(Bloomberg) — Vanguard Group will pay more than $106 million to settle US Securities and Exchange Commission allegations that it made misleading statements about capital gains distributions and tax consequences to retail investors who held popular target-date retirement funds in taxable accounts.
The company announced in December 2020 it would lower the minimum initial investment for its Vanguard Institutional Target Retirement Funds. The SEC claims that to meet demand, a different Vanguard retirement fund had to sell underlying assets with gains because financial markets had rebounded from their pandemic lows.
As a result, retail investors of the Vanguard Investor Target Retirement Funds who continued to hold their shares in taxable accounts faced historically larger capital gains distributions and tax liabilities, according to the agency.
“Materially accurate information about capital gains and tax implications is critical to investors saving for their retirements,” Corey Schuster, chief of the SEC’s Division of Enforcement’s asset management unit, said in a statement. “Firms must ensure that they are accurately describing to investors the potential risks and consequences associated with their investments.”
The settlement will be distributed to affected investors through a Fair Fund, the SEC said.
“Vanguard is committed to supporting the more than 50 million everyday investors and retirement savers who entrust us with their savings. We’re pleased to have reached this settlement and look forward to continuing to serve our investors with world-class investment options,” the firm said in a statement.
The charges came about as a result of a joint investigative effort between the SEC and a task force of state securities regulators. That task force was led by regulators in Connecticut, New Jersey and New York, but 40 states participated in the parallel investigation to the SEC.
“This joint investigative effort underscores the crucial role our members play in investor protection,” said Leslie Van Buskirk, NASAA President and Wisconsin Securities Administrator, in a statement. “This settlement shows the value of state and federal authorities working together to benefit investors.”
WealthManagement.com Managing Editor Diana Britton contributed to this report