Vanguard fined $800K over statement errors for money market funds

The Financial Industry Regulatory Authority’s Department of Enforcement fined Vanguard Marketing Corp., a subsidiary of The Vanguard Group, $800,000 for misstating estimated yield and annual income information related to money market funds on 8.5 million account statements.

According to a letter of acceptance, waiver and consent released by FINRA in the matter, a technical issue beginning in 2019 prevented new information received through VMC’s automated data feed to overwrite certain existing data. As a result, calculations of estimated yield and annual income were incorrect for certain money market accounts held as a position and caused them to be overstated on account statements.

“For example, in September 2020, VMC account statements displayed an estimated yield of 1.87% 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),” said the letter. “Because the earlier account statements did not reflect the correct figures, they were inaccurate, and therefore, misleading.”

After FINRA began its investigation, VMC self-reported three additional errors that affected the presentation of performance information on account statements:

1. When VMC customers deposited a paper or electronic check into an account on the last business day of the month, the personal performance section of the account statement incorrectly identified the deposit as an increase in market value instead of a cash deposit. The error would be corrected on the next month’s statement as a decrease in market value in the same amount, but it resulted in the investment return calculation being inaccurate on about 23,000 statements.
2. VMC’s account statements also inaccurately showed margin credits and debits such as paying down margin debt or purchasing a security on margin as market appreciation or depreciation where customers maintained an open position over multiple months. Although this error was corrected when the position closed, it caused the investment return calculator to be inaccurate on about 57,000 statements.
3. For approximately 50 corporate actions such as stock splits, VMC account statements inaccurately reported differences in the value of shares before and after the corporate action as a purchase or withdrawal instead of market appreciation or depreciation, which also caused the Investment Return line to be inaccurate. This error affected an unknown number of statements.

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The errors did not affect the actual market yield paid to customers, which was correct, or holdings information displayed on customer statements.

The letter additionally said Vanguard didn’t reasonably supervise its account statements and failed to address customer reports of inaccuracies in a timely manner. Starting in fall 2019, 50 customers contacted VMC to alert the firm of the miscalculations, but it failed to investigate until the issue was brought to the attention of senior management in late 2020, said the letter. In May and June 2021, VMC corrected the errors and subsequent statements contained correct information.

Malvern, Pennsylvania-based Vanguard accepted and consented to the penalty, which now moves to FINRA’s National Adjudicatory Council or its Office of Disciplinary Affairs for approval.

Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel.