Voya Financial Inc. has agreed to pay $3.6 million to settle SEC charges that two subsidiaries misled mutual fund investors and failed to disclose conflicts of interest in a securities lending agreement that benefited two insurance affiliates.

More than $2 million of the settlement will go to affected mutual fund shareholders who weren’t told about the deals, according to the SEC.

“Investment advisors must not place the interests of their affiliates over those of clients, depriving them of information necessary to make informed investment decisions,” Anthony Kelly, co-chief of the SEC enforcement division’s asset-management unit, said.

According to the SEC, misleading conflicts arose when Voya Investments LLC and Directed Services LLC, acting as investment advisors to certain mutual funds that are offered to annuity and life insurance customers through insurance companies affiliated with the advisors, lent securities held by the funds to the insurance companies.  The Voya advisors then recalled the loaned securities before their dividend record dates so that the advisors’ insurance company affiliates, who were the record shareholders of the funds’ shares, could receive a tax benefit based on the dividends received. 

“The Voya advisors recalled loaned securities before their dividend record dates so that the advisors’ insurance company affiliates … could receive a tax benefit based on the dividends received,” the SEC said. But that caused the funds and their investors to lose securities lending income without receiving any offsetting tax benefit, according to the SEC’s order. The advisors failed to disclose the conflict of interest to the funds’ board or in the funds’ prospectuses, the SEC said.

 ‘’These funds and those investing in them weren’t told that they were losing income so that the Voya advisors could provide a tax benefit to their affiliates,” the SEC’s Kelly said. “Now money will be heading back to the funds to help investors.”

New York-based Voya neither admitted nor denied the findings, the SEC said.

“We are pleased to have reached this settlement,” Voya spokesman Chris Breslin said in an emailed statement. The “announcement means we avoid a lengthy and costly litigation process and can focus our resources on delivering high-quality investment service to our clients.”