The Securities and Exchange Commission (SEC) today (Friday) announced
that The Vanguard Group, Inc. will pay $106.41 million to resolve charges
related to misleading statements about capital gains distributions and tax
implications.
These charges pertain to retail investors holding Vanguard
Investor Target Retirement Funds (Investor TRFs) in taxable accounts. The
settlement funds will be distributed to the affected investors.
Vanguard Settles Over Misleading TRF Disclosures
On December 11, 2020, Vanguard lowered the minimum
investment for its Institutional TRFs from $100 million to $5 million. This
prompted many investors to switch from Investor TRFs to the lower-cost
Institutional TRFs.
To meet redemption demands, the Investor TRFs sold
appreciated assets, leading to significant capital gains distributions for
remaining investors, resulting in higher tax liabilities and reduced investment
growth.
The SEC’s order highlights that the prospectuses for the
Investor TRFs, issued in 2020 and 2021, contained materially misleading
information. They suggested that distributions could be taxable as ordinary
income or capital gains and could vary due to “normal” investment activities.
However, the prospectuses did not disclose the potential for increased capital
gains due to the redemptions caused by the eligibility shift for Institutional
TRFs.
Finance Magnates reached out to Vanguard for comment, but as
of this writing, the company has not provided a response.
Vanguard fined more than $100 million by SEC over violations involving target date retirement fundsVanguard fined more than $100 million by SEC over violations involving target date retirement fundshttps://t.co/vl4yOOmgtn
— alex (@Dividendbuyer) January 17, 2025
Vanguard Settles $106 Million, Agrees to Censure
Additionally, the SEC found that Vanguard failed to
implement adequate policies to prevent such disclosure inaccuracies, violating
the Advisers Act.
The settlement with the SEC includes a censure and a
cease-and-desist order against future violations. Vanguard will pay $18.2
million in disgorgement and interest, which is considered satisfied by the
$92.91 million ordered by state settlements, and a $13.5 million civil penalty.
The total $106.41 million will be distributed to affected investors through a
Fair Fund.
This resolution also includes settlements with the New York
Attorney General, the Connecticut Department of Banking, and the New Jersey
Attorney General, representing the North American Securities Administrators
Association (NASAA).
Additionally, Vanguard has agreed to a separate $40
million settlement in a class action lawsuit, which could be added to the Fair
Fund if the settlement is rejected or terminated.
This article was written by Tareq Sikder at www.financemagnates.com.
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