Shareholders Sue Vanguard Group for US Online Gambling Ties

The Vanguard Group is an American investment company that manages approximately $1 trillion in assets, offering mutual funds and other financial services to investors across the US. Two shareholders have filed a lawsuit against the group in a Delaware court after learning that Vanguard invested their money in four offshore internet gambling businesses.  

In a nutshell, this class-action lawsuit alleges that Vanguard its fund managers did not act responsibly when they invested in Sportingbet, PartyGaming, Bwin and NETeller several years ago. The suit is being filed on behalf of investors who bought shares in the funds prior to July 17, 2006. This cutoff marks a major change to American gambling laws which drove these companies out of the market, forcing investors to lose their funds.  

The plaintiffs insist that Vanguard should have should have been more aware of the uncertainty of these investments, and should have heeded clues that pointed to the possibility of online gambling laws changing.  

The 2006 regulation that caused these problems is the Unlawful Internet Gambling Enforcement Act (UIGEA). Contrary to popular belief, this legislation does not make online gambling in the US illegal. Instead, it puts pressure on banks and other financial institutions, forbidding them from processing payments to and from internet gambling sites. The act of gambling online is and always has been lawful.  

This is actually the second time Vanguard has seen a suit like this. In 2009, a lawsuit was filed with almost identical claims, but the judge dismissed the case, arguing that the shareholders were injured by the US government’s crackdown on internet gambling, and not by Vanguard's choice to invest in the gambling businesses. Until a court case can establish a precedent saying that mutual fund companies liable for their investments, this new lawsuit will likely end the same way.