Vanguard settles SEC charges for misleading TRF disclosures, agreeing to a settlement and improve future transparency practices.
The Vanguard Group has agreed to settle with the SEC for $106.41 million. It resolves misleading statements concerning capital gains distributions and tax consequences for the retail investors. However, these misleading statements concerned Vanguard Investor Target Retirement Funds (Investor TRFs) held in taxable accounts. This settlement intends to make amends for the investors who were harmed by these inaccuracies.
In December 2020, Vanguard slashed the minimum for its Institutional Target Retirement Funds (Institutional TRFs) from $100 million to $5 million. Following this change, many retirement plan investors redeemed their investor TRFs and moved to the Institutional TRFs because of lower expenses.
Vanguard to Improve Disclosure Practices After SEC Settlement
In order to satisfy the demand for these redemptions, therefore, Vanguard was forced to sell assets out of the Investor TRFs. They had appreciated since the market’s bull run from the pandemic. This led to unusually large capital gains distributions and tax liabilities for retail investors who held their investor TRFs in taxable accounts.
Vanguard’s 2020 and 2021 prospectuses were found by the SEC to be misleading. The documents said capital gains distributions could fluctuate but left out the risk that redemptions could lead to increased distributions. Additionally, Vanguard did not create proper policies that such problems were to be prevented.
As a result of these problems, the SEC charged Vanguard for violating the Advisers Act. It also caused violations of the Securities Act and Investment Company Act. Meanwhile, Vanguard planned $106.41 million in settlement. It will also pay $40 million to settle an investor class action lawsuit. A Fair Fund will be used to disperse the amount of money from the settlement to affected investors.
Lastly, Vanguard agreed to stop violating in the future and to improve its disclosure practices.
