happens when firms treat fund liabilities as

assets. A shell game is a con where movement creates the illusion of opportunity, but the only

certainty is that the player loses. Here, money moves from your pocket into the fund and back

again. Wall Street knows it simply returned what you put in—it invented the term for this

maneuver. But when your money comes back, it arrives disguised as income: a 1099-DIV in your

mailbox, a tax bill from the IRS, and a liability for earnings that never existed.

Here is how it works, in plain terms:

Mutual funds and ETFs and other registered investment companies (“funds”) collect

dividends and earn interest from the stocks and bonds they own and realize capital gains when

they sell holdings at a profit. Under federal tax law, these funds must distribute substantially all of

this income to shareholders each year to maintain their tax status as regulated investment

companies under 26 U.S.C. §§ 852(a)–(b). These are not discretionary payments. They are legal

obligations—liabilities the fund owes to its shareholders.

Under Generally Accepted Accounting Principles (“GAAP”), a liability exists when an

entity has an obligation to transfer assets, the obligation arises from past events, and the amount

can be reliably estimated. Pending fund distributions satisfy every element of this definition: the

obligation to distribute is legally mandated by Subchapter M of the Internal Revenue Code; the

income triggering that obligation has already been realized; the amount can be calculated with

precision on any given day; and the fund knows exactly when payment will occur. Yet standard

industry accounting does not treat these pending distributions as liabilities. Instead, funds add them

to net asset value—treating what they owe shareholders as assets they manage. The effect is to

inflate reported asset values by the precise amount the fund is obligated to pay out, and to charge

advisory fees on money that belongs to shareholders, not to the fund.

And the concealment begins with the price itself. Every prospectus in America publishes

the same formula: total assets minus total liabilities, divided by shares outstanding. Investors read

that formula and reasonably conclude that the price reflects a complete accounting — that every

obligation the fund owes has been subtracted before the number reaches them. It has not. The

fund's largest known obligation — the realized income it must distribute under federal law — is

not subtracted as a liability. It is embedded in the "assets" figure as though it were portfolio the

investor will retain. The formula that purports to show investors what they are buying is the first

thing that misleads them.

The accounting methodology confirms the effect. Funds use accrual accounting for

operating expenses — management fees, custody fees, legal fees, transfer agent fees —

recognizing those obligations as liabilities and deducting them from NAV before they are paid in

cash. This is proper. It ensures that NAV reflects the fund's true net position by accounting for

known obligations when they are incurred, not when the check clears. But funds do not apply the

same method to distributions. Realized income that the fund is legally obligated to distribute —

an obligation that is known, calculated to the penny, mandated by federal statute, and that dwarfs

all operating expenses combined — is not accrued as a liability. It is held inside NAV on a cash

basis, recognized only when the distribution is actually paid. The fund accrues for the small

obligations and ignores the large one. It uses the accounting method that reduces NAV for expenses

measured in basis points and the accounting method that inflates NAV for obligations measured

in dollars per share. The result is not a coherent methodology. It is selective accounting — accrual

where it costs the adviser nothing, cash basis where accrual would reduce the fee base. Every dollar

of undistributed realized income that remains in NAV is a dollar on which the adviser collects fees

it would not earn if the same accrual discipline applied to distributions that applies to expenses.

The sections that follow quantify the consequences.

When an investor buys at this inflated price, she pays for income she did not earn. When

the fund later distributes that income, the share price drops by the distribution amount—and the

investor receives a tax bill for 'income' that was really just the return of part of her purchase price.

This is why the industry calls it 'buying a dividend.' The investor literally purchases an

upcoming dividend that has already accrued—and then pays taxes on it when it is returned to her,

as if she had earned it.

A clarification is necessary before proceeding. Petitioner does not contend that funds must

change their NAV calculations or that the accounting treatment of realized income violates GAAP.

The accounting treatment—recognizing realized income when earned and embedding it in NAV

until distributed—may be entirely appropriate under applicable accounting standards. What is not

appropriate is failing to disclose to investors the consequences of that accounting: that they are

paying for income they did not earn, that they will be taxed on amounts representing no increase

in their wealth, and that the fund knows exactly how much harm they will suffer before they

commit capital. The accounting practice is the industry's choice. Disclosure of its consequences is

the law's command.

BlackRock, the world's largest asset manager, describes the consequence plainly.

According to BlackRock's customer service materials, this practice saddles investors with 'an

unnecessary tax bill.' [emphasis added]

Source: https://www.blackrock.com/us/individual/resources/customer-service

BlackRock explains that the 'unnecessary tax bill' results from 'a portion of the investment

[being] returned to the investor as a taxable distribution.' The investor is taxed not on income

earned, but on the return of her own invested capital. This is not Petitioner's characterization. It is

the industry's own description of what occurs.

The problem is not unique to BlackRock. It affects every income-producing security that

accrues income to NAV: mutual funds, exchange-traded funds, and individual dividend-paying

equities. The only exception is money market funds (or funds that declare dividends daily), which

maintain stable NAVs and distribute income differently. For every other vehicle—the funds in

which Americans hold their retirement savings—the harm is structural and ongoing.

B. The Scope of Harm: Who Loses and How

The erosion of American retirement savings is not theoretical. It is occurring now, across

every account type where ordinary people save.

When liabilities are booked as assets, NAV rises artificially. That artificial inflation means

investors pay more per share than economic reality warrants, receive fewer shares for their

investment, and—because they own fewer shares—receive fewer dividends in perpetuity. The

compounding effect over a working lifetime is substantial. An investor purchasing an S&P 500

index fund pays more than the S&P 500 is worth—a premium for the privilege of inheriting

someone else's tax liability. The fund cannot outperform its benchmark when the investor overpays

at entry; the distortion is baked in from day one.

The affected accounts include: taxable brokerage accounts, 401(k) and 403(b) plans, 457(b)

governmental plans, Traditional and Roth IRAs, SEP and SIMPLE IRAs, ESOPs, defined-benefit

and cash-balance pensions, 529 college savings plans, health savings accounts invested in funds,

union multiemployer (Taft-Hartley) plans, endowments, foundations and any other account that

buys income-producing securities.

These are the savings vehicles of workers, teachers, nurses, firefighters, public employees,

and the private employers that sponsor retirement plans for them. The harm falls on those who can

least afford it and who have the least ability to detect it.

Unions and plan sponsors are now on notice: their participants' portfolios and retirement

outcomes are being eroded by inflated pricing. Whether this silent wealth transfer continues

depends on the regulatory response this Petition seeks to initiate.

C. Why the Taxation Is Unjust: The Economic Reality

The core problem is simple: the same income is being taxed twice—once to the person who

earned it, and again to the person who bought the share after it was earned but before it was

distributed.

Consider what happens economically. A fund holds stocks that pay dividends. Those

dividends belong to whoever owned the fund shares when the dividends were earned. But because

the fund adds those dividends to NAV rather than segregating them as a liability, a new investor

who buys the fund after the dividends accrued pays a price that includes those dividends.

When the fund distributes the first post-purchase distributions, two things happen

simultaneously: the investor receives cash, and the share price drops by the same amount. The

investor's total wealth is unchanged. It is money that moved from the investor's bank account, into

the fund at purchase, and then, from the fund, back into the investor's bank account as a

"distribution." The fund took a portion of the investor's own capital and returned it. No new wealth

was created. Nothing was "gained." The investor simply received her own money back—and then

received a tax bill for the privilege.

Yet the fund sends her a Form 1099-DIV reporting this distribution as taxable income.

The Bank Withdrawal Analogy

Taxing this distribution is economically identical to taxing a bank withdrawal. If a taxpayer

deposits $10,000 of after-tax wages into a savings account and later withdraws $1,000, she has not

earned new income. She has simply retrieved her own money. No one would suggest the

withdrawal should be taxed.

'Buying a dividend' works the same way. The buyer pays a price that includes accrued

distributions. The first payout merely returns part of that purchase money. Nothing new was

gained. Yet the IRS receives a form showing taxable income, and the investor pays tax on what is,

in economic substance, the return of her own capital. No one disputes this.

The Supreme Court has defined income as 'an undeniable accession to wealth, clearly

realized, and over which the taxpayer has complete dominion.' Commissioner v. Glenshaw Glass

Co., 348 U.S. 426, 431 (1955). A transaction that leaves the taxpayer in exactly the same position

she started—no wealthier, no poorer—does not meet that definition. It is not income. It is the return

of her own money.

This Is Not a New Discovery

The principle that accrued income embedded in a purchase price is not taxable income to

the buyer has been recognized in federal tax law since the Internal Revenue Code of 1954. Treasury

regulations have long provided that when a buyer purchases a bond at a price reflecting accrued

interest, the first interest payment received is not income — it is a return of capital. 2 The IRS

Treas. Reg. § 1.61-7(c) ("If a taxpayer purchases bonds when interest has been defaulted or when the interest has

accrued but has not been paid, any interest which is in arrears but has accrued at the time of purchase is not income

confirmed this principle in Revenue Ruling 67-17, holding that "purchased accrued interest

attributable to the bonds represents a return of capital when received." 3 The economic logic is

identical for fund distributions: the buyer pays a price that includes accrued income, and the first

payout merely returns what the buyer already paid for. Yet for bonds, the tax code corrects for this.

For fund shares, it does not. The industry has known for seventy years that treating these payments

as income misstates actual income and imposes taxation that Congress never authorized.

Yet the practice continues. And it does not happen once per investor. It happens with every

purchase—potentially three times per purchase, because investors face separate tax bills for

dividends, short-term capital gains, and long-term capital gains.

D. Illustrative Example: The $100 Share

The mechanics become clear with a simple example. Follow the money:

Step 1: The Purchase.

An investor buys one share for $100. The fund has announced it will pay a $3 dividend

soon.

Step 2: What the $100 Actually Buys.

Of the $100 price paid:

• $97 purchases the underlying investment (the fund's pro-rata share of portfolio

holdings)

• $3 purchases the upcoming dividend already embedded in the price

The investor has paid $3 for income that accrued before she owned the share—income she

did not earn.

and is not taxable as interest if subsequently paid. Such payments are returns of capital which reduce the remaining

cost basis."). This regulation, promulgated under the Internal Revenue Code of 1954, codifies the principle that

income accrued before a purchase belongs to the seller, not the buyer — and that taxing the buyer on its return is

taxing a return of capital. The IRS Schedule B instructions apply this principle today: bond buyers subtract accrued

interest paid at purchase from their reported interest income. See Instructions for Schedule B (Form 1040) (2025)

(directing buyers to subtract "Accrued Interest" from reported interest income). No analogous adjustment exists for

mutual fund distributions — the identical economic transaction, treated opposite ways.

Rev. Rul. 67-17, 1967-1 C.B. 11 (holding that accrued interest purchased with bonds "represents a return of capital

when received" and is not includible in taxable investment income).

Step 3: The Distribution.

When the dividend is paid:

• The share price adjusts from $100 to $97 (the dividend leaves the fund)

• The investor receives $3 in cash

Step 4: The Investor's Position After the Distribution.

• Stock value: $97

• Cash received: $3

• Total: $100

The investor has exactly what she started with. No wealth was created. The fund took $100

from her, kept $97, and gave her back $3.

Step 5: The Tax Bill.

Despite this economic reality, the fund reports the $3 as fully taxable income on Form

1099-DIV. If the investor is in a 33% tax bracket, she owes approximately $1 in federal

and state taxes on this 'income.' She started with $100. She now has $97 in stock plus $3

in cash, minus $1 in taxes owed. Her net position: $99.

The investor lost $1.00 (or 1% of her capital)—not from market movement, not from

investment risk, but from an accounting practice that treats her own money as income when it is

returned to her.

This loss is certain, immediate, and entirely avoidable with proper disclosure. Had the

investor known that $3 of her purchase price would be returned as a taxable distribution, she could

have waited until after the distribution to buy, paying $97 for the same economic interest, with no

embedded tax liability.

The Prospectus Acknowledges This

Here is the remarkable part: fund prospectuses acknowledge (vaguely) that this distribution

is, in economic substance, a return of capital. They warn (vaguely) investors about 'buying a

dividend.' But they describe the risk using timing-limited language—implying it arises only

'shortly before' distributions—while withholding the single data point (the per-share amount of

embedded realized income) that would allow investors to quantify their exposure and make

informed decisions.

The disclosures admit the problem exists. They just don't tell investors how big it is, when

it applies, or how to calculate it.

E. Scaling the Harm: From One Share to One Thousand

The $1 loss on a single share becomes significant when scaled to real investment amounts.

Suppose an investor buys 1,000 shares at $100 each—a $100,000 investment. The security

will pay a $3.00 per share dividend. If the investor's combined federal and state tax rate is 33%,

her tax loss is:

(1,000 shares × $3.00 embedded dividend) × 33% = $990

The formula is straightforward: Tax Loss = Shares Purchased × Embedded Distribution

Per Share × Effective Tax Rate

This $990 in taxes should not have been owed. The investor paid for income she did not

earn, and then paid taxes on it when it was returned to her.

Multiple Distributions Multiply the Loss

Investment funds typically pay multiple types of distributions: ordinary dividends, shortterm capital gains, and long-term capital gains. Each type may be taxed at different rates. An

investor faces a separate tax loss for each distribution type embedded in NAV at the time of

purchase.

Suppose the same fund has embedded not only a $3.00 dividend, but also a $2.00 shortterm capital gain and a $4.00 long-term capital gain—$9.00 total per share. Using realistic state

and federal tax rates (40% for STCG, 20% for qualified dividends, 20% for LTCG):

Distribution Type

Per Share

Tax Rate

Tax Loss

Ordinary Dividend

$3.00

1,000

20%

$600

Short-Term Capital Gain

$2.00

1,000

40%

$800

Long-Term Capital Gain

$4.00

1,000

20%

$800

Total Embedded Income

$9.00

$2,200

The investor will lose $2,200 in unjust taxes—certain, immediate, and entirely unrelated

to market performance. This loss was determined the moment she clicked 'buy.' It was not

disclosed to her before she committed her capital.

Why This Is Material

Had this investor been informed at the point of sale that she would lose $2,200 with

certainty—a loss caused entirely by the issuer's accounting choice and not by any market risk—

she would not have made the purchase. Or she would have waited until after the distributions. Or

she would have chosen a different investment.

Information that would alter a reasonable investor's decision is, by definition, material. The

Supreme Court has made this standard clear: a fact is material if there is 'a substantial likelihood'

a reasonable investor would view it as important in making an investment decision. TSC Industries,

Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). Materiality turns on whether disclosure would

have 'significantly altered the total mix of information' available. Basic Inc. v. Levinson, 485 U.S.

224, 231–32 (1988).

A guaranteed $2,200 tax loss—certain, quantifiable, and unrelated to market

performance—meets that standard. Investors deserve this information before their money is taken.

For nearly eight years, the industry has refused to provide it.

F. The Timing Lie: Risk Exists Nearly Every Day

Current prospectus disclosures generally describe 'buying a dividend' risk using timinglimited language—warning investors of consequences that arise 'shortly before' or 'just prior to'

distributions. This language implies the risk is episodic: a narrow window around distribution dates

that careful investors can avoid.

That implication is false. The risk exists nearly every trading day of the year.

As soon as a fund receives a dividend from an underlying holding, accrues interest, or

realizes a capital gain, that income accrues to NAV. Investor losses and security overvaluation

begin immediately and persist until 100% of the accumulated income is distributed. Dividends are

generally paid monthly, quarterly, semi-monthly, or annually. Capital gains are typically

distributed annually, often in December. Between distribution dates—which is to say, most of the

year—the risk accumulates continuously.

Visual Evidence: Quarterly Dividend Funds – Actual Data

The chart below illustrates this reality for VFINX, Vanguard's S&P 500 mutual fund. It

shows how the fund's price deviates from its underlying index (the S&P 500) as dividends from

portfolio holdings accrue to NAV.

The fund's price outpaces the index—not because the fund is outperforming, but because

accrued dividends inflate NAV. This creates the false illusion of superior performance vs

benchmarks. The 'overvaluation' persists until each quarterly ex-dividend date, when accrued

income is distributed, and NAV resets toward fair value. The sharp drops in the chart correspond

to those ex-dividend dates.

Any investor buying during the periods of positive deviation—shown in green—is 'buying

dividends.' That investor will pay unjust taxes and will purchase fewer shares than she could buy

if she purchased an index fund tracking the same holdings. This is visual, quantifiable evidence

that the risk of buying a dividend occurs continuously throughout the quarter, not only 'shortly

before' distributions.

Visual Evidence: Annual Dividend Funds – Actual Data

The problem is more severe for funds that distribute less frequently. The chart below shows

SWPPX, Schwab's S&P 500 mutual fund, which accrues dividends throughout the year and pays

them in a single distribution each December.

SWPPX Dividend Premium

3.000%

2.500%

2.000%

1.500%

1.000%

0.500%

0.000%

Notice how the risk begins reaccumulating immediately after the year-end distribution.

There is no 'safe' window of meaningful duration. The risk is continuous.

The proof that this methodology overstates NAV is visible on every distribution date.

When a fund pays a distribution, its share price drops by exactly the amount distributed — a decline

completely unrelated to the price action of any security in the portfolio. That drop is prima facie

evidence that the pre-distribution NAV was overstated. If the price accurately reflected the value

of portfolio the investor will retain, a distribution would not reduce it. It reduces it because the

price included money the fund already owed — an obligation the fund recognized internally,

calculated daily, and chose not to subtract. The market corrects in an instant what the fund's

accounting concealed for months. The sharp drops visible in the charts above are not market

events. They are confessions — each one documenting the exact amount by which NAV exceeded

fair value the moment before the distribution was paid.

The Complete Picture: Dividends Plus Capital Gains

Investor harm extends beyond dividends. Capital gains distributions—both short-term and

long-term—accumulate in fund NAVs throughout the year, creating additional layers of hidden

liability.

It is important to understand that capital gains distributions do not represent income to the

investor. They are taxable distributions of NAV, not wealth creation. When capital gains are

distributed, NAV decreases by the distribution amount, and the investor owes tax on the

distribution. The result is a net loss: the investor's total position (shares plus cash) is unchanged,

but she now owes taxes.

The figure below illustrates a model fund that starts the year at a $100 NAV and accrues

dividends as well as realized short- and long-term capital gains throughout the year.

'Dirty NAV' is a term borrowed from bond markets. A 'dirty' price includes accrued

income; a 'clean' price excludes it. Here, the rising red area represents the per-share premium

investors pay over the fund's true economic value—the amount by which NAV exceeds what the

investor would pay if liabilities were properly accounted for.

This model fund accrues realized capital gains equal to 7% of NAV—$7.00 per share—

which, according to Russell Investments, represents an industry average for mutual funds. 4 The

small step-downs mark four quarterly dividend payments of $0.50 each. As long as the red balance

is positive, buyers suffer a certain, non-market-related loss: their first payouts merely return part

of their initial investment, yet those returns are taxed as income.

The inflated NAV also impairs buying power—investors purchase fewer shares, which

means fewer dividends forever—and it generates excess fees, because managers charge assetbased fees on amounts that are, in substance, liabilities owed to shareholders.

But notice what the chart also reveals: the quarterly dividend payments barely dent the red

zone. Even after $2.00 in distributions, the investor remains exposed to $7.00 in embedded capital

gains—gains that will eventually be distributed, taxed, and deducted from share value. Paying

dividends does not cure the problem; it merely addresses one component of embedded income

while leaving the larger liability intact.

The Truth About Timing

For funds that distribute capital gains annually, the only economically rational time to buy

is the single trading day after all year-end distributions are paid—typically one day in December—

when NAV finally resets to fair value. Even then, if the fund receives any dividends or realizes

any gains on that day, the end-of-day NAV will include that new accrual, and the investor will

face a loss.

Prospectuses that describe this risk as arising 'shortly before' distributions are not merely

imprecise. They are materially false. The risk exists continuously. The 'safe' window the

disclosures imply does not exist.

G. The Fee Extraction: Everyone Wins Except the Investor

When liabilities are booked as assets, NAV rises—and every asset-based fee in the chain

is calculated on that inflated base.

Management fees. Investment adviser and sub-adviser fees. Administrator and transferagent fees. Platform and wrap fees. Strategist and model-overlay fees. Consultant fees. Custody

https://russellinvestments.com/content/ri/us/en/insights/russell-research/2024/12/2024-capital-gains-snapshotunderstanding-the-tax-pain-many-inve.html

and clearing fees. Revenue-share arrangements. Every participant in the distribution chain benefits

from higher NAV.

The mechanism is automatic: the market bills fees on liabilities sitting in the price,

compounding fee extraction across multiple layers without delivering any additional value. The

inflated base persists until distributions are paid, which, for capital gains, means most of the year.

Only the investor loses.

H. The Vicious Feedback Loop: Harm That Never Ends

The harm from 'buying a dividend' does not stop with the initial purchase. It compounds

with every reinvested distribution (when realized income such as capital gains remains in the

NAV) for the life of the investment. This creates a vicious feedback loop that most investors never

see—and that no prospectus discloses.

How the Feedback Loop Works

Consider an investor who purchases fund shares and elects dividend reinvestment—the

default option for most retirement accounts. Her initial purchase exposes her to the 'buying a

dividend' harm described above: she pays an inflated price that includes embedded realized

income, and she will be taxed on that income when it is distributed.

But the harm does not end there.

When the fund pays its quarterly dividend, her dividend is automatically reinvested at the

current NAV. If the fund has any embedded realized income at that moment—accrued dividends

from the current quarter, or capital gains accumulated since the last distribution—her reinvested

dividend purchases shares at an inflated price. She is 'buying a dividend' again. And she will be

taxed again on income she did not earn.

This happens every quarter, for every reinvested dividend.

It gets worse. Suppose the fund pays both dividends (quarterly) and capital gains

(annually). When the Q1 dividend is reinvested in March, the fund may already have $2.00 per

share in accrued capital gains embedded in NAV. The investor's reinvested dividend buys

overvalued shares. When those capital gains are distributed in December, she will receive a 1099DIV showing taxable capital gains on shares she purchased with reinvested dividends just months

earlier. She paid for income she did not earn, and now she pays taxes on it.

The Compounding Effect

This feedback loop operates continuously:

•

Initial purchase: Investor buys at inflated NAV, will be taxed on embedded

income

•

Q1 dividend reinvestment: Reinvested at NAV that includes new accrued

income → taxed again

•

Q2 dividend reinvestment: Reinvested at NAV that includes more accrued

income → taxed again

•

Q3 dividend reinvestment: Reinvested at NAV that includes more accrued

income → taxed again

•

Q4 dividend reinvestment: Reinvested at NAV with maximum embedded

capital gains → taxed again

•

Year-end capital gains distribution: Taxed on gains 'earned' by shares purchased

throughout the year with reinvested dividends

Every reinvestment is a new 'buying a dividend' event. Every distribution triggers a new

tax bill on income the investor did not earn. The harm compounds quarterly—and continues for

the life of the portfolio.

No Disclosure, No Escape

Investors have no way to know this is happening. The prospectus does not disclose the pershare amount of embedded realized income. The reinvestment happens automatically. The 1099DIV arrives the following January, showing taxable income the investor believes she earned—

because no one told her otherwise.

The only way to avoid this feedback loop is to turn off dividend reinvestment and manually

time purchases for the single day each year when NAV resets to fair value. No prospectus suggests

this. No broker recommends it. And for investors in 401(k) plans and other retirement accounts

that frequently invest, it may not even be an option.

The harm is structural, continuous, and—absent disclosure—invisible.

I. Quantifying the Harm: Four Formulas for Investor Loss

Petitioner provides four formulas that any investor, regulator, or auditor can use to measure

the components of 'buying a dividend' harm. These are the calculations the industry could—but

does not—perform and disclose. In a disclosure-based regime, withholding the arithmetic is

withholding the truth.

Inputs Required for All Calculations:

•

Per-share realized income accruals at the time of trade (ordinary dividends, STCG, LTCG)

•

Number of shares bought or sold

•

Effective state plus federal tax rates for each income type

•

Tax characterization of distributions (ordinary or qualified dividends)

•

Total investment amount

•

Fund expense ratio

Formula 1: Tax Loss from 'Buying a Dividend' at Purchase

This formula calculates the unjust taxes an investor pays because realized income was

embedded in the price at purchase. The investor must calculate each distribution type separately,

then sum all three for the total loss.

1) Dividend Tax Loss = Accrued Dividend Per Share × Shares Bought × Effective

Dividend Tax Rate

2) STCG Tax Loss = Accrued STCG Per Share × Shares Bought × Effective STCG

Tax Rate

3) LTCG Tax Loss = Accrued LTCG Per Share × Shares Bought × Effective LTCG

Tax Rate

Total Tax Loss = Dividend Tax Loss + STCG Tax Loss + LTCG Tax Loss

Result: The total tax paid on what is, in economic substance, the investor's own money

being returned.

Formula 2: Excess Tax When Qualified Dividends Are ‘Converted’ to Short-Term Capital

Gains at Sale

This formula captures a second layer of harm that applies to sellers. When an investor holds

shares for more t

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