Vanguard Managers Invested in Web Gambling, Suit Says

By Andrew Harris

Aug. 29 (Bloomberg) -- Executives of Vanguard Group Inc., the second-biggest U.S. manager of stock and bond mutual funds, illegally invested client assets in companies running Internet gambling businesses banned in the U.S., according to a lawsuit.

Chief Investment Officer George Sauter, portfolio manager Duane Kelly and eight trustees violated U.S. racketeering laws and breached their fiduciary duties to investors by acquiring stock in the Web-based businesses, investors in two Vanguard- managed funds said in a complaint filed today in U.S. District Court in New York.

"Defendants caused the funds to become owners of illegal gambling businesses,'' according to the complaint. The plaintiffs seek class-action, or group, status on behalf of all similarly situated investors, plus unspecified compensatory and punitive damages.

Vanguard, based in Valley Forge, Pennsylvania, has more than $1.25 trillion in assets. Vanguard itself is a nominal defendant in the suit that plaintiff investors Deanna McBrearty and Marylynn Hartsel styled as an action brought on the company's behalf.

Rebecca Cohen, a Vanguard spokeswoman, said the company hasn't been served with the complaint and declined to comment. ...

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