What Is a Wells Notice?

A Wells Notice is a notification issued by regulators to inform individuals or companies of completed investigations where infractions have been discovered. It usually takes the form of a letter, which notifies recipients both of the broad nature of the violations uncovered as well as the nature of the enforcement proceedings to be initiated against the recipient.

Key Takeaways

  • A Wells Notice is a formal notice from the SEC informing a recipient that the agency is planning to bring enforcement actions against them.
  • A Wells Notice letter is sent at the end of an investigation into potential securities-law or regulatory violations.
  • The accused may respond to the Wells Notice within 30 days via a Wells Submission, taking the form of a legal brief.

Understanding Wells Notices

The Wells notice is named after the Wells Committee, formed in 1972 by then-SEC Chair William J. Casey in order to review the enforcement practices and policies of the Securities and Exchange Commission (SEC), and chair by John Wells.

The receipt of a Wells Notice means that the SEC may bring a civil action against the person or firm named therein, and gives said person or firm the chance to offer information as to why such an action shouldn’t be brought.

Responding to a Wells Notice

After receiving a Wells Notice, recipients have a chance for prospective defendants in SEC enforcement proceedings to speak on their own behalves, directly to the decision-makers involved in the case.

A prospective defendant’s response to a Wells Notice is known as a Wells Submission. Prospective defendants have a certain number of days to make a Wells Submission, which should take the form of a legal brief, and include both factual and legal arguments to prove why charges should not be brought against the prospective defendants.

A Wells Submission, and its contents, are public information, and as a result, most securities law attorneys may advise that making such a submission is not always to the prospective defendants’ best interests. Anything alleged in the Wells Submission can be used against the defendant in the enforcement proceedings; it can also be subpoenaed and used against the respondents in any other civil litigation brought against the defendants.

The “Pre-Wells” Process

In some cases, regulators are willing to start a dialog with the accused party at the conclusion of their investigation, but before issuing a formal Wells Notice. When this occurs, it may be referred to as a “pre-Wells” process.

This process will often include written submissions and oral arguments made by the defense counsel. The SEC may be willing to engage in a pre-Wells process if a case involves novel or highly technical issues, or significant policy questions. In other cases, the SEC is willing to allow a pre-Wells process because they believe it will facilitate reaching a settlement. Finally, there may be extenuating circumstances in a particular case that cause regulators to be willing to proceed on a pre-Wells basis.