Vanguard, a major asset management company, has been fined over $100 million by the Securities and Exchange Commission for failing to disclose the potential tax impacts of changes to its target date investment funds in 2020. The changes resulted in redemptions and taxable distributions for some investors. The fine will be distributed to harmed investors, and Vanguard agreed to the penalty without admitting or denying the findings.
The violations highlight how investors can face large tax bills even without selling assets themselves. When Vanguard lowered the minimum investment requirements for its institutional target retirement funds, it caused investors to switch to the institutional version, leading to capital gains distributions and tax liabilities for those who remained in the investor share class in taxable accounts.
The fine is in addition to a $40 million settlement with investors as part of a class action lawsuit. This incident is similar to a previous regulatory issue in 2023 related to account statements for money market funds. The violations occurred under former CEO Tim Buckley, and the current CEO, Salim Ramji, joined Vanguard in 2024 from BlackRock.
Vanguard, founded by Jack Bogle in the 1970s, manages over $10 trillion in global assets and is known for its low-cost investment options. The company stated its commitment to serving investors and supporting retirement savings. The SEC’s enforcement action serves as a reminder of the importance of transparency and disclosure in the financial industry to protect investors from unexpected tax consequences.
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