SEC/FINRA Wells Notice Response Lawyers
Our Federal Securities Fraud Lawyers Provide Representation for Wells Notice Response and SEC Investigation Defense
SEC/FINRA Wells Notice Response
Team Lead
Former DOJ Trial Attorney
Contact John directlySecurities fraud investigations can take several different paths. They can begin with inquiries conducted by the U.S. Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA), and they can have outcomes ranging from non-prosecution to criminal conviction and sentencing. Along the way, many securities fraud investigations involve the issuance of a Wells notice.
The issuance of a Wells notice is a significant step, as it indicates that the SEC Enforcement Division is considering formal legal action. The SEC explains this process as follows:
“If Enforcement makes a preliminary determination to recommend enforcement action, it may elect to provide individuals or entities who would be charged in the action with a Wells notice explaining the proposed charges against them and informing them that they can make a voluntary submission setting forth their interests and position. If Enforcement believes . . . that enforcement action should be taken, [it] seeks authorization from the . . . SEC to file a civil lawsuit, to commence an administrative proceeding, or, in certain circumstances, to issue a report of investigation.”
Given the significance of the SEC Enforcement Division’s decision to issue a Wells notice, recipients of Wells notices must carefully plan their responses, and they must often do so with a broader defense strategy in mind. At Oberheiden P.C., our career federal defense lawyers and former federal prosecutors have deep experience in all aspects of federal securities fraud cases, including the notice response and Securities and Exchange Commission enforcement action defense.
Options for Wells Notice Response
When the SEC Enforcement Division issues a Wells notice, the recipient has a choice of whether or not to respond. Responding to one is not compulsory, and making a substantive disclosure may or may not be in a party’s best interests depending on the circumstances presented.
In most cases, the issuance of a Wells notice does not come entirely as a surprise. Since the SEC Enforcement Division’s decision to issue a Wells notice reflects a preliminary determination to recommend potentially serious enforcement action, issuance generally comes well into the investigative process. When this is the case, the recipient must make its own determination about whether disclosing information is in its best interests—or whether a more defensive stance is necessary.
A careful analysis of the contents of the Wells notice will be crucial for determining how to respond. This includes a legal review of:
- The specific charges the SEC Enforcement Division is recommending
- The limitations established for the Wells notice disclosure
- The deadline for submitting the Wells notice disclosure to the SEC
In SEC and FINRA investigation, potential charges can vary widely. From engaging in insider trading to making fraudulent misrepresentations to investors, and from manipulating the securities market to operating a Ponzi scheme, the SEC pursues charges for an extraordinarily broad range of offenses.
As a result, when considering how to respond to a Wells notice, it is imperative to have a clear understanding of the specific allegations at issue. Not only can a Wells notice response be ineffective if it fails to address any pertinent allegations, but making a disclosure could also potentially backfire if it includes information that tips off SEC Enforcement Division personnel to potential charges that were not previously on the table.
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Preparing a Wells Notice Disclosure
If the decision is made to submit a substantive response, the Wells notice disclosure must be prepared carefully and with due consideration for the risks involved. The disclosure must thoroughly address the SEC Enforcement Division’s proposed charges while also preserving the attorney-client privilege and the privilege against self-incrimination, as applicable.
When preparing a Wells notice disclosure, it is also important to carefully follow the guidelines established by the SEC—both as set forth within the contents of the Wells notice and as promulgated in the agency’s regulations. For example, the SEC Enforcement Division may reject a Wells notice disclosure in its entirety if:
- The recipient submits its Wells notice disclosure after the deadline
- The disclosure exceeds the limitations set forth in the Wells notice
- The disclosure “contains or discusses” a settlement offer
The SEC Enforcement Division will allow Wells notice recipients to review the non-privileged portions of their investigative files on a case-by-case basis. In many cases, reviewing the investigative file can be hugely beneficial, particularly if there has been relatively little contact with the SEC (or FINRA, if relevant) to date. Wells notice recipients can also request a meeting with SEC Enforcement Division staff to discuss the Division’s proposed charging recommendations. This, too, can be extremely informative for purposes of preparing, or choosing not to prepare, a Wells notice disclosure.
Post-Wells Notice Procedures and Defense
Following the response period in the wells notice process, the federal securities investigators from the SEC Enforcement Division will review the recipient’s disclosure (if any) and then make a formal recommendation to the Commission. At this point, a variety of different things can happen, including:
- Termination of the Investigation – If SEC Enforcement Division staff determine that charges are unwarranted, then they may simply terminate the investigation.
- SEC Subpoena – If the Commission determines that more evidence is necessary in order to bring charges, it may issue an SEC subpoena to the Wells notice recipient (in addition to other potential witnesses and targets).
- Settlement Agreement Negotiations – If the SEC Enforcement Division’s recommended charges appear to be substantiated, the Wells notice recipient can choose to attempt to negotiate a settlement agreement with the Commission.
- Administrative Enforcement Action – In appropriate cases, the SEC may choose to pursue administrative enforcement action against a Wells notice recipient.
- Civil or Criminal Enforcement Action – When civil or criminal charges are warranted, the SEC can work with the U.S. Department of Justice (DOJ) to pursue charges in federal district court.
As defense counsel for Wells notice recipients, we provide representation for all post-Wells notice procedures. We work diligently to attempt to resolve our clients’ investigations without charges whenever possible, we negotiate settlement agreements with SEC staff when appropriate, and we represent our clients in SEC enforcement proceedings and securities fraud litigation when necessary.
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FAQs: Wells Notice Response and SEC Enforcement Defense
When Does the SEC Enforcement Division Make the Decision to Issue a Wells Notice?
The decision to issue a Wells notice typically comes in the midst of an ongoing securities fraud investigation. This can be either an SEC investigation or an investigation conducted by FINRA. While FINRA is an independent, quasi-governmental entity, it works closely with the SEC, and a Wells notice will often flow from a FINRA inquiry.
If I Am Under Investigation by the SEC or FINRA, is it Possible to Avoid a Wells Notice?
Yes, when faced with an SEC or FINRA investigation, executing a proactive defense strategy can significantly mitigate the risk of receiving a Wells notice and facing enforcement action. This involves actively engaging with SEC or FINRA personnel during the investigative process, conducting an internal audit in order to identify any potential concerns, and building a targeted defense strategy focused on the specific allegations at hand.
Also, remember that while the issuance of a Wells notice is a significant step in the SEC’s enforcement process, it is not a “point of no return.” A Wells notice is not a charging document; and, even if the SEC Enforcement Division issues a Wells notice, it may still be possible to resolve the matter with the SEC prior to charges being filed. Depending on the circumstances presented, this may involve entering into a settlement agreement with the SEC, or it may involve terminating the investigation without liability.
Where Can I Find a Wells Notice Sample or Example?
The SEC Enforcement Division does not maintain a public database of the Wells notices that it issues to individuals and companies. As a result, you will not find an official Wells notice sample or example online. However, the SEC’s Enforcement Manual contains a detailed overview of the Enforcement Division’s Wells notice procedures, including an outline of the content of a Wells notice.
What are the Benefits of Submitting a Wells Notice Disclosure to the SEC Enforcement Division?
The benefits of submitting a Wells notice disclosure relate to the possibility of terminating the investigation without charges being filed. Since the decision to issue a Wells notice is based on the evidence already obtained (which is sufficient to support a preliminary recommendation of charges), in many cases submitting a Wells notice disclosure is essentially an opportunity to set the record straight. If Division personnel have overlooked relevant facts or legal issues, submitting a Wells notice disclosure may serve to reverse the Division’s recommendations.
What are the Drawbacks of Submitting a Wells Notice Disclosure to the SEC Enforcement Division?
The drawbacks of submitting a Wells notice disclosure relate to the risks of voluntarily submitting information to the SEC. While this is not inherently dangerous, Wells notice recipients must be very careful not to disclose any information that is counter to their interests. Working with experienced securities fraud defense counsel familiar with wells submission allows Wells notice recipients to allay this concern, and to make fully-informed decisions with their best interests in mind.
Speak with a Securities Fraud Defense Lawyer at Oberheiden P.C.
If you would like more information about our lawyers’ experience on both sides of federal securities fraud investigations, we encourage you to get in touch with our law firm. To discuss your Wells notice with a senior securities fraud defense lawyer in confidence, call 888-680-1745 or request a complimentary consultation online now.
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