The U.S. Securities and Exchange Commission announced that The Vanguard Group, Inc. will pay USD 106.41 million to settle charges that it made misleading statements about capital gains distributions and related tax consequences for retail investors holding Vanguard Investor Target Retirement Funds in taxable accounts. The settlement amount is to be distributed to harmed investors through a Fair Fund. The SEC order links the harm to Vanguard’s December 2020 move to lower the minimum initial investment for Vanguard Institutional Target Retirement Funds from USD 100 million to USD 5 million, which prompted substantial redemptions from the investor share class as retirement plan investors switched to the lower-expense institutional share class. Meeting those redemptions required the Investor Target Retirement Funds to sell appreciated assets, resulting in historically larger capital gains distributions and tax liabilities for retail investors who remained in the funds in taxable accounts. Prospectuses effective in 2020 and 2021 were found to be materially misleading because they attributed taxable distributions to “normal” investment activities and cash flows without disclosing the potential for increased capital gains distributions driven by redemptions from newly eligible investors, and the order also found that Vanguard lacked written policies and procedures reasonably designed to prevent disclosure-related violations. Without admitting or denying the findings, Vanguard agreed to be censured and to cease and desist, with the SEC finding violations of the Advisers Act and that Vanguard caused violations of the Securities Act and the Investment Company Act. The monetary relief comprises USD 13.5 million in civil penalties and USD 18.2 million in disgorgement and prejudgment interest, with that disgorgement component deemed satisfied by USD 92.91 million in investor relief ordered in parallel state settlements announced by the New York Attorney General, the Connecticut Department of Banking, and the New Jersey Attorney General on behalf of NASAA; the SEC noted that a separate USD 40 million class action settlement would be added to the Fair Fund if that settlement is terminated or rejected.
U.S. Securities & Exchange Commission 2025-01-17
U.S. Securities and Exchange Commission settles with Vanguard for USD 106.41 million over misleading target-date retirement fund tax disclosures
The U.S. SEC announced that The Vanguard Group, Inc. will pay USD 106.41 million to settle charges of misleading statements about capital gains distributions and tax consequences. Vanguard's actions led to increased capital gains for remaining investors. The settlement includes USD 13.5 million in civil penalties and USD 18.2 million in disgorgement and interest, alongside parallel state settlements.