Nationwide will pay an $8 million penalty to settle charges it routinely violated pricing rules in processing purchase and redemption orders for variable insurance contracts and underlying mutual funds, the Securities and Exchange Commission (SEC) said Thursday.
The violations involved hundreds of thousands of orders sent via first-class mail from October 1995 through September 2011, the regulator said.
Pricing rules for mutual fund shares require investment companies to compute their value at least once daily at a specific time. Nationwide's prospectuses say orders received before 4 p.m. at its office in Columbus, Ohio, would get the current day's price. Orders received after 4 p.m. would get the next day's price.
When regular postage mail became available early in the morning from its P.O. boxes, the company arranged for pickup and delivery of mail directed to other business units but delayed the retrieval of mail to its variable contracts business, the regulator said.
Nationwide intentionally avoided processing orders sent via regular mail until after the 4 p.m. cutoff, while arranging for prompt pickup and delivery of priority and express mail that could be tracked by customers.
If couriers hired by Nationwide arrived in the company's parking lot before 4 p.m., they were instructed to wait until 4:01 p.m. to enter the building, leading some couriers to intentionally delay their arrival time by stopping to buy food or gasoline, the SEC said.
The company went as far as to complain to post office staff when variable contract mail became inadvertently mixed with other mail and was delivered 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, the SEC said.
"For more than a 15-year period, 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," Sharon Binger, director of the SEC's Philadelphia regional office, said in a news release.
Nationwide declined to answer questions, instead saying in a statement that "the SEC acknowledges Nationwide's change in practices that occurred in 2011 and Nationwide's cooperation in the investigation in the SEC's order. Nationwide chose to settle this matter to bring closure."