Vanguard Fined $800K Over Statement Errors


The Financial Industry Regulatory Authority has fined Vanguard Marketing Corp. $800,000 and censured the brokerage firm for inaccuracies on millions of account statements and for failing to quickly address customer reports about the problems.

From November 2019 to September 2020, the Vanguard Group business overstated projected yield and annual income for nine money market funds, affecting roughly 8.5 million account statements, FINRA found.

Separately, from at least October 2019 to June 2021, certain Vanguard account statements inaccurately presented market appreciation or depreciation and investment returns, according to the regulator.

The self-regulatory organization also found that Vanguard “failed to reasonably supervise its account statements by failing to timely address customer reports of inaccuracies.” The company violated multiple FINRA rules, FINRA said.

Vanguard accepted and consented to the findings without admitting or denying them, according to a FINRA letter dated May 25, first reported by InvestmentNews.

Due to a technical issue that prevented newer information received through an automated data feed from overwriting certain existing data, Vanguard Marketing Corp. failed to update the data it used to calculate the estimated yield and annual income figures for some money market funds held as an investment position (rather than for settlement purposes), according to the FINRA document.

This caused the yield and annual income projection overstatements on the money market funds, the letter said.

In September 2020, for example, account statements displayed an estimated 1.87% yield for the Vanguard Federal Money Market Fund but, after the error was corrected, the October 2020 account statements included an estimated yield of 0.06%, approximately 30 times less.

Separately, after FINRA started investigating the yield and income projection overstatement issue, Vanguard self-reported that other errors affected the presentation of performance data on certain account statements. These errors included the following:

  • When clients made account deposits on the last day of the month, the personal performance section on statements incorrectly identified the deposit as an increase in market value instead of a cash deposit; the error would be corrected automatically in the next month’s statement as a decrease in market value in the same amount; these artificial changes in market value caused inaccurate “investment return” calculations on about 23,000 statements.
  • Accounts statements also inaccurately reflected margin credits and debits, such as paying down margin debt or purchasing a security on margin, as market appreciation or depreciation where the customer maintained an open position spanning multiple months; this also caused inaccurate investment return calculations, an error affecting about 57,000 statements.
  • For about 50 corporate actions such as stock splits, account statements inaccurately reported differences in the value of shares before and after the action as a purchase or withdrawal instead of market appreciation or depreciation, which also caused an inaccurate “investment return” line.

“The errors outlined above did not affect the actual market yield paid to customers, which was correct, or holdings information displayed on customer statements,” FINRA said, adding that Vanguard corrected the errors in May and June 2021.

A Vanguard representative didn’t immediately respond to an emailed request for comment.