This is ridiculous.
The 'whistleblower' is essentially saying that because Vanguard is only charging 5bps to the Funds it is apparently not in line with "industry norms" and therefore is breaking the law by not charging an appropriate transfer price.
The fundamental flaw in the argument is that this actually has nothing to do with transfer pricing.
Capitalism is partly built on the principle of competition. It is not Vanguard's fault that other firms cannot compete with it.
If Vanguard can survive in the marketplace at 5bps, then it is up to other firms to match it or die. Simple as that. Vanguard is under no obligation to charge its Funds the grossly inflated industry norm just because everyone else does.
My interpretation of the argument is that, in this world where transfer pricing laws exist to foster fair competition, the Vanguard funds agreed amongst themselves that they just weren't going to abide by the law.
In order to have a society where everyone gets a fair shake, capitalism has to have reset mechanisms. The Sherman Antitrust Act is one of them, transfer pricing regulation is another. Read up on the history of Standard Oil sometime and you'll see that what Rockefeller was able to do with the railroads looks an awful lot like what Vanguard does between VGI and the funds. At least at the time Rockefeller hid his machinations, while Vanguard just operates in the open.
I think what the whole thing hinges on is, has IRS given VGI special private dispensation to operate like they do? We know the SEC has issued a series of orders that gives VGI limited exceptions to certain rules, but so far as anyone knows the IRS has not, and it's the IRS (and the states) that would go after VGI for taxes owed.
