Time to Update the SEC’s Wells Process

We have written about the SEC’s Wells process in the past. A Wells Notice is a notice from a regulator that it intends to bring enforcement proceeding against the recipient, and offering the opportunity to argue against those charges.

In my article Responding to a Wells Notice, I examined the process, and the pros and cons of responding to the notice. Most often, we advise not to respond, for the reasons set forth in that article. One glaring problem with the process, at least at the SEC, is that the Wells Notice as drafted by the SEC doesn’t really say anything. Most times the substance of the notice is a simple as “the Staff has made a preliminary determination to recommend that the Commission file an enforcement action against you. This proposed action would allege violations of Sections 17(a)(1) and (3) of the Securities Act of 1933 (“Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5(a) and (c) thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (“Advisers Act”).”

That’s it. No facts, nothing to support those conclusions. In most cases there has been an investigagon anda the proposed defendant knows what the case is about, but not the substance of what the charges will be.

This presents a problem, as it is often difficult to respond when the Staff will not even put in writing what it believes was the wrongful conduct. For that reason we often recommend not responding. But this senario undermines the entire process and frustates any potential early resoluting.

Gibson Dunn, a large multi-national law firm has just published an article urging an update to the process. The full article, Reforming SEC’s Wells Process Can Promote Transparency, Fairness, is available at their website. Here is a summary

Need for Reform

• High Stakes Today: Modern enforcement carries far greater weight, including multimillion-dollar fines, lifetime bars, and ensuing civil litigation.
• Opaque Discretion: The process can feel arbitrary, with insufficient visibility into the staff’s reasoning, making it harder for respondents to defend effectively.

Criticisms of the Current Process

• Inconsistency: Similar cases receive wildly different treatment depending on region or division; staff have broad latitude to limit access or bypass notice of charges entirely.
• Limited Transparency: Often, Wells notices contain only legal references without factual explanations. Key tools like reverse proffers or sharing core evidence are inconsistently applied .
• Lack of Data: The SEC doesn’t publish metrics—how often notices are issued, overturned outcomes, or average response time—leaving attorneys and the public in the dark.
• Fairness Concerns: Submission materials may be used against respondents in litigation. Tight response windows, limited guidance, and scant opportunities for meaningful engagement disadvantage individuals and smaller entities.

Proposed Enhancements

• Formalize Procedures: Implement rule-making to standardize notice delivery, content requirements, and response timelines. A baseline 35-day window is suggested.
• Ensure File Access: Presume access to non-privileged materials, with denials requiring executive approval and written justification. Include mandatory reverse proffers or charge conferences.
• Protect Advocacy: Treat Wells submissions as privileged—they shouldn’t be used as admissions or shared broadly. Seek FOIA exemptions for closed cases.
• Publish Metrics: Regular disclosure of anonymized statistics (e.g., notice frequency, response outcomes, average timelines) would improve confidence and aid legal counsel.
• Support Equity: Smaller respondents often lack resources. The SEC should offer template guidance, pro bono support, and establish an advisory group to monitor fairness.

The Bottom Line

The SEC’s enforcement powers are essential—but being powerful doesn’t excuse cutting corners. Reforming the Wells process to embed fairness, consistency, and transparency will bolster legitimacy without sacrificing effectiveness. It’s about giving respondents a fair chance to be heard—and protecting the integrity of the system as a whole —providing notice and an opportunity for defendants to argue against proposed charges—has barely evolved since the 1970s, despite significant changes in enforcement approaches, organizational structures, and statutory remedies such as Sarbanes-Oxley and Dodd-Frank.

While I agree with Gibson Dunn’s suggestions and criticisms, I have little hope for the SEC to adopt any of these changes, as the current system benefits the Staff, not the potential defendant.

Mark J. Astarita is a veteran securities attorney representing investors and financial professionals nationwide in securities investigations and arbitrations. Have a question? Email him at mja@sallahlaw.com, call his office at 212-509-6544, or visit The Securities Lawyer.

The attorneys at Sallah Astarita & Cox, LLC are former SEC Staff Attorneys and brokerage firm counsel, with over 100 years of collective experience. If you have received a subpoena from the SEC, a document request from FINRA, or have a dispute with a brokerage firm, call 212-509-6544 for a free consultation. The firm represents investors and financial professionals nationwide.

The Wells Notice and Wells Submission