If you have received a Wells Notice from the SEC, there are a few things you should know. While not a good thing, it does not necessarily mean that you will be charged. Read on to learn more about what a SEC Wells Notice is, how the process works, and why it matters.
What is a SEC Wells Notice?
In its simplest form, a Wells Notice is a letter and/or telephone call from the SEC indicating that the SEC staff intends to recommend that a civil enforcement action be taken against an individual and/or company. The Wells Notice will typically set forth the alleged violations of the securities laws and may generally specify the remedies sought (injunction, disgorgement, pre-judgment interest, penalties and bars). Usually, the Wells Notice is sent out after the SEC staff has completed its investigation, but prior to any formal legal action being filed. It is sort of a “shot across the bow.”
How Does the SEC Wells Notice Process Work?
The SEC is under no formal legal obligation to issue a Wells Notice – it is discretionary. For example, in cases involving ongoing fraud where there exists the possibility that evidence will be destroyed or funds will be dissipated, the SEC will typically not issue a Wells Notice. In most cases, however, it does.
Upon receipt of a SEC Wells Notice, the targeted party usually has just two weeks (although extensions are often provided) to provide a written and/or oral response as to why the SEC is wrong, either in part or in whole. This is called a Wells Submission. The Wells Notice makes clear that the facts are assumed to be as the SEC has alleged, and that any arguments in opposition should be limited to the law and policy considerations. A Wells Submission is, per the SEC, not a privileged settlement communication and may be used against the submitting party. The Wells Submission will be provided to the Commission when it decides on whether to authorize the case.
Why the SEC Wells Process Matters
While it is very difficult to talk the SEC out of brining a case once it has issued a Wells Notice (although not impossible, as I have done it before), the process provides defense counsel an excellent opportunity to educate the SEC staff about critical facts it may be unaware of, highlight weaknesses in its case and emphasize the SEC’s litigation risks. In many cases, the Wells Notice process provides the forum for successfully negotiating a settlement on lesser charges and sanctions that are being proposed in the Wells Notice. At the very least, the SEC Wells Notice process provides SEC defense counsel the opportunity to either convince the SEC staff to drop the case altogether, or meaningfully discuss settlement options, before the case is filed and becomes forever public.
The Law Firm of David R. Chase
If you have received a SEC Wells Notice, it is important to secure an experienced and qualified securities defense lawyer immediately in order to protect your rights. At the Law Firm of David R. Chase, we defend those under SEC investigation and have handled numerous SEC Wells Notices. Don’t hesitate to contact us for a confidential and free consultation.