A federal judge has granted preliminary approval to Vanguard Group’s $25m settlement of a lawsuit alleging that the mutual fund giant improperly burdened investors with excessive tax bills, reported Reuters.
The settlement relates to the company’s target-date funds and comes after a previous $40m proposal was rejected.
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US District Judge John Murphy in Philadelphia deemed the settlement “sufficiently fair, reasonable, and adequate.”
The initial $40m settlement offer, rejected on 19 May, was turned down by Murphy due to concerns that Vanguard could offset this amount against its January settlement with the US Securities and Exchange Commission (SEC), which he believed would better serve investors as it did not involve legal fees.
Investors’ attorneys have highlighted that the $25m is in addition to a $133m fair fund established in the SEC case.
Judge Murphy has scheduled a hearing for 6 January 2026, to consider final approval of the settlement.
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By GlobalDataThe lawsuit stemmed from a December 2020 decision by Vanguard to lower the minimum investment required for its cheaper institutional fund classes from $100m to $5m.
This change prompted a shift of investors from higher-cost retail classes to these institutional classes, resulting in asset sales and the distribution of taxable capital gains to the remaining investors.
Vanguard, with headquarters in Valley Forge, Pennsylvania, manages $11tn in assets as of 31 July, the news agency added.
The case, known as In re Vanguard Chester Funds Litigation, is being heard in the US District Court for the Eastern District of Pennsylvania, under case number 22-00955.
In a separate development, a Texas federal court ruled against dismissing a separate lawsuit accusing Vanguard Group, BlackRock, and State Street’s asset management division of anti-competitive behaviour in the coal industry.
US District Judge Jeremy Kernodle determined that most of the claims, which allege anti-competitive conduct by BlackRock, Vanguard Group, and State Street’s asset management branch, merit further examination in court.
