The Vanguard Group logo appears in correspondence in Zelienople, Pennsylvania.
Keith Sarakosik | AP
Asset management giant Vanguard has been fined more than $100 million Fee settlement The Securities and Exchange Commission announced on Friday that data on disclosures related to target-date mutual funds.
The violations stem from a 2020 change in which Vanguard lowered minimum investment requirements for institutional target-date funds. The SEC order found that the change stimulated redemptions as Vanguard clients moved from other target-date funds to institutional versions, creating taxable distributions to some remaining shareholders. The SEC said Vanguard failed to properly disclose the nature of those distributions.
“The order concludes that, as a result, retail investors in TRFs of investors who did not convert and continued to hold their fund shares in taxable accounts faced historically greater capital gains distributions and tax liabilities and were deprived of the potential exponential growth of their investments,” the SEC said. In a press release.
The SEC said the $106.41 million fine will be distributed to affected investors. Vanguard agreed to the fine without admitting or denying the SEC's findings.
Vanguard is one of the world's largest asset managers, reporting more than $10 trillion in assets as of last November. The company was founded by Jack Bogle in the 1970s and has a reputation as a low-cost, investor-friendly company.
“Vanguard is committed to supporting the more than 50 million everyday investors and retirement savers who trust us with their savings. We are pleased to have reached this settlement and look forward to continuing to serve our investors with world-class investment options,” Vanguard said in a statement.
The fine highlights how investors can see large tax bills even when they themselves do not sell any assets during the calendar year. When Vanguard reduced the minimum initial investment for targeted institutional pension funds to $5 million from $100 million in December 2020, it incentivized retirement plan investors to leverage the investor share class of these funds and replace them with the institutional version, according to the SEC. .
The SEC found that Vanguard then had to sell underlying assets in the funds' investor share classes to meet refunds from departing investors. As a result, shareholders who remained in the Investor Share class were subject to a large capital gain distribution – a Tax liability If they hold the fund in a taxable brokerage account, according to the order.
Typically, target-date funds remain in tax-deferred accounts such as 401(k) plans or individual retirement accounts — which would avoid the tax hit from distributing large capital gains.
The abuses occurred under former CEO Tim Buckley. Current CEO, Salim Ramji, joined Vanguard from BlackRock in 2024.
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