The SEC’s Division of Enforcement recently made significant substantive revisions to its Enforcement Manual, marking the first major update since 2017. For those staring down a potential SEC enforcement action, these changes to the Wells Notification Process are the proverbial “double-edged sword” in that they provide arguably unprecedented transparency but also create new procedural “traps” for the unwary.
What the SEC Staff Must Now Disclose in the Wells Process
Under the revised manual, the SEC has committed to sharing “salient, probative evidence” with Wells recipients who have not obstructed the investigation. SEC defense counsel is entitled to receive four (4) categories of evidence, as follows:
- Evidence of Alleged Misrepresentation: The core documents (company filings, press releases, etc.) or communications (including emails, texts or social media posts) the staff contends are materially false and misleading.
- Evidence of Falsity and Scienter: Arguably the most critical category, which may include internal communications or texts evidencing the target knew his statements were false or acted recklessly when making such statements.
- Documents Relevant to Materiality: Data, reports or analyses utilized to demonstrate that that the misstatement was one that a reasonable investor would consider in the total mix of information in determining whether to buy, sell or hold the security. Analyses would typically look to the market’s reaction to the misstatement (whether the stock price moved significantly and/or there was a spike in trading volume).
- Testimony Transcripts or Excerpts: While the manual is unclear as to whether this includes access to full transcripts, practitioners should ideally request full transcripts of all witnesses in the investigation, and not only the lawyer’s client, to ensure a full and comprehensive assessment of the SEC’s evidence can be had before any strategic decision on whether to settle or litigate is made.
The New Procedural Guardrails
While the above-discussed mandatory disclosures are no doubt helpful, the 2026 Enforcement Manual imposes a few somewhat rigid requirements that must be complied with, as follows:
- The Four-Week Deadline is the New Reality: Wells submissions are now typically due four weeks after the Wells Notice is issued. Critically, this clock starts ticking even if the staff hasn’t yet provided the required evidence thus making immediate demand for it critical.
- The “Single Meeting” Rule: Post-submission engagement is now generally limited to one meeting with senior Enforcement Division staff.
- The Rule 408 Trap: The Enforcement Manual now mandates the staff to reject any Wells Submission that includes settlement terms or is labeled as “subject to Federal Rule of Evidence 408.” Using these lables, while standard and routine practice in the past, will now result in a submission being returned — unread.
- Dual-Approval Requirement: A Wells Notice now needs approval from both a senior unit chief and the Office of the Director. While this ensures higher-level review and vetting, it also means that by the time you receive a notice, the charging recommendation has already survived presumably rigorous internal analysis.
Strategic Takeaway
The recent revisions to the Enforcement Manual no doubt provide SEC defense attorneys with greater insight into the SEC’s quality and quantity of evidence supporting the recommended charge(s). However, there is still the need to proactively request full access to testimony transcripts and other parts of the staff’s investigatory files to ensure a comprehensive understanding of the SEC’s case before strategic decisions are made. Finally, the new procedural rules must be meticulously complied with to ensure that a client’s interests are not prejudiced.
