HARRISBURG, PA — The Pennsylvania Department of Banking and Securities (DoBS) has joined a $106 million settlement with Vanguard Marketing Corporation and The Vanguard Group, Inc., following claims of supervisory failures and insufficient disclosure to investors. These issues led to unanticipated tax consequences during a reallocation within Vanguard’s target date retirement funds. The agreement was brokered alongside state regulators and the U.S. Securities and Exchange Commission (SEC).
In 2020, Vanguard lowered the initial investment minimums for its Institutional Target Retirement Funds (TRFs), prompting many retirement plan investors to shift from higher-cost Investor TRFs. This mass migration triggered substantial asset sales in the Investor TRFs, culminating in significant capital gains taxes for shareholders who chose to remain in these funds. Vanguard reportedly failed to adequately warn investors about the potential tax implications of these transactions.
The settlement concludes a comprehensive investigation led by a multi-state task force operating under the North American Securities Administrators Association (NASAA), working in coordination with the SEC. Regulators found that Vanguard did not adopt sufficient policies to identify or mitigate investor risk and made misleading disclosures regarding the potential effects of reallocation.
“Materially accurate information about capital gains and tax implications is critical to investors saving for their retirements,” said Corey Schuster, Chief of the SEC’s Division of Enforcement’s Asset Management Unit. “Firms must ensure that they are accurately describing to investors the potential risks and consequences associated with their investments.”
Under the settlement, Vanguard agreed to pay financial penalties and restitution to affected investors, while committing to reforms that aim to prevent similar issues in the future. The resolution is part of a broader accountability effort to protect investors and reinforce transparency within financial markets.
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