FINRA Fines Vanguard for Overstating Money Market Projections

The Financial Industry Regulatory Authority has fined Vanguard $800,000 for transgressions including overstating money market fund data projections on about 8.5 million account statements, according to a letter of acceptance.

Vanguard’s marketing division accepted and consented to the financial industry regulator’s charges without admitting or denying them on May 25. From November 2019 to September 2020, Vanguard overstated projected yield and projected annual income for nine money market funds, according to the letter.

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

The overstated projections were caused by a “technical error” by which information received by a data feed did not overwrite existing data, which in turn caused Vanguard to miscalculate the estimated yield and annual income presented for certain money market funds. The firm alerted FINRA to the issue and investors in its October 2020 statements.

Money market fund assets account for more than $5.3 trillion in investments in the U.S., including in defined contribution saving plans, according to the Investment Company Institute. As of May 25, money market funds held $1.96 trillion in investments in tax-deferred investment vehicles, including employer-sponsored retirement plans, according to the latest data from the association.

In addition to the money market fund errors, certain Vanguard account statements “inaccurately presented market appreciation/depreciation and investment returns” from October 2019 to June 2021, according to FINRA.

In one instance, when customers deposited a paper or electronic check into an account, the personal performance section of the account statement “incorrectly identified the deposit as an increase in market value instead of a cash deposit,” according to the notice. The error would be corrected automatically in the next month’s account statement as a decrease in market value, causing an inaccurate presentation of the “investment return.” This error affected about 23,000 statements from at least October 2019 until May 2021, according to FINRA.

Another error found that Vanguard statements inaccurately reflected margin credits and debits—such as paying down margin debt or purchasing a security on margin—as market appreciation or depreciation when a customer maintained an open position spanning multiple months. This error affected about 57,000 statements from at least October 2019 until May 2021.

Finally, for about 50 corporate actions, such as stock splits, Vanguard 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, in which the “investment return” was again inaccurate. This error affected an unknown number of statements from at least October 2019 to June 2021, according to FINRA.

In May and June 2021, Vanguard corrected the errors, and subsequent statements contained correct information.

Vanguard has agreed to a censure and the fine of $800,000 from Washington-based FINRA. The agreement is still awaiting acceptance by FINRA’s National Adjudicatory Councilor its Office of Disciplinary Affairs, according to the letter.