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SEC Fines Nationwide $8M for Delaying Mailed Customer Orders

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Nationwide Life Insurance Co. has agreed to pay $8 million to the Securities and Exchange Commission to settle charges that the company violated pricing rules for more than 15 years in daily processing of purchase and redemption orders for variable insurance contracts and underlying mutual funds.

According to the SEC’s order instituting a settled administrative proceeding, Nationwide’s prospectuses stated that mutual fund orders received before 4 p.m. at its home office in Columbus, Ohio, would receive the current day’s price. Orders received after 4 p.m. would receive the next day’s price. 

However, the SEC states that an investigation by the agency found that when regular postage mail became available for retrieval early each morning from its P.O. boxes, Nationwide arranged for the pickup and delivery of mail directed to other business units but intentionally delayed the retrieval of mail related to its variable contracts business. 

Despite “receiving customer orders and other variable contract mail in its P.O. boxes at least several hours before the 4 p.m. cut-off time, Nationwide sought to avoid its requirement to process the orders contained in this mail using the current day’s price by ensuring this mail wasn’t delivered to its offices until after 4 p.m.,” the SEC states. “Meanwhile, Nationwide did arrange for prompt pickup and delivery of U.S. Postal Service Priority Mail or Priority Express Mail that enabled contract owners to track an order’s time of delivery to the P.O. boxes. Those orders were assigned the current day’s price.”

For more than 15 years, “Nationwide intentionally delayed the delivery of untracked mail containing orders from customers and processed them at the next day’s prices in violation of the law,” said Sharon Binger, director of the SEC’s Philadelphia Regional Office, in a statement.  

As the SEC explains, pricing rules for mutual fund shares require an investment company to compute the value of its shares at least once daily at a specific time set by its board of directors and disclosed to investors. 

The SEC’s order also states that Nationwide employees “complained to post office staff when portions of the variable contract mail were inadvertently mixed together with the other mail and therefore delivered to Nationwide’s offices before 4 p.m.”

After one such incident, Nationwide requested a meeting with the post office and stressed that it needed “late delivery” of variable contract mail “due to regulations that require Nationwide to process any mail received by 4 p.m. the same day,” the order states.

Nationwide neither admitted nor denied the findings but consented to the entry of the SEC’s order finding that the firm willfully violated Rule 22c-1 under the Investment Company Act of 1940. 

— Check out Gen Xers Feel Hopeless About Saving for Retirement on ThinkAdvisor.