By Chris Prentice and Jonathan Stempel
(Reuters) -Vanguard Group pays $106.4 million to settle U.S. Securities and Exchange Commission charges alleging it didn’t disclose essential tax details about its popular target-date funds, leading to tons of of hundreds of atypical investors getting stuck with inflated tax bills.
The settlement stemmed from Vanguard’s December 2020 decision to scale back the minimum investment in lower-cost fund classes meant for institutional clients to $5 million from $100 million.
This led many investors who qualified for those funds to shift from higher-cost retail fund classes.
The SEC said the retail funds were then forced to sell assets to fulfill redemptions, and pass large tax burdens from capital gains to the remaining investors.
While Vanguard did warn target-date fund investors their tax burdens could change from 12 months to 12 months, it didn’t warn of that risk for when investors shifted to institutional funds from retail funds, the SEC said.
Vanguard’s target-date funds contain mixes of stocks, bonds and money which can be designed to develop into less dangerous as investors age. Also they are designed to be tax-efficient.
The payout includes $92.9 million of restitution, plus a $13.5 million civil positive. Vanguard didn’t admit or deny wrongdoing in agreeing to settle.
“Materially accurate details about capital gains and tax implications is critical to investors saving for his or her retirements,” Corey Schuster, chief of the SEC enforcement division’s asset management unit, said in an announcement.
In an announcement, Vanguard said it was pleased to settle, and “committed to supporting the greater than 50 million on a regular basis investors and retirement savers who entrust us with their savings.”
The settlement also resolved claims by a coalition of regulators in 43 U.S. states, Washington, D.C. and the U.S. Virgin Islands, which was led by the attorneys general of Recent York and Recent Jersey and the Connecticut Department of Banking.
In November, Vanguard agreed to pay $40 million to settle similar claims in a lawsuit by fund investors. It also agreed to pay $6.25 million in July 2022 to resolve similar claims by Massachusetts Secretary of State William Galvin.
The Valley Forge, Pennsylvania-based company, had $10.4 trillion of assets under management as of Nov. 30, 2024.
(Reporting by Chris Prentice and Jonathan Stempel; Editing by Aurora Ellis)