Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Lawsuit on Vanguards Cost Stucture
Old 07-30-2014, 06:42 PM   #1
Recycles dryer sheets
Sittingduck's Avatar
 
Join Date: Jan 2013
Location: Northern IL
Posts: 124
Lawsuit on Vanguards Cost Stucture

Saw a blurb in USA Today on a lawsuit filed against Vanguard for their unfair low cost fee structure.

Now why did he want to do that? Half of what I have is in Vanguard. Hope it has no merit....

Anybody know anything more about this?

Lawsuit aims at Vanguard’s at-cost structure | America's Markets
__________________

__________________
"Friendships must be built upon a solid foundation of alcohol, sarcasm, inappropriateness, and shenanigans"
- Anonymous

I have the nature of a polymath and the memory of a Commodore 64
Sittingduck is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-30-2014, 06:54 PM   #2
Recycles dryer sheets
 
Join Date: Mar 2014
Posts: 152
It is a whistleblower lawsuit. If Vanguard pays the IRS, the plaintiff collects a nice %.
__________________

__________________
user5027 is online now   Reply With Quote
Old 07-30-2014, 06:55 PM   #3
Recycles dryer sheets
cbo111's Avatar
 
Join Date: May 2014
Posts: 166
Wow! I just moved half a mil into a Vanguard account precisely due to that low cost structure.
__________________
cbo111 is offline   Reply With Quote
Old 07-30-2014, 07:11 PM   #4
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 1,823
Wow, shocking! I hope they get through it OK. They have been great to work with.
__________________
Ready is offline   Reply With Quote
Old 07-30-2014, 07:20 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,420
Vanguard is unique in the industry in that its is owned by the mutual fund shareholders it serves, sort of like a mutual or cooperative owned by its members.

Most other players are shareholder owned.

If the shareholder owned players lowered their fees so they had less profit, then they wouldn't pay as much in taxes either. Based on the short article, there doesnt; seem to be much merit to the suit - probably just a disgruntled former employee looking for a windfall.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 07-30-2014, 07:38 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Apr 2013
Posts: 5,569
I wouldn't worry. Looking at ICI data fund fees have been dropping for 30 years. Part is what Vanguard did with low cost index funds, but other fund companies have followed suit. ETF fees are dropping too. Who's he going after next.
__________________
MRG is online now   Reply With Quote
Old 07-30-2014, 07:38 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Feb 2011
Posts: 1,629
Agree with pb4uski. I've owned Vanguard funds for years due to that shareholder-friendly fee structure. Even fees for too frequent trading in certain funds basically go back into the those funds (vs the investment co pockets). IMHO- Vanguard has essentially operated like a non-for-profit somewhat analogous to a member-owned credit union or a mutual insurance company. Seems to me that under this guy's logic every NFP in the country would "owe" the IRS huge "back taxes".
__________________
ERhoosier is offline   Reply With Quote
Old 07-30-2014, 07:55 PM   #8
Recycles dryer sheets
Sittingduck's Avatar
 
Join Date: Jan 2013
Location: Northern IL
Posts: 124
They needed an exemptive order from the SEC to operate without a profit.

Weird and unheard of apparently.
__________________
"Friendships must be built upon a solid foundation of alcohol, sarcasm, inappropriateness, and shenanigans"
- Anonymous

I have the nature of a polymath and the memory of a Commodore 64
Sittingduck is offline   Reply With Quote
Old 07-30-2014, 08:01 PM   #9
Recycles dryer sheets
Sittingduck's Avatar
 
Join Date: Jan 2013
Location: Northern IL
Posts: 124
Quote:
Originally Posted by pb4uski View Post


Based on the short article, there doesn't; seem to be much merit to the suit - probably just a disgruntled former employee looking for a windfall.
Hope you are right. However, with $1B+ in back taxes at stake, and brought by Vanguard's own former tax counsel, I wouldn't say it is inconceivable they might loose. Then fees would really have to go up - I don't see how they could collect retroactively...
__________________
"Friendships must be built upon a solid foundation of alcohol, sarcasm, inappropriateness, and shenanigans"
- Anonymous

I have the nature of a polymath and the memory of a Commodore 64
Sittingduck is offline   Reply With Quote
Old 07-30-2014, 08:06 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Ridiculous. Plus, it's not like the US govt wasn't getting the tax revenue anyway--any extra paid to shareholders due to the lower cost structure resulted in these shareholders paying more taxes (sooner or later). If VGD has to pay a fine for several past years worth of taxes, I want a refund for the taxes I overpaid those same years because I received too much CG and Divs from my VGD holdings.

And I wonder why New York State is involved--isn't Vanguard incorporated in PA?

We need a "loser pays" tort system.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 07-30-2014, 08:26 PM   #11
Recycles dryer sheets
Sittingduck's Avatar
 
Join Date: Jan 2013
Location: Northern IL
Posts: 124
More in depth article.


Vanguard's singular model is under scrutiny
__________________
"Friendships must be built upon a solid foundation of alcohol, sarcasm, inappropriateness, and shenanigans"
- Anonymous

I have the nature of a polymath and the memory of a Commodore 64
Sittingduck is offline   Reply With Quote
Old 07-30-2014, 09:00 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,269
I just wonder if this guy still has his law license... you are not supposed to tell anybody about someones taxes unless under subpoena...

Isn't there attorney client privilege even if there is employee/employer relationship
__________________
Texas Proud is online now   Reply With Quote
Old 07-30-2014, 09:15 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,269
This is interesting... I used to work at a big mega doing internal 'product costing'... IOW, allocation of internal services all over the world...

We never put a profit on any of the services... and we are talking about a few billion dollars... across many countries and legal entities... I would think that if it were as big of a deal as the article makes out our legal team would not have let us do that... it is not like it was a secret as we would publish books on our costs and allocations to the various entities including legal...
__________________
Texas Proud is online now   Reply With Quote
Old 07-30-2014, 09:43 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,420
I doubt this clown lawyer will ever see employment again.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 07-30-2014, 09:55 PM   #15
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,705
Quote:
Originally Posted by Sittingduck View Post
Definitely a good presentation of the issues.

Note that this is not about internal costs. The relationship between the mutual funds and Vanguard is much different than an accounting dept. and engineering dept. in the same company.

I think a settlement will occur, as the legal costs and future penalties are uncertain for Vanguard. State of NY seems to always get their bear.
__________________
target2019 is offline   Reply With Quote
Old 07-30-2014, 10:01 PM   #16
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,093
Quote:
Originally Posted by target2019 View Post
State of NY seems to always get their bear.
According to the article, the State of NY isn't hunting:

Quote:
The suit was unsealed after the New York state attorney general declined to prosecute the case, freeing Danon and his lawyer to pursue a civil action.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 07-30-2014, 10:41 PM   #17
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,705
Here's the filed complaint:
http://taxprof.typepad.com/files/vanguard-complaint.pdf
__________________
target2019 is offline   Reply With Quote
Old 07-30-2014, 11:50 PM   #18
Recycles dryer sheets
Sittingduck's Avatar
 
Join Date: Jan 2013
Location: Northern IL
Posts: 124
Quote:
Originally Posted by target2019 View Post
Thanks for posting this. It will take a while to digest...

I am kind of thinking samclem is right. There might be a claim that the tax wasn't paid in the right location, as they argue New York, but the investors in the funds had to pay tax on the "artificially" increased pass through gain to the funds (or when the funds are withdrawn if a tax advantaged account).

They will probably get nailed for the $B "slush" fund of cash laying around though...
__________________
"Friendships must be built upon a solid foundation of alcohol, sarcasm, inappropriateness, and shenanigans"
- Anonymous

I have the nature of a polymath and the memory of a Commodore 64
Sittingduck is offline   Reply With Quote
Old 07-31-2014, 01:03 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
I certainly don't have a clue what the law is. The second article makes feel that Vanguard's former attorney has a least a reasonable case. But I am trying to figure the motive other than revenge. The only "victim" would be states or the federal government who presumably should have collected more taxes,which instead when to Vanguard mutual fund owners.

I am not sure why the lawyer would get a cut of the back taxes owed other than legal fees. Of all the whistleblower cases out there, this is definitely one where I am shaking my head, and asking why is the problem again. Vanguard charges too little fees, and puts the rest of Wall St at competitive disadvantage. Those poor wall st firms and their employees barely scraping by on billions in profit and millions of dollar salaries. If it goes to trial I hope Vanguard gets a jury of retail investors.
__________________
clifp is offline   Reply With Quote
Old 07-31-2014, 06:57 AM   #20
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,445
Quote:
Originally Posted by clifp View Post

I am not sure why the lawyer would get a cut of the back taxes owed other than legal fees.
I would imagine if the State of NY prevails a similar suit from the IRS would follow and would qualify for whistleblower status and compensation.

Vanguard losing this would be a shock to me. Intercompany charges and transfer pricing have long been subject to intense IRS scrutiny, and corporations manage to "transfer" vast amounts of their costs to low or no tax locations. This will be interesting and I bet the big IP businesses have this on their radar screens.
__________________

__________________
MichaelB is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Vanguards managed payout funds seraphim FIRE and Money 5 04-20-2012 05:36 PM
Opinions on Vanguards STAR fund dtbach FIRE and Money 8 05-11-2011 07:26 AM
Purchasing CD's via Vanguards Bond desk In-control FIRE and Money 6 12-07-2007 01:14 PM
Vanguards portfolio tester cute fuzzy bunny Other topics 3 05-10-2005 11:04 AM
problems with Vanguards web page Brit Other topics 3 01-29-2005 01:55 PM

 

 
All times are GMT -6. The time now is 08:58 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.