Ohio Department of Commerce Divisions of Securities, Financial Institutions Announce Multistate Settlements

Division of Securities Joins $106 Million Multistate Settlement with Vanguard Over Tax Implications for Investors

The Ohio Division of Securities has joined a task force of state securities regulators and the United States Securities and Exchange Commission (SEC) in a $106 million multistate settlement with Vanguard Marketing Corporation (VMC) and The Vanguard Group, Inc. (Vanguard). The settlement is related to supervisory failures and lack of disclosure regarding potential tax consequences.

The agreement ensures restitution for affected investors and reinforces accountability across the financial industry. The settlement is the result of a three-year investigation led under the North American Securities Administrators Association's (NASAA) Enforcement Section Committee, parallel to an SEC inquiry.

The investigation revealed that in 2020, Vanguard lowered the investment minimums for its Institutional Target Retirement Funds (TRFs). As a result, a large number of retirement plan investors redeemed their Investor TRF shares to purchase Institutional TRF shares. The large number of redemptions caused Vanguard to sell highly appreciated assets in the Investor TRF, which triggered significant capital gains taxes for hundreds of thousands of retail investors who remained invested in the Investor TRF. Vanguard did not disclose the potential capital gains and tax implications to Investor TRF shareholders, which was a consequence of the migration of shareholders from the Investor TRF to the Institutional TRF.

In other words, Vanguard made changes to one of their existing funds that created potential capital gains and other tax implications to certain owners in that fund. They were aware of the potential tax implication prior to approving the change, but did not disclose it to the investors. They also issued a press release about the change, touting the benefits, but not disclosing the negative tax implications to certain shareholders.

More than 5,312 Ohioans were impacted. The SEC will notify the investors impacted by this action and will administer the remediation payments through its Fair Fund program to compensate investors for the capital gains taxes.

The Vanguard Group, Inc., parent company of VMC, is a major broker-dealer registered with both the Financial Industry Regulatory Authority (FINRA) and state regulators. Vanguard markets and sells Target Retirement Funds to a wide range of investors, including those with tax-advantaged qualified accounts as well as those in taxable accounts.

"The Ohio Division of Securities prioritizes protecting investors and ensuring transparency within the financial marketplace," said Ohio Securities Commissioner Andrea Seidt. "This settlement reflects the commitment of state securities regulators to hold financial institutions accountable for their actions and to ensure that investors are properly informed of events that could significantly affect their hard-earned savings. We will continue working to ensure a fair and honest environment for everyone."

If Ohioans have questions or concerns about investments or financial professionals, contact the Ohio Division of Securities at 614-644-7381.

Division of Financial Institutions Joins $80 Million Multistate Enforcement Action Against Block, Inc.

The Ohio Division of Financial Institutions has joined a coordinated enforcement action involving a total of 48 state financial regulatory agencies against Block, Inc., for violations of the Bank Secrecy Act (BSA) and anti-money laundering (AML) laws. State regulators found that Block failed to meet specific BSA/AML requirements, raising concerns about the potential use of its services for illicit activities, such as money laundering and terrorism financing.

This action is related to the company's Cash App digital wallet service, which serves more than 50 million users across the United States. Cash App facilitates spending, sending, storing, and investing money, with activity spanning all 50 states as of December 2023. In Ohio, consumers used the Cash App service to send nearly $8 billion in money and virtual currency transmissions from January 2023 through September 2024.

The multistate settlement, signed this week, requires Block, Inc. to pay an $80 million penalty and implement corrective measures to strengthen its BSA/AML compliance program. This includes hiring an independent consultant to evaluate the comprehensiveness and effectiveness of the company's compliance practices. The consultant will submit a report within nine months, after which Block has 12 months to address any identified deficiencies.

"These laws are in place to safeguard the financial system and protect the assets of hardworking people," said DFI Superintendent Kevin Allard. "This settlement demonstrates the importance that Ohio and other state regulators place on ensuring these laws are followed properly, especially in areas like mobile payments, which are convenient to use but can unfortunately be exploited by bad actors."

Arkansas, California, Massachusetts, Florida, Maine, Texas, and Washington State led the multistate enforcement action, with Block cooperating throughout the settlement process. Under BSA/AML regulations, financial service providers like Block must perform customer due diligence, verify customer identities, report suspicious activity, and implement controls for high-risk accounts.

Through a strong, nationwide regulatory framework, state financial regulators license and serve as the primary supervisor of money transmitters. States license more than 700 money transmitters, and 99% of transmission activity through those firms is governed by the state-developed Money Transmission Modernization Act (MTMA). To protect consumers and enforce safety and soundness requirements, state regulators regularly coordinate supervision of multistate firms and, when necessary, initiate enforcement actions. This coordination, known as Networked Supervision, supports consistency and collaboration, while preserving the authority of individual states to take direct action. Additional information on the state regulatory framework for money transmission can be found here.

Ohio residents who have questions about the enforcement action should contact the Division of Financial Institutions. Residents can also visit NMLS Consumer Access to verify that a company is licensed to do business in Ohio, and they may also view past enforcement actions.

State financial regulators collectively oversee more than 34,000 nonbank financial services companies through the Nationwide Multistate Licensing System (NMLS), including mortgage providers, money services businesses, and consumer finance companies.

###

About the Division of Securities and Division of Financial Institutions
The Division of Securities and Division of Financial Institutions are part of the Ohio Department of Commerce. The department is Ohio's chief regulatory agency, focused on promoting prosperity and protecting what matters most to Ohioans. We ensure businesses follow the laws that help them create jobs and keep Ohioans safe. To learn more about what we do, visit our website at com.ohio.gov.

Public link

Please use the above public link if you want to share this noodl on another website.