Vanguard, the large mutual fund company, has agreed to pay $106 million in restitution to settle a securities regulatory investigation into whether the firm misled retail investors about the tax implications of changes in some of its retirement funds.
The Securities and Exchange Commission announced the settlement on Friday along with a flurry of other settlements it reached with companies in Gary Gensler’s last days as the S.E.C.’s chair. He will officially step down on Monday.
The settlement with Vanguard was part of a multistate investigation led by New York, New Jersey and Connecticut along with other regulatory agencies.
The joint investigation found that Vanguard had failed to notify some investors of revisions in the terms of some of its retirement funds. Those changes led to higher capital gains taxes for hundreds of thousands of individual investors who held the funds in taxable accounts. In New York alone, Vanguard’s failure to disclose the changes led more than 15,000 residents to pay higher-than-anticipated capital gains, according to the New York attorney general’s office.
Vanguard, in settling with regulators, neither admitted nor denied wrongdoing, but was censured by the S.E.C.
The regulator said the misleading statements were made in the 2020 and 2021 prospectuses for the Vanguard Investor Target Retirement Funds. The company was charged with not telling retail investors of a change in fund terms that had prompted institutional investors to move their money to another investment fund and caused retail investors who didn’t move their money to be hit with “historically larger capital gains.”
The $106 million will be put into a fund to be distributed to affected investors. The S.E.C. said the amount would be in addition to a $40 million settlement that Vanguard had reached with investors in a related class-action lawsuit.
Netanel Spero, a Vanguard spokesman, said the company, with more than 50 million investors, was “pleased to have reached this settlement.”
The commissioners of the S.E.C. met Thursday to approve the Vanguard and other settlements — the last time the regulator will hold such a meeting with Mr. Gensler at the helm. He had said he would step down when President-elect Donald J. Trump was inaugurated.
Mr. Trump has nominated Paul Atkins, a pro-business conservative and a former S.E.C. commissioner, to lead the agency. A hearing on his nomination has not been scheduled.
These are three other settlements announced by the S.E.C. over the past two days:
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Two Sigma, a hedge fund, paid $165 million in restitution and agreed to pay $90 million in civil penalties to resolve an investigation into an allegation that the firm took four years to address problems with two of the models it relied on to make investment decisions. (The firm paid the restitution portion previously.) The problems were identified by employees of the firm, which manages about $60 billion in investor money.
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GrubMarket, an e-commerce company that delivers organic food, agreed to pay an $8 million fine to settle an investigation after the S.E.C. found that the privately held company had overstated its long-term revenues by $550 million. The S.E.C. said the company had raised $80 million from investors in a private offering in which it included the overstated revenue figure.
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LPL Financial, a brokerage and investment firm, agreed to pay an $18 million penalty to the S.E.C. to resolve an investigation into allegations that the firm did not move quickly enough to fix issues with its anti-money-laundering program. The S.E.C. found that the firm had not swiftly closed accounts when it could not verify a customer’s identity.
In all the matters, the companies settled with the commission without admitting or denying wrongdoing.
