He was a tax lawyer for the biggest mutual fund group in the U.S., though he says the company's tax strategy was illegal. In a whistleblower lawsuit filed in New York, Vanguard Group Inc. is accused of a number of wrongful practices, including fraudulently failing to report a "Contingency Reserve" of $1.5 billion and sending salespeople and marketers throughout the country without keeping proper records for taxes. According to the suit, state and federal governments have lost in excess of $1 billion as a result of Vanguard's illegal tax practices.
The former tax lawyer faces a tough fight. Vanguard fired him for allegedly breaching the attorney-client privilege through what the company has called the "theft and disclosure" of private financial and tax documents. Vanguard is seeking to have those documents returned. Meanwhile, the lawyer has been in contact with the Internal Revenue Service and the Securities and Exchange Commission.
If the IRS, the SEC or the New York court find that Vanguard committed fraud, then the company could be ordered to pay sizable penalties and back taxes. Whistleblower laws would also allow for the tax lawyer to receive a significant portion of the recovered sum.
A court hearing in New York has been scheduled for Sept. 12. More details on the case are available here.
State and federal laws protect employees who blow the whistle on illegal business practices, including corporate tax fraud. Attorneys at Shepherd, Finkelman, Miller & Shah, LLP, represent clients with a wide variety of concerns related to regulatory compliance and corporate governance. If you would like to learn more about our law practice, please visit our securities law overview.