Vanguard Group, the nation's largest mutual-fund company, received unwanted attention after the Sandy Hook massacre in December when reports showed that it was a major financial supporter of gun manufacturers. Based in the Philadelphia suburb of Malvern, Pennsylvania, Vanguard is the No. 1 holder of Smith & Wesson stock and a top-five investor in Sturm Ruger.
John C. "Jack" Bogle, founder of Vanguard Group, said in a radio interview just days after the mass shooting in Newtown, Connecticut, that the investments simply were part of the firm's strategy to "hold the market" via index funds. (See video at the end of this post.)
Bogle's message, in so many words, was that Vanguard can't be held to any standards of ethical investing because gun manufacturers are in the market, and his firm is committed to "holding the market." If gun makers' products wind up being used to slaughter school children . . . well, Vanguard really can't do much about that, Bogle seemed to be saying.
One wonders, then, how Bogle explains Vanguard's holdings in pornography. Is it strategically imperative to "hold that market"? The answer must be yes because public records show that Vanguard is a prominent holder in at least three companies that deal directly in porn. Vanguard's holdings in companies with indirect ties to porn--cable broadcasters, hotel chains, Internet providers, etc.--clearly are vast.
Vanguard's questionable ethics is not limited to the world of weapons and porn. It is the No. 1 investor in Campus Crest Communities, a developer of student housing near college campuses around the country. Ted Rollins, the company's CEO, has a criminal record that includes a conviction for assault on his 16-year-old stepson in Franklin County, North Carolina. Rollins also was the subject of a social-services investigation, based on a citizen complaint, for possible child sexual abuse involving the same stepson.
The assault met the definition for child abuse under North Carolina law, even though Rollins was prosecuted only for a "simple assault." Does it bother Vanguard Group that it supports a CEO with a documented history as a child abuser? The answer apparently is no.
Part of the reason might be that Vanguard has a long history of supporting various Rollins-family enterprises. It is a major holder in Atlanta-based Rollins Inc., the umbrella company for Orkin Pest Control. It also is a prime investor in RPC Inc., a Rollins company that offers a number of services related to oil exploration and drilling.
That last one might come as a bit of a surprise to big-money investors who consider themselves "conservative." But it's right there in the public record.
Most porn companies are private operations, but Vanguard has investments with at least three that are publicly traded:
* Private Media (PRVT)--Based in Spain, Private Media is a worldwide distributor of pornographic films. According to records at rocketfinancial.com Vanguard is the company's No. 5 investor.
* FriendFinder Networks (FFN)--Based in Boca Raton, Florida, FriendFinder Networks is a holding company for numerous Internet firms that deal in adult content. Penthouse Media Group in 2007 bought Various Inc., the parent company of FriendFinder, and renamed itself FriendFinder Networks. Vanguard Group is the No. 6 holder of FFN stock.
* LodgeNet Interactive (LNET)--Based in Sioux Falls, South Dakota, LodgeNet is a major provider of pornographic films for the hotel industry. The company has been struggling financially, but Vanguard holds almost 629,000 shares.
Why does Vanguard, with its huge array of assets, need to be involved in porn? Perhaps the answer can be found in Jack Bogle's statements, made just days after the Sandy Hook shootings, about his company's involvement with gun manufacturers:
We are the largest holder (in Smith & Wesson), and we probably own about 5 percent of every corporation in America. The reason we do is that our strategy is one of hold the market. Smith & Wesson is in the market, so we will be holding that.
Should we speak up? The answer is yes. Should we get out of the stock? I think that is pretty debatable because if your whole strategy is to hold the whole market, you end up making a whole lot of judgments that are never quite as clear as one might hope.
It's something we ought to be thinking about, but we couldn’t go to Smith & Wesson management and say, "Get out of the gun business." That’s their business. . . . If we got out of that stock, the company wouldn’t even know it; somebody else would own it. You don’t have the kind of clout you would think that a 5 percent or so owner would have.
Does this attitude explain Vanguard's cozy relationship with Ted Rollins, even though he has a record as a child abuser? It probably does. Does it explain Vanguard's connections to porn? Apparently so.
Should Americans casually accept such an explanation from a company that carries massive financial clout? Perhaps it's time we all started asking ourselves that question.
Here is an interview with Bogle on the Radio Times program at radio station WHYY in Philadelphia, from December 2012, just days after the Sandy Hook shootings: