Vanguard faces tax evasion charges in ex-employee's whistleblower suit
The Vanguard Group Inc. is facing whistleblower allegations that it has avoided paying $1 billion in state and federal taxes over the last decade, according to a copy of the complaint.And from the Philadelphia Inquirer:
“Vanguard has operated as an illegal tax shelter for nearly 40 years” by providing services “at prices designed to avoid federal and state income tax” and sheltering hundreds of millions in income, the complaint alleges.
The complaint was brought by a former Vanguard employee under the False Claims Act, a whistleblower law in New York State....MORE
Suit alleges Vanguard wrongly avoids paying taxes
John S. Woerth, a spokesman for Malvern-based Vanguard, reacted to the lawsuit in a statement saying, "We generally do not comment on pending litigation, but we believe it is important to emphasize that Vanguard adheres to the highest ethical standards in every aspect of our business.A lawsuit filed in New York last year by a then-Vanguard Group Inc. tax attorney, and unsealed Friday in state court in Manhattan, alleges that Vanguard, the nation's largest mutual fund company, has wrongly avoided paying federal and state income taxes since its creation in the 1970s.
Vanguard "has operated as an illegal tax shelter for nearly 40 years, providing services to [its] funds at prices designed to avoid federal and state income tax, sheltering hundreds of millions of dollars of income annually, avoiding approximately $1 billion of U.S. federal income tax and at least $20 million of New York tax over the last 10 years," alleges the lawsuit, which was filed by David Danon of Wayne before he was terminated by Vanguard in 2013.
"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. We believe that this case is without merit, and we intend to defend the matter vigorously."
Efforts to contact John Bogle, Vanguard's founder, for reaction to the allegations were unsuccessful.
Danon's attorney explained why the case was filed in New York. "New York is the only jurisdiction that allows False Claims Act complaints to be filed for unpaid federal taxes," said Brian Mahany of Milwaukee. "We believe he was terminated because, even though this was under seal, they figured out he was a whistle-blower."HT on both stories: Barron's Funds Roundup post.
The case was unsealed by Danon after the New York Attorney General's Office chose not to prosecute Vanguard. That left Danon free to continue it as a civil lawsuit. Were the New York court to agree with Danon about Vanguard's practices, he could collect a sum equal to a portion of the unpaid taxes.
In an interview with The Inquirer, Danon, a 1998 magna cum laude graduate of Fordham Law School who worked at Sullivan & Cromwell L.L.P., Cleary Gottlieb Steen & Hamilton L.L.P., and other New York corporate law firms before joining Vanguard in 2008, said he had voiced his concerns to Vanguard officials and finally went outside the company when they refused to take steps to comply with the law as he viewed it....MORE
