Asset management giant Vanguard has been fined more than $100 million to settle charges related to target-date investment fund disclosures, the U.S. Securities and Exchange Commission announced Friday.

The violations stem from a 2020 change in which Vanguard lowered the minimum investment requirements for its institutional target-date funds. The SEC order found that as Vanguard clients switched from other target-date funds to institutional versions, the change spurred redemptions, creating taxable distributions for some remaining shareholders. The SEC said Vanguard failed to properly disclose the nature of those distributions.

“The Order finds that, as a result, retail investors in Investor TRF who do not convert and continue to hold Fund shares in taxable accounts will face historically greater capital gains distributions and tax liabilities and be deprived of the potential of their investments Compound growth. ”, the SEC said in a press release.

The SEC said the $106.41 million fine will be distributed among harmed investors. Vanguard agreed to the fine without admitting or denying the SEC's findings.

Vanguard is one of the world's largest asset managers, with assets exceeding $10 trillion as of November last year. Founded by Jack Bogle in the 1970s, the company has a reputation as a low-cost, investor-friendly company.

Vanguard said: "Vanguard is committed to supporting the more than 50 million everyday investors and retirement savers who entrust their savings to us. We are pleased to reach this settlement and look forward to continuing to provide our investors with world-class investment options," it said in a statement.

The fine highlights how investors can face huge tax bills even if they don't make any asset sales for a year. In December 2020, Vanguard lowered the minimum initial investment in its institutional target retirement funds from $100 million to $5 million, incentivizing retirement plan investors to cash out the investor share classes of those funds and move to institutional versions, according to the SEC. .

The SEC found that Vanguard subsequently had to sell underlying assets in the fund's investor share classes to satisfy redemptions from departing investors. Therefore, under the order, shareholders who remain in the investor stock class will be subject to substantial capital gains distributions and will also be subject to tax liability if they keep their funds in a taxable brokerage account.

Typically, target date funds are kept in a tax-deferred account such as a 401(k) plan or an IRA, which avoids the tax implications of large capital gains distributions.

The breaches occurred under former CEO Tim Buckley. Current CEO Salim Ramji joined Vanguard in 2024 from BlackRock.

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