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Three companies start 2025 facing settlement payments and enforcement actions.
Before the first month of the year was over, New Mexico’s Regulation and Licensing Department joined other states in securing settlements and an enforcement action totaling more than $200 million.
$106,000,000 with Vanguard
Failed to supervise certain registered persons and failed to disclose potential tax consequences to investors
SANTA FE — On January 28, 2025, the New Mexico Securities Division, as part of a task force of state securities regulators and the U.S. Securities and Exchange Commissions (SEC), announced a $106 million settlement with Vanguard Marketing Corporation and The Vanguard Group, Inc. (Vanguard) for failing to supervise certain registered persons and failing to disclose potential tax consequences to investors following a change in investment minimums for certain target date retirement funds.
The SEC will notify the New Mexico investors that were impacted by this action and will administer the remediation payments, through its Fair Fund program, to compensate investors for the capital gains taxes.
The settlement stems from a three-year multistate task force investigation coordinated through the North American Securities Administrators Association’s Enforcement Section Committee and a concurrent investigation by the SEC.
The investigation revealed that in 2020, Vanguard lowered the investment minimums and fees for its Institutional Target Retirement Funds (TRFs). As a result of the lowered investment minimums, a large number of retirement 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 resulted in significant capital gains taxes for hundreds of thousands of retail investors who remained invested in the Investor TRF. Vanguard did not disclose potential capital gains and tax consequences to Investor TRF shareholders.
If you have questions or concerns about your investments or financial professional, please contact the New Mexico Securities Division at 505-476-4580.
$17,000,000 with Edward Jones
Working group finds supervisory failures with Class A mutual fund shares
SANTA FE – The New Mexico Securities Division, a member of the North American Securities Administrators Association (NASAA), has joined a $17 million settlement with Edward D. Jones & Co., L.P. (Edward Jones) after an investigation into the broker-dealer’s supervision of customers paying front-load commissions for Class A mutual fund shares then later moving brokerage assets into fee-based investment advisory accounts.
The four-year investigation was led by a working group of 14 state securities regulators and looked into Edward Jones’s supervision of customers moving from brokerage to advisory accounts despite the 2016 U.S. Department of Labor Fiduciary Rule that would make investment advice to retirement accounts subject to a fiduciary standard of care.
“In partnership with NASAA and other state securities regulators, we will continue to protect investors and ensure that companies operating in New Mexico follow our securities laws,” said New Mexico Securities Division Acting Director Benjamin Schrope. “We appreciate the ongoing cooperation of Edward Jones throughout this investigation and settlement process.”
Firms that offer both brokerage and investment advisory services should be mindful that customers are receiving the services the customer wants at an appropriate price.
The investigation found that Edward Jones charged front-load commissions for investments in Class A mutual fund shares in situations where the customer sold or moved the mutual fund shares sooner than originally anticipated. The states found gaps in Edward Jones’s supervisory procedures in this respect.
As part of the settlement, Edward Jones will pay each of the 50 states, Washington, D.C., the U.S. Virgin Islands, and Puerto Rico an administrative fine of approximately $320,000. In evaluating the supervisory failures and determining the appropriate resolution, the states considered certain facts such as the positive performance of the investment advisory accounts as compared to the brokerage accounts.
The settlement is posted on the New Mexico Securities Division’s website here. New Mexico residents who have questions about this settlement should contact the Securities Division at 505-476-4580 or online at www.rld.nm.gov/securities-division.
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$80,000,000 Enforcement Action Against Block, Inc.
Action taken for Bank Secrecy Act and anti-money laundering violations
SANTA FE – The New Mexico Financial Institutions Division and 47 state financial regulatory agencies announced today they have taken coordinated action against Block, Inc. and its mobile payment service, Cash App, for violations of Bank Secrecy Act (BSA) and anti-money laundering (AML) laws that safeguard the financial system from illicit use.
More than 50 million consumers in the United States use Cash App to spend, send, store, and invest money.
In the multistate settlement signed this week, Block, Inc. agreed to pay an $80 million penalty to the state agencies, hire an independent consultant to review the comprehensiveness and effectiveness of its BSA/AML programs, and submit a report to the states within nine months. Block, Inc. will then have 12 months to correct any deficiencies found in the review after the report is filed.
State regulators in Arkansas, California, Massachusetts, Florida, Maine, Texas, and Washington led the multistate enforcement effort. Block, Inc. cooperated with the states in the settlement.
“Today’s action against Block, Inc. demonstrates the power and effectiveness of networked state supervision in the licensing, regulation, and examination of non-bank money transmitters,” said New Mexico Financial Institutions Division Director Mark Sadowski. “Implementing and maintaining strong anti-money laundering programs, as required by the Bank Secrecy Act, is crucial for both banks and non-bank money transmitters. These efforts help protect consumers, thwart bad actors from committing financial crimes, and foster trust in financial services.”
Under BSA/AML rules, financial services firms are required to perform due diligence on customers, including verifying customer identities, reporting suspicious activity, and applying appropriate controls for high-risk accounts. State regulators found Block, Inc. was not in compliance with certain requirements, creating the potential that its services could be used to support money laundering, terrorism financing, or other illegal activities.
State financial regulators license and supervise more than 34,000 nonbank financial services companies through the Nationwide Multistate Licensing System (NMLS), including mortgage companies, money services businesses, consumer finance providers, and debt collectors.
Residents can visit NMLS Consumer Access to verify that a company is licensed to do business in New Mexico, and they may also view past enforcement actions.
New Mexico residents who have questions about the Block, Inc. settlement should contact:
New Mexico Financial Institutions Division
Call: 505-476-4885
Visit online: www.rld.nm.gov/financial-institutions.
