A federal judge in Philadelphia has rejected Vanguard Group’s proposed $40 million class-action settlement, stating that it offers “no value” to investors who were already entitled to relief through a separate regulatory agreement.
Why the Settlement Was Rejected
U.S. District Judge John Murphy ruled that the $40 million settlement duplicated benefits already provided under a $135 million agreement with the U.S. Securities and Exchange Commission (SEC) earlier this year. That SEC settlement, minus the $40 million and some individual claims, resulted in $106.4 million in actual investor relief, including a $13.5 million civil penalty.
In his 25-page ruling, Murphy criticized the class-action lawyers for structuring a deal that would deduct more than $13 million in legal fees, thereby reducing investor compensation below what they were already entitled to via the SEC accord.
“The named plaintiffs, their counsel, and Vanguard cannot deny the math,” Murphy wrote.
“The SEC settlement guarantees class members the exact benefit that would have been provided by this proposed settlement — but without deduction for attorneys’ fees or requiring claims to be extinguished.”
The Background
The dispute stems from Vanguard’s December 2020 decision to slash the investment threshold for institutional share classes of its target-date funds from $100 million to $5 million. This triggered a mass migration of investors from higher-cost retail funds to lower-cost institutional classes.
That mass shift forced the retail funds to liquidate assets, resulting in unanticipated capital gains taxes for remaining investors—despite target-date funds being marketed as tax-efficient retirement vehicles.
To assess how such structural changes impact fund performance, investors can examine fund segmentation details via the Revenue Product Segmentation API, which tracks revenue tied to different fund classes.
What’s Next for Vanguard?
The decision marks a setback for Vanguard’s legal strategy, particularly its attempt to resolve civil and regulatory actions in parallel. The firm warned that rejecting the $40 million deal based on this objection could complicate future settlements in similar dual-track proceedings.
For investors tracking the financial implications of such litigation and regulatory costs, Vanguard’s broader impact on earnings and financial health can be monitored using the Financial Growth API, which offers insights into net income and expense trends.
Judge Murphy’s rejection sends a clear message: duplicate settlements that enrich attorneys at the cost of investors won’t pass judicial scrutiny. With regulatory actions already providing meaningful restitution, any parallel civil settlement must offer clear, additive value to be considered fair.
