Under Texas law, whistle-blowers can receive up to 5 percent of what is recovered by the state --- which means Vanguard would have paid at least $2.3 million.
Danon’s attorney, Stephen Sorensen of Thomas, Alexander & Forrester LLP in Venice, California, said he didn’t know how much Texas had recovered as a result of his client’s information.
Lauren Willis, a spokeswoman for the Texas Comptroller of Public Accounts, declined to comment, citing confidentiality rules.
Danon has alleged that Vanguard’s mutual funds have been able to charge low fees in part because of the relationship between the operating company, Vanguard Group -- which employs the bulk of the company’s employees -- and the company’s mutual funds.
‘At Cost’ Services
Vanguard’s mutual funds owe no taxes as long as the bulk of their revenue -- such as capital gains and dividends -- goes to the funds’ holders. Vanguard Group charges for advisory services its employees provide to Vanguard mutual funds. The funds get those services “at cost,” Danon has alleged, while other mutual funds typically pay higher fees for such services to unrelated advisers.
Danon has argued that Vanguard is bound by federal and state tax laws requiring transactions between affiliated companies to be paid at “arm’s length” prices, or the prices that would be paid by unrelated parties. That means Vanguard Group’s income should have been higher, he has said, obligating it to pay more in taxes.
Vanguard’s discussions with Texas began as part of a routine tax audit, said Woerth. At no time during the discussions with the state’s tax authorities “were we asked to address apparent claims by our former in-house counsel,” said the Vanguard spokesman. “We were unaware of such claims until we learned of the payment in November 2015.”
A 2013 complaint filed by Danon in New York York State Supreme Court in Manhattan was dismissed last week, after a justice found Danon had improperly shared confidential company information as part of his filings.
The justice overseeing the case said she wasn’t ruling on the merits of Danon’s allegations and that her action didn’t affect the state’s ability to pursue them. Sorensen said he plans to appeal the New York decision.