On May 14, 2015, the SEC announced settled administrative proceedings against Nationwide Life Insurance Company (“Nationwide”) based on the SEC’s finding that Nationwide violated Rule 22c-1 under the 1940 Act by processing purchase and redemption orders for variable insurance contracts and underlying funds received before 4:00 p.m. using the next day’s price as opposed to the current day’s price. The SEC found that Nationwide intentionally delayed retrieving orders sent by mail until late in the afternoon and waited until after 4:00 p.m. to have the orders delivered to Nationwide’s home office.
The SEC found that the Nationwide variable contract prospectuses generally stated that orders received at Nationwide’s Columbus, Ohio home office before 4:00 p.m. would receive the current day’s accumulation unit value (“AUV”), i.e., the measure of the contract owner’s investment in a contract based on the net asset value (“NAV”) of the underlying funds, as adjusted for contract charges. Nationwide’s prospectuses also disclosed that orders received after 4:00 p.m. would receive the next day’s AUV. Similarly, the prospectuses of the underlying funds disclosed the same 4:00 p.m. cut-off for determining whether an order was assigned the current day’s NAV or the next day’s NAV. Despite the foregoing disclosure, the SEC found that for over fifteen years, Nationwide implemented a mail retrieval system intended to avoid processing orders received before 4:00 p.m. at the current day’s AUV. To do so, the SEC found that Nationwide directed the Post Office to separate its mail relating to the variable products business from other mail and hired a private courier to collect and deliver such variable products mail to Nationwide’s home office after 4:00 p.m., even though the variable products mail was available prior to such time and Nationwide’s private courier made several other trips to the Post Office each day to retrieve Nationwide’s other mail (as directed by Nationwide). The SEC’s findings noted that on occasion, Nationwide employees complained to Post Office staff when portions of the variable products mail were inadvertently mixed together with the other mail and, consequently, delivered to Nationwide’s home office prior to 4:00 p.m. The SEC found that, after one such incident, Nationwide requested a meeting with the Post Office and emphasized that it needed “late delivery” of the variable products mail “due to regulations that require Nationwide to process any mail received by 4:00 p.m. the same day.” As a result of the foregoing conduct, the SEC found that Nationwide willfully violated Rule 22c-1 under the 1940 Act and ordered Nationwide to cease and desist from committing or causing any such violations and any future violations of Rule 22c-1 and pay a civil money penalty of $8,000,000.