Big Payouts for Lawyers, Scrutiny for the Court
Judge Murphy had initially granted preliminary approval for the $40 million settlement in November. But the final approval process took a contentious turn last month when class leaders pushed for a substantial payday—requesting $20,000 for each lead plaintiff, one-third of the settlement in attorneys’ fees, and nearly $877,000 in litigation expenses.
Critics, including Hughes, took issue with the legal fees, which would hand attorneys a hefty $13 million slice of the settlement. But Murphy’s latest order steered clear of the fee controversy, instead focusing on the SEC’s involvement and directing Vanguard and class leaders to “thoroughly respond” to Hughes’ concerns by March 21.
Vanguard’s Costly Miscalculation
The lawsuit stems from a 2022 class action in which investors accused Vanguard of breaching its fiduciary duty and leaving smaller investors vulnerable in an effort to cut costs. The issue arose when Vanguard changed the rules for its target retirement funds in 2020, allowing more investors to shift into institutional funds. This triggered a large-scale asset sell-off, leaving some investors saddled with unexpected tax burdens of up to 15% of their assets.
In an attempt to settle, Vanguard agreed to a $40 million payout in September after mediation. The investors, facing an uphill legal battle, argued that even their best-case scenario—securing $260 million in damages—would have been difficult to achieve. They saw the $40 million as a fair compromise, amounting to roughly 15% of their estimated losses.
