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 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.BrokersRead More

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