After a judge rejected a plan for Vanguard to pay $40 million to settle a class-action dispute related to its target-date funds, lawyers for the financial giant and the plaintiffs expect to renew negotiations soon.
Attorneys involved in the litigation "intend to resume settlement discussions and are scheduling a renewed mediation session" for the earliest time that the mediator and the parties are available, according to a joint status report filed Friday in U.S. District Court for the Eastern District of Pennsylvania.
The parties asked the judge to continue its hold on all deadlines in the case. U.S. District Judge John Murphy on Monday ruled that case deadlines won't be stayed indefinitely but that the court will consider a schedule that accommodates reasonable time for mediation. He ordered the parties to propose a scheduling order for the case by Friday.
Vanguard agreed last year to the $40 million settlement in a case stemming from corporate retirement plans’ fleeing target-date funds for institutional equivalents, leaving retail investors with a big capital gains tax bill.
Murphy, who had preliminarily approved the settlement, rejected that agreement last month, noting a “strange situation” in which the plaintiffs are guaranteed to get more money if the court rebuffs the deal.
While that settlement had earmarked over $13 million for lawyers' fees, a separate agreement that Vanguard reached in the same matter with the Securities and Exchange Commission would save plaintiffs the $13 million in attorney's fees and potentially allow them to recover more in litigation, the judge said.
The "catch" in the SEC settlement is that Vanguard negotiated a deal allowing it to reduce its payment into a fund by $40 million — if the proposed settlement in the court case is approved.
“If we reject, the harmed investors get that $13 million themselves, through the SEC settlement,” Murphy said, noting that plaintiffs’ interests had diverged from their lawyers’ interests.
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