Nationwide to pay $8M to settle with SEC over variable annuity mail snafu

Nationwide Life Insurance Co. will pay an $8 million penalty to the Securities and Exchange Commission after the agency found that the insurer deliberately delayed receipt of variable annuity and life insurance policy orders, resulting in a failure to price them in a timely manner.
The SEC announced its findings, the charges against Nationwide and the penalty Thursday.
Over the course of 16 years — from October 1995 through September 2011 — Nationwide received hundreds of thousands of orders from its variable clients via U.S. First Class mail at a P.O. Box in Columbus, Ohio. Though most of the mail was ready for pickup by Nationwide early in the morning, according to the SEC, the insurer’s couriers were instructed to hold off on collecting the mail for variable products until after 4 p.m.
In doing so, Nationwide violated Rule 22c-1, according to the SEC. That regulation requires that a company price orders received before 4 p.m. at the current day’s price, and orders received after 4 p.m. at the next day’s price. The underlying mutual funds in variable annuities and variable life insurance are only available through insurance company separate accounts, but they correspond to retail mutual funds. Hence, Rule 22c-1, which applies to mutual funds, also applies to variable annuity and variable life separate accounts.
The SEC said that in one instance, Nationwide employees complained to post office staff members that some of the variable annuity and life mail was mistakenly mixed with other correspondence, and thus arrived at Nationwide’s home office before 4 p.m.
Afterward, according to the SEC’s complaint, the insurer met 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.’”
Some of the couriers deliberately delayed their arrivals at the carrier’s home office by making pit stops to get gas or buy food, according to the SEC’s complaint.
Nationwide settled with the SEC.
“There were no allegations that Nationwide benefited from its P.O. Box mail processing practices or the process benefited certain groups of investors over others,” spokesman Dace de la Foret, wrote in an e-mail. “The SEC acknowledges Nationwide’s change in practices that occurred in 2011 and Nationwide’s cooperation in the investigation in the SEC’s order.”
The company declined further comment.