By Chris Prentice and Jonathan Stempel
(Reuters) -Vanguard Group will pay $106.4 million to resolve U.S. Securities and Exchange Commission charges alleging it failed to disclose important tax information about its popular target-date funds, causing hundreds of thousands of ordinary investors will be stuck with inflated tax bills.
The deal arose from Vanguard’s December 2020 decision to reduce the minimum investment in lower-cost fund classes aimed at institutional clients from $100 million to $5 million.
This led many investors who qualified for those funds to abandon higher-cost retail fund classes.
The SEC said the retail funds were forced to sell assets to meet redemptions and pass along large tax burdens from capital gains to remaining investors.
While Vanguard warned target-date fund investors that their tax burdens could change from year to year, it did not warn about that risk when investors moved from retail funds to institutional funds, the SEC said.
Vanguard target-date funds contain combinations of stocks, bonds and cash that are designed to become less risky as investors age. They are also designed to be tax efficient.
The payment includes $92.9 million in restitution, plus a $13.5 million civil penalty. Vanguard neither admitted nor denied wrongdoing in agreeing to settle.
“Materially accurate information about capital gains and tax implications is critical for investors to save for their retirement,” Corey Schuster, head of the asset management unit of the US law enforcement division, said in a statement. the SEC.
In a statement, Vanguard said it was pleased to reach an agreement and “committed to supporting the more than 50 million retirement investors and savers who trust us with their savings.”
The settlement also resolved claims from a coalition of regulators in 43 U.S. states, Washington, D.C., and the U.S. 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 by fund investors. It also agreed to pay $6.25 million in July 2022 to resolve similar claims from Massachusetts Secretary of State William Galvin.
The Valley Forge, Pennsylvania-based company had $10.4 trillion in assets under management as of Nov. 30, 2024.
(Reporting by Chris Prentice and Jonathan Stempel; Editing by Aurora Ellis)