Asset management giant Vanguard has been fined over $100 million by the Securities and Exchange Commission (SEC) to settle charges related to disclosures around target date investment funds. The violations occurred when Vanguard lowered the minimum investment requirement for its institutional target date funds in 2020 without properly disclosing the potential impact on distributions. This change led to redemptions from customers moving to the institutional versions, creating taxable distributions for remaining shareholders. Retail investors who held their fund shares in taxable accounts faced larger capital gains distributions and tax liabilities. The fine will be distributed to harmed investors, and Vanguard agreed to the settlement without admitting or denying the SEC’s findings.
Vanguard, founded by Jack Bogle in the 1970s, is one of the world’s largest asset managers with over $10 trillion in global assets. The firm is known for its low-cost, investor-friendly approach. The fine highlights how investors can face large tax bills even without selling assets, as seen with Vanguard’s target date fund changes. The violations occurred under former CEO Tim Buckley, with current CEO Salim Ramji joining Vanguard from BlackRock in 2024.
This fine is in addition to the $40 million Vanguard agreed to pay in a class action suit. The timing of the target date fund changes is similar to another legal issue where Vanguard was fined $800,000 by the Financial Industry Regulatory Authority for problems with account statements for money market funds. Vanguard’s commitment to serving its investors remains strong despite these legal challenges.
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