Vanguard Shareholders Sue for Gambling-Related Losses

August 29, 2008 ( - Some Vanguard fund shareholders have filed suit against the mutual fund giant, claiming that fund managers invested in illegal gambling businesses.

The funds named as defendants in the New York lawsuit include Vanguard International Equity Index Funds, Vanguard European Stock Index Fund, Vanguard Horizon Funds and the Vanguard Global Equity Fund, according to Reuters.   The lawsuit filed in U.S. District Court in Manhattan said “these unlawful investments suffered significant losses when the government began arresting principals of the gambling enterprises,” but it did not provide a specific amount.

Reuters reported that the U.S. cracked down on offshore betting companies in 2006 that included the arrests of executives from British online companies such as Sportingbet and BetOnSports Plc.  

An attorney for the two plaintiffs, Tom Sheridan, told Reuters the exact amounts would be revealed in the discovery process, but estimated Vanguard’s losses exceeded $10 million.   “The investments by the plaintiffs are not worthless, but they are less than they would have been if the money had not been invested in offshore gambling companies,” Sheridan said, according to the report.

Other defendants named in the lawsuit are Alliance Bernstein LP, Acadian Asset Management LLC, Marathon Asset Management LLP.

Friday’s class action lawsuit brought by Deanna McBrearty of New York, New York, and Marylynn Hartsel of Boca Raton, Florida, makes claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) and seeks a jury trial, compensatory and punitive damages.

A spokeswoman for Vanguard Group said they had not yet been served with the lawsuit and so could not comment.