(Updates 12/4) "The criminal investigations arm of a California tax agency has been reviewing allegations that the Vanguard Group may have underpaid its income taxes in the most populous state," I report in this article in today's Philadelphia Inquirer.
"The California Franchise Tax Board in September received the allegations of David Danon, a former Vanguard tax lawyer turned whistle-blower, and sent them to its criminal investigators, state correspondence shows. The bureau disclosed the investigation in an email to Danon's lawyer, Stephen Sorensen."
California initiated just 32 criminal tax investigations last year, prosecuted 21, and secured 18 convictions sending tax defendants to prison for a total of more than 50 years according to Criminal Investigations Bureau data (thanks to tax lawyer Betty Williams for directing me to this data.)
Also from the story: "Most tax disputes are handled as civil cases. The Criminal Investigations Bureau gets involved only in a 'relatively small' number of cases, such as when a tax board auditor finds 'something suspicious' indicating possible fraud, said Troy M. Van Dongen, partner in the San Francisco office of Winston & Strawn L.L.P. and an editor of the California Tax Lawyer journal.
"Danon alleges that the Malvern-based company has violated federal and state tax law by undercharging its mutual funds for professional services. Vanguard has said this 'at-cost' pricing lets it charge customers low fees... Vanguard has said it complies with the law...
"California is not the only state to look at Vanguard. The company paid Texas 'penalty and interest' for taxes the state said Vanguard owed for the year 2013," the company and Texas officials said in a tax settlement agreement signed in March. Read the March 2015 settlement agreement (amounts redacted) here.
UPDATE 12/4: "In the final arrangement, we made a payment with a small amount of interest and no penalty," though this is not reflected in the copy of the settlement posted in this story, Vanguard spokesman John Woerth told me. He said the settlement was revised after it was signed and approved by Texas officials. I have asked him to provide a copy of the revised settlement.
Woerth also said that in earlier versions of this blog item I wrongly listed both "penalties and interest" among the things the company had denied were part of the Texas settlement. He said the company had denied paying a penalty, but didn't mention interest (which Vanguard paid.) (END OF UPDATE)
A Vanguard spokesperson also said, in today's Inquirer story, that Vanguard was unaware of the California investigation; Danon's lawyer, Sorenson, told me today that the company was informed of California's review in November.
Danon was paid $117,000 in "informant" fees for helping Texas collect taxes Vanguard owed but hadn't paid. Danon has also denounced Vanguard tax practices to the IRS and state officials in New York and other states. A New York judge ruled last month that Danon would have violated New York attorney ethics rules by informing on the company while he still worked there in early 2013 and so lacks standing to sue for whistleblower payments there. Danon plans to appeal, his lawyer says.