Vanguard settles with SEC for $106M over failing to inform investors about tax issues from fund class switches.
Vanguard just agreed to pay $106 million to settle charges with the SEC, after they failed to properly inform investors about tax issues with their popular target-date funds. This blunder left hundreds of thousands of regular investors with inflated tax bills, and the settlement includes a $92.9 million restitution and a $13.5 million fine.
Here’s the scoop: back in December 2020, Vanguard made a move to lower the minimum investment for certain lower-cost fund classes, hoping to attract institutional clients. The plan was to bring the minimum investment from $100 million to $5 million, which led to many qualifying investors switching from higher-cost retail funds to these new institutional classes. But the switch created a mess—the retail funds had to sell assets to meet redemptions, which caused capital gains taxes to be transferred to the remaining investors. Vanguard didn’t properly warn about these tax burdens.
The SEC literally said, “Hold up, accurate tax info is crucial for investors, especially those planning for retirement.” Vanguard’s response? They’re cool with the settlement but didn’t admit to any wrongdoing. They’re just focused on keeping things running smoothly for investors moving forward.
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