Vanguard Settles SEC Charges After Target-Date Fund Violations
On January 17, the Securities and Exchange Commission (SEC) announced a settlement with The Vanguard Group, Inc., involving certain target-date retirement funds. The SEC Order found that Vanguard made “misleading statements related to capital gains distributions and tax consequences for retail investors who held Vanguard Investor Target Retirement Funds in taxable accounts.” According to the order, in December 2020, Vanguard announced changes to the minimum initial investment amount for their institutional target retirement funds. Due to this change, a number of investors redeemed their investor funds and switched to the institutional funds which caused the investor funds to liquidate holdings in order to meet the demand for redemptions. As a result, those investors that held shares in taxable accounts incurred capital gains distributions. Additionally, the order found that the Vanguard investor target retirement fund prospectuses failed to disclose “the potential for increased capital gains distributions resulting from the redemptions of fund shares by newly eligible investors switching from the Investor TRFs to the Institutional TRFs.” The order further noted that Vanguard did not have appropriate policies and procedures in place to prevent violations of law. Vanguard was fined a total of $106.41 million for its violations of the Investment Adviser Act and Investment Company Act.
Click here to read the SEC press release covering the settlement with Vanguard.