Vanguard Group agreed on Friday to pay $106.4 million to the U.S. Securities and Exchange Commission to settle charges of "misleading statements" related to its target retirement funds that resulted in retail investors paying higher taxes, regulators said.

Pursuant to the SEC's order, Vanguard, one of the largest retirement fund providers in the United States, offers two different sets of Targeted Retirement Funds (TRFs): Investor TRFs for investors with assets under $100 million, and Institutional TRFs for institutional investors. .

The company is said to have lowered the minimum initial investment amount for its Vanguard Institutional Targeted Retirement Fund to $5 million from $100 million in December 2020. This resulted in a surge in redemption demand.

To meet this demand, investor funds sell underlying assets with gains, resulting in retail investors who continue to hold fund shares in taxable accounts facing "historically larger capital gains distributions and tax liabilities and being deprived of them." Potential compound growth of investments”. the agency said.

“Substantial and accurate information about capital gains and tax implications is critical for investors to save for retirement,” said Corey Schuster, chief of the SEC’s Asset Management Division’s Enforcement Division. “Companies must ensure that they provide investors with an accurate description of the potential risks and consequences associated with their investments.”

The SEC also alleged that Vanguard failed to disclose the possibility of increased investor capital gain distributions resulting from redemptions of fund shares from investor funds to institutional funds.

"Vanguard is committed to supporting the more than 50 million everyday investors and retirement savers who entrust their savings to us," a company spokesperson said in a statement. "We are pleased to have reached the settlement and look forward to continuing to serve our Investors are offered world-class investment options.

Vanguard also settled parallel cases with the New York Attorney General's Office, the Connecticut Department of Banking and the New Jersey Attorney General's Office.

"Deciding how to invest for retirement is one of the most important financial choices a person can make," Cary Feith, director of the Division of Consumer Affairs for the New Jersey Attorney General's Office, said in a statement. "Investors in Investment risks should be fully disclosed when entrusting investment management to others.”

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