Home Guides & Resources chevron_right Investing Vanguard Embezzlement Incident Underscores Need for Security Published September 19, 2019 Criminals blaming others for their actions is, sadly, nothing new. But Scott Capps, a former Vanguard employee, who was convicted of embezzling millions of dollars from the Malvern, Pa. fund giant, did at least come up with a novel excuse: He only stole all that money after Vanguard higher ups did not heed his repeated warnings that certain accounts were poorly secured. Capps was convicted earlier this year of embezzling $2.1 million from dormant accounts held at the company—accounts whose owners hadn’t contacted Vanguard in several years. Often, accounts become dormant when an owner passes away and heirs aren’t aware of the account’s existence. While company-sponsored retirement plans and funds managed by financial advisers were generally scrupulous about contacting heirs, accounts managed by individuals or on behalf of small non-profits were more likely to become dormant, according to an interview Capps gave The Philadelphia Inquirer. Most U.S. states have laws saying that such unclaimed funds should be turned over to tax authorities after a set period of time, a practice known as escheatment. Vanguard, Capps claims, had become lax about its escheatment procedures—both failing to chase down account holders who had gone radio silent and failing to turn over the funds to tax authorities. The result was millions of dollars sitting in Vanguard accounts with no one looking after it. Money that could easily be siphoned off by an insider, Capps said, since Vanguard’s byzantine software system and slack internal security meant employees often kept handwritten lists on their desks of the 17-odd passwords (yes, that many) for the various systems they needed to do their jobs. When Capps was sure that his bosses weren’t paying attention, he struck, using the security holes he’d identified to steal millions of dollars. While his rationalizations are no excuse, Capps’ case should serve as an important warning to investors to review their estate-planning documents and make sure they’ve named heirs on all of their accounts. Remember, when it comes to investment accounts, the designations on file with your financial institution will supersede your will. For more on how to make sure your hard-earned money goes where you want it to after your death, please check out our Estate Planning Checklist or our recent podcast on setting up trusts. And contact us to learn more about the measures Adviser Investments takes to protect our clients and their hard-earned assets from online fraud. Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. We do not provide legal or tax advice, nor sell insurance products. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Always consult an attorney or tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. The Barron’s rankings consider factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Editors at the Financial Times bestowed “elite” status on 300 firms in the U.S., as determined by assets under management, asset growth, longevity, compliance record, industry certifications and online accessibility. Awards referenced above do not consider client experience and are not indicative of future performance. Adviser Investments does not pay a fee to participate in any of these awards. The Adviser You Can Talk To Podcast is a trademark of Adviser Investments, LLC. Registration pending. © 2019 Adviser Investments, LLC. All Rights Reserved. Tags: cybersecurityvanguard