By Chris Prentice and Jonathan Stempel

(Reuters) – Vanguard Group will pay $106.4 million to settle U.S. Securities and Exchange Commission charges that it failed to disclose important tax information about its popular target date funds, which causing hundreds of thousands of ordinary investors to be left with inflated tax bills.

The deal stemmed from Vanguard’s December 2020 decision to lower the minimum investment in low-cost fund classes aimed at institutional clients to $5 million from $100 million.

This caused many investors who qualified for these funds to switch from higher-cost retail fund classes.

The SEC said the retail funds were forced to sell assets to meet the bailouts and pass on large capital gains tax burdens to remaining investors.

While Vanguard warned target-date fund investors that their tax burdens could change from year to year, it did not warn of that risk when investors moved into institutional funds from retail funds, the SEC.

Vanguard’s target-date funds contain combinations of stocks, bonds and cash designed to be less risky as investors age. They are also designed to be tax efficient.

The payment includes $92.9 million in restitution, plus a $13.5 million civil penalty. Vanguard neither admitted nor denied wrongdoing in accepting a settlement.

“Materially accurate information about capital gains and tax implications is critical for investors saving for their retirements,” said Corey Schuster, head of the asset management unit of the enforcement division of the SEC, in a statement.

In a statement, Vanguard said it was pleased to settle and was “committed to supporting the more than 50 million everyday investors and retirement savers who entrust their savings to us.”

The settlement also resolved claims by a coalition of regulators from 43 US states, Washington, DC and the US Virgin Islands, which was led by the attorneys general of New York and New Jersey and the Department of Banking Connecticut.

In November, Vanguard agreed to pay $40 million to settle similar claims in a lawsuit by fund investors. It also agreed to pay $6.25 million in July 2022 to settle similar claims by Massachusetts Secretary of State William Galvin.

The Valley Forge, Pennsylvania-based firm had $10.4 trillion in assets under management as of November 30, 2024.

(Reporting by Chris Prentice and Jonathan Stempel; Editing by Aurora Ellis)