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Vanguard fined $800K by FINRA over misleading account statements

On Behalf of | Jun 19, 2023 | FINRA Compliance

Vanguard Marketing Corp. has been fined $800,000 over misleading account statements that were sent to millions of customers, InvestmentNews reports.

The Financial Industry Regulatory Authority found that from November 2019 to September 2020, Vanguard overstated projected yield and projected annual income for nine money market funds on about 8.5 million account statements.

FINRA said the statements inaccurately presented market appreciation/depreciation and investment returns, adding that Vanguard failed to reasonably supervise its account statements by failing to timely address customer reports of inaccuracies.

In a letter of acceptance, waiver and consent, FINRA said that a result of a technical issue where newer information received through an automated data feed did not overwrite certain existing data, Vanguard failed to update the yield data used to calculate the estimated yield and annual income figures for certain money market funds held as a position (as opposed to a settlement vehicle).

According to the letter, customers contacted Vanguard about the miscalculations but the firm failed to promptly investigate whether the data used to calculate the estimated yield and income for the money market account statements was correct. After the issue was brought to the attention of senior management around October 2020, the company corrected the error.

Vanguard was found to be in violation of FINRA Rules 2210, 3110, 4511 and 2010.

Rule 2210 states that no member may make any false or misleading statement or claim in any communication. A violation of Rule 2210 is also a violation of Rule 2010, which requires member firms to observe high standards of commercial honor and just and equitable principles of trade. Rule 4511 requires member firms to make and preserve “books and records as required under the FINRA rules, the Exchange Act and the applicable Exchange Act rules.” Rule 3110 requires each member firm to establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.

Vanguard did not admit or deny FINRA’s findings, but agreed to the fine and a censure.

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