Vanguard agreed to pay $106.4 million to the Securities and Exchange Commission Friday to settle charges for “misleading statements” connected to its target retirement funds that resulted in higher taxes for retail investors, the regulator said.
Retail investors in target retirement funds faced higher tax liabilities as a result, the SEC said
Vanguard agreed to pay $106.4 million to the Securities and Exchange Commission Friday to settle charges for “misleading statements” connected to its target retirement funds that resulted in higher taxes for retail investors, the regulator said.
Vanguard — one of the largest retirement fund providers in the U.S. — offered two separate groups of target retirement funds (TRFs): Investor TRFs for investors with assets of less than $100 million, and Institutional TRFs for institutional investors, according to the SEC’s order.
The firm allegedly lowered the minimum initial investment amount for its Vanguard Institutional Target $TGT Retirement Funds to $5 million, from $100 million in December 2020. That resulted in a spike in demand for redemptions.
To meet that demand, investor funds sold underlying assets with gains, causing retail investors who continued to hold their fund shares in taxable accounts to face “historically larger capital gains distributions and tax liabilities and were deprived of the potential compounding growth of their investments,” the agency said.
“Materially accurate information about capital gains and tax implications is critical to investors saving for their retirements,” said Corey Schuster, chief of the division of enforcement’s asset management unit at the SEC. “Firms must ensure that they are accurately describing to investors the potential risks and consequences associated with their investments.”
The SEC also alleged that Vanguard failed to disclose the potential for increased capital gains distributions for investors resulting from the redemptions of fund shares by switching from the investor funds to institutional funds.
“Vanguard is committed to supporting the more than 50 million everyday investors and retirement savers who entrust us with their savings,” a company spokesperson said in a statement. “We’re pleased to have reached this settlement and look forward to continuing to serve our investors with world-class investment options.
Vanguard also settled parallel cases with the Office of the New York Attorney General, the Connecticut Department of Banking, and the New Jersey Office of the Attorney General.
“Deciding how to invest for retirement is one of the most consequential financial choices a person can make,” Cari Fais, director of the division of consumer affairs at the New Jersey office of the attorney general, said in a statement. “Investors deserve full disclosure of investment risks when entrusting their investments to the management of others.”
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