How to Respond to a SEC Wells Notice

How to Respond to a SEC Wells Notice

The Securities and Exchange Commission’s (SEC) Division of Enforcement is responsible for enforcing the federal securities laws. The Enforcement Division performs this function through its investigations and, if evidence is developed in the investigation that would support filing charges, through the SEC’s filing of cases either in federal district court or in its own administrative forum. Typically, however, after the SEC complete its investigation, but before it actually files charges, the SEC notifies the target of its investigation (or his legal counsel), that it intends to bring a case and provides the target the ability to provide a response (either in writing or orally) essentially arguing why the SEC got it wrong and no enforcement action is justified. This “heads-up” by the SEC after the investigation is concluded is called a Wells Notification. Sometimes, the SEC will reach out to the target’s counsel prior to an actual Wells Notification being issued to discuss a potential settlement before charges are filed – this is commonly referred to as a “pre-Wells Notification.” Under either procedure, the Wells stage is often used by experienced SEC defense counsel ( Wells Notice Lawyer )to either convince the SEC to close its investigation without taking enforcement action or, if unsuccessful, to cut a favorable settlement prior to litigation.

The Value of A Wells Meeting

David R. Chase, a noted SEC defense lawyer, was recently quoted in an article in FundFire regarding SEC Wells Notifications and whether it makes sense to always respond in writing to a Wells Notification as opposed to meeting with the SEC staff and making an oral presentation. Mr. Chase stated: “If I can’t talk the SEC out of it in a series of meetings, then putting it in writing isn’t going to help.” Chase also observed that during the Wells process, the SEC typically has the most flexibility in attempting to settle the matter before litigation is filed, after which the SEC prosecutors have significantly less flexibility in terms of the charges filed and the relief being sought (for example, the amount of civil penalty or the duration of a bar or suspension).

The Value of Legal Representation by Experienced SEC Defense Counsel in the SEC Wells Notice Process

The Wells Notice stage of an SEC case is critically important. Whether to respond to a Wells Notice and, if so, in what manner (in writing and/or through discussions with the SEC staff), in addition to decisions as to what substantive issues should be addressed, very well may make the difference between being prosecuted or not. Such key strategic considerations can only be made by knowledgeable and seasoned securities defense counsel.

The Law Firm of David R. Chase, headed by former SEC Enforcement Division attorney David Chase, focuses its securities practice on the representation of those under SEC and FINRA investigations, as well as those who have already been charged by securities regulators. If you or your company have received a Wells Notice by the SEC or FINRA, call for a confidential consultation as to your legal rights at 1-800-760-0912.

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