The Vanguard Group, Inc., which manages mutual funds topping $2 trillion in assets, is facing a $1 billion False Claims Act lawsuit filed under New York’s state False Claims statute. The whistleblower, former general counsel for the corporation, alleges it falsely reported earning no income within the State of New York for a period spanning an entire decade, and did not file a New York state tax return until 2011.
Details of the Case Against Vanguard
The Vanguard Group is a well-recognized American investment management company that is headquartered in Pennsylvania. Founded in 1975, The Vanguard Group employs more than 13,000 workers across several countries. Vanguard manages assets for Americans in every U.S. state, including New York, and was also charged with managing New York’s 529 college savings plans.
Under general principles of taxation, a corporation is required to file a tax return and pay tax on any income generated within a state. In today’s economy, it is not uncommon for corporations to file returns in nearly all 50 states (although not every state may impose an income tax, it depends on the jurisdiction). In New York, corporations are required to “file and pay the franchise tax….for the privilege of exercising [a] corporate franchise or doing business in New York State.”
According to allegations raised by the whistleblower, Vanguard has represented in multiple state and federal filings that it is in compliance with all federal and New York tax obligations. However, records show that the company did not file a tax return or pay taxes in New York from 2004 through 2011. The complaint alleges that Vanguard falsely certified its compliance year after year, despite clearly evading taxation on its New York business transactions. These false certifications amount to false claims, thereby triggering New York’s FCA.
The complaint continues by alleging that Vanguard offered mutual funds to clients at below market value (i.e., “at cost” value) in violation of New York regulation, thereby resulting in a balance sheet purporting to show virtually no profits within the state. The complaint further addresses Vanguard’s $1.5 billion “reserve fund,” which if properly reported to the state should have generated approximately $7 million in tax revenue.
In addition to the whistleblower’s lengthy list of grievances against the company, he also alleges unlawful retaliation for coming forward in a whistleblower lawsuit.
Vanguard said in a statement,
“[W]e believe it is important to emphasize that Vanguard adheres to the highest ethical standards in every aspect of our business….It is also important to note that Vanguard operates under a unique mutual structure and has a long history of serving the best interests of its shareholders.”
Contact a Reputable Whistleblower Attorney Today
If you are aware of possible tax fraud or evasion, the IRS maintains a whistleblower program similar to the False Claims Act that allows individual citizens the opportunity to come forward with allegations of misconduct. For more information about the whistleblower program, contact Berger Montague today.