Wells Notice: What it Means, How it Works

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 takes the form of a letter, which notifies recipients of the violations uncovered and the enforcement proceedings to be initiated against them.

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 to review the enforcement practices and policies of the Securities and Exchange Commission (SEC). The receipt of a Wells Notice means that the SEC may bring a civil action against the person or firm named therein, giving them a 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 to speak on their own behalves before 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 them.

A Wells Submission and its contents are public information. Making such a submission is not always in the best interests of prospective defendants, as anything alleged in the Wells Submission can be used against them in the enforcement proceedings or in any other civil litigation brought against them.

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. This may be referred to as a “pre-Wells” process.

This process often includes written submissions and oral arguments made by defense counsel. The SEC may engage in a pre-Wells process if a case involves novel or highly technical issues, significant policy questions, or if they believe it will facilitate reaching a settlement. Extenuating circumstances in a particular case may also lead regulators to proceed on a pre-Wells basis.