Vanguard to pay $106 million in SEC settlement after burdening investors with big tax bills Reuters
By Chris Prentice and Jonathan Stempel
(Reuters) – Vanguard Group will pay $106.4 million to settle charges by the U.S. Securities and Exchange Commission that it failed to disclose important tax information about its popular target-date funds, leaving hundreds of thousands of ordinary investors stuck with inflated tax bills.
The settlement stemmed from Vanguard’s decision in December 2020 to lower the minimum investment in lower-cost fund classes aimed at institutional clients to $5 million from $100 million.
This prompted many investors who qualified for these funds to switch out of the more expensive retail fund classes.
The SEC said the retail funds were then forced to sell assets to meet redemptions and pass heavy capital gains tax burdens onto remaining investors.
While Vanguard warned investors in target-date funds that their tax burdens could change from year to year, it failed to warn of that risk when investors switched to institutional funds from retail funds, the SEC said.
Vanguard’s target-date funds contain mixes of stocks, bonds and cash that are designed to become less risky as investors age. They are also designed to be tax efficient.
The settlement includes $92.9 million in damages, plus a $13.5 million civil penalty. Vanguard neither admitted nor denied wrongdoing in agreeing to the settlement.
“Materially accurate information about capital gains and tax implications is critical for investors saving for their retirement,” Corey Schuster, head of the SEC’s asset management unit, said in a statement.
Vanguard said in a statement that it was pleased to reach the settlement and “committed to supporting the more than 50 million everyday investors and retirement savers who entrust us with their savings.”
The settlement also resolved claims by a coalition of regulators in 43 US states, Washington, DC and the US Virgin Islands, led by the attorneys general of New York and New Jersey and the Connecticut Department of Banking.
In November, Vanguard agreed to pay $40 million to settle similar claims in a lawsuit filed by fund investors. It also agreed to pay $6.25 million in July 2022 to settle similar claims by Massachusetts Secretary of State William Galvin.
The Valley Forge, Pennsylvania-based firm had $10.4 trillion in assets under management as of November 30, 2024.
