[therealrootuser]

Your example is a poor one, and does not represent the actual risk of money market funds.

Customer assets at brokerage are required to be held by a 3rd party custodian. Customer assets are not held at the brokerage itself and cannot be touched. An executive cannot merely "dip into customer funds" to cover a bad investment. Brokerage firms are regularly audited for this exact scenario. If your assets were to go missing, the SIPC would liquidate assets of the firm itself as necessary and cover the rest up to $500,000.

The actual risk is of a MMF "breaking the buck" and being unable to return your money. In 1994, a fund went under and was only able to return 94 cents on $1. In 2008 a fund went under because of its toxic Lehman Brothers holdings. This is why you should understand what is inside of that fund before investing in it.

For example, VUSXX is "is required to invest at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash." These are not unregulated funds either; the SEC has been significantly increasing the scrutiny and regulation of MMFs both recently and historically.

The question you really should be asking is whether you think US treasury bills are sufficiently safe, not whether Vanguard is doing something both obvious and illegal.