Betterment – a digital financial advisement firm – agreed Tuesday to settle charges of misstatements and omissions related to its tax loss harvesting services with the U.S. Securities and Exchange Commission in the amount of $9 million.
The $9 million settlement will be deposited into a “Fair Fund” where it will then be distributed across the more than 25,000 impacted users, who, according to the SEC, lost “approximately $4 million in potential tax benefits” from 2016 to 2019.
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Betterment said that the median payout per customer will amount to “less than $100.”
Impacted clients will be informed later in the year, after the SEC has approved a distribution plan.
The SEC order alleges that, from 2016 to 2019, Betterment, in communication with its customers, either misstated or omitted information about its tax loss harvesting service; the firm had two coding errors during this time period and also neglected to disclose software changes and programming constraints.
“Betterment did not describe its tax loss harvesting service accurately, and it wasn’t transparent about the service’s changes, constraints, and coding errors that adversely impacted thousands of clients,” Antonia M. Apps, director of the SEC’s New York Regional Office said in a statement.
Tax loss harvesting is a common strategy that can reduce capital gains taxes by offsetting investment profits with losses. The result is a potential reduction in tax liability, and according to Betterment, this service – which was launched in 2014 – has helped more than 2750,000 customers save hundreds of millions of dollars.
While the firm fully cooperated with the SEC inquiry, it neither admitted nor denied any wrongdoing.
Betterment addressed both the coding and disclosure issues by 2019; the company has since made investments to strengthen its compliance program.
