What is a Wells Notice?

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You’ve received a Wells Notice from the Securities and Exchange Commission (SEC)… now what?! Before panicking and jumping to conclusions, it is best to understand the purpose of the Wells Notice and Wells Submission process.

Wells Notice Explained

The Wells Notice is a formal letter from the SEC, sent at the conclusion of their investigation, informing an individual or a company that they will be bringing forth an action against them (usually an investigation into securities law or a regulatory violation).  The Wells Notice was named after the Wells Committee, which was formed in 1972 with the intention to review the practices and policies of the SEC. Although there is no legal requirement for the SEC to provide an individual with a Wells Notice, this practice was implemented by the Wells Committee and has been utilized since its creation. 

The notice will usually contain a broad reference as to the alleged violation, and will explain how to make the Wells Submission, if desired. The receipt of this letter does not mean that an action has already been brought forth. However, the SEC does have the legal authority to bring forth an action without undergoing the approval process. The most integral aspect of the Wells process for a recipient is determining whether or not to respond to the notice by making the Wells Submission. 

How Should I Respond to a Wells Notice?

The Wells Notice provides a recipient with the opportunity to “speak” on their behalf directly to the SEC, in order to defend themselves; present their case; and attempt to persuade the SEC that legal action is not necessary. Often times, the Wells Notice will specify how long a recipient has to make a Wells Submission (this time period is usually only two weeks). For good reason, this time period may be extended. However, the extensions that are granted are usually 2 to 4 weeks.

The Decision-Making Process

When considering whether or not an individual should make a Wells Submission, the individual must be aware that their submission will not be confidential, and anything alleged can be used against this individual down the road.  In addition, the Wells Submission may also be subpoenaed and used in litigation. Many individuals often feel as though it is quite difficult to argue facts in the Wells Submission, since the SEC has already completed an investigation.  For the foregoing reasons, many attorneys will advise against making the Wells Submission.  However, other attorneys disagree, and there will be times where the Wells Submission is necessary and will be beneficial. 

Sharing of Wells Submission with the U.S. Attorney’s Office

Additionally, it is important to know whether there is a parallel criminal proceeding being handled by the U.S. Attorney’s Office. Any information that is provided to the U.S. Securities and Exchange Commission can be and is usually shared with the U.S. Attorney’s Office.

Although it is scary to have a securities fraud case being brought against you by the SEC, it pales comparison to having a criminal case being brought against you by the U.S. Attorney’s Office. Although the SEC can impose monetary penalties, suspend your securities licenses and prevent you from working or holding a managerial position in the financial services industry, the stakes on criminal cases are much higher. Criminal cases, especially federal criminal cases can result in the jail time, probation, supervised release or another deprivation of your freedoms and liberties. Thus, in considering whether to make a Wells Submission, it is important to think through how it may impact your criminal case or investigation, if there is one pending.

The Wells Submission Possible Scenarios

There are several scenarios in which making a Wells Submission is recommended. These situations occur when:

  • When there is error present within the SEC’s facts;
  • There are facts present that the SEC is unaware of;
  • There are weaknesses in the SEC’s case;
  • There are litigation risks;
  • There is a strong policy argument against bringing forth a case; AND
  • The the law or facts of the potential case are being misinterpreted by the SEC.

Making a Wells Submission may be a viable and useful tool for a recipient in these scenarios, as often times a settlement may be negotiated for lesser charges. Evidently, there are two sides in the decision-making process on whether to make the Wells Submission. The opinion of every attorney may vary on whether to make a Wells Submission. However, the decision should be carefully weighed and analyzed in respect to the pros and cons of every individual’s specific case. Most importantly, it is essential to engage counsel once you are served with a Wells Notice. Preparing a Wells Submission on your own behalf, can only lead to issues down the road.

What Should be Included in My Wells Submission?

If a recipient decides to make the Wells Submission (after discussing thoroughly with their attorney), it is imperative that the submission follows the typical guidelines for the Wells Submission. Generally speaking, an individual and their attorney will want to provide a voluntary statement (in writing or video), setting forth the individual’s position, which may include their arguments on why the SEC should not bring an action against them, or why their alleged charges should not be pursued. They may also bring forth any relevant facts forward to the SEC for them to take into consideration. Most attorneys typically put together written, rather than video submissions as they are considered more persuasive and focus on the weaknesses in the case and policy arguments, rather than on emotional appeal.

More specifically, most attorneys will advise individuals to include a combination of fact, law and policy. The Securities Act Release No. 5310 explains that the Wells Submission should include mostly policy or law, however, this has not been deemed most effective by most attorneys in the past. 

The Importance of Fact in the Wells Submission

Though policy and law can be helpful, it has been determined that the facts contained within the Wells Submission are the most important. Though this will be useful, it also ensures that the submission is credible. In regard to facts, if the SEC is relying on facts that are not supported by evidence, then an individual and their attorney must make this clear, as well as bring to their attention any facts or evidence overlooked.  When providing the SEC with facts in their submission, it is essential that the factual statements be supported by evidence. 

The Inclusion of Policy

Policy should also be included in the Wells Submission, as this can be extremely useful when controversial issues are presented. An individual and their attorney will want to form their submission as a response to the SEC’s theory of their case, and challenge this theory; or highlights weaknesses and/or undesirable consequences. An attorney should be especially aware of each element of the charge and tailor the legal and policy arguments toward these elements and the evidence lacking for each. 

The Spotlighted Argument 

From a legal viewpoint, the Wells Submission will be of a similar character to a summary judgment motion. That means that in the submission, your attorney is likely to emphasize that even if the SEC accepts the facts as described in the notice, the facts alleged by the SEC do not support the contemplated charges. This means that a Wells Submission will not read like a legal brief, because the goals of the two vary. The goal of the Wells Submission is to center the argument around the interests of the SEC and persuade the SEC against filing a civil action.

When crafting the argument contained in the Wells Submission, your attorney’s argument will either present an affirmative defense or provide evidence in rebuttal of the SEC’s case.  The argument should be direct and only highlight the actions and facts as it pertains to the recipient of the notice, not other individuals involved (if applicable). The strongest argument should be presented first in detail, while the minor arguments should be mentioned but not discussed thoroughly. If there is applicable case law that would be helpful to include to support the recipient’s case, then it is important to do so.  And if this individual has cooperated during their investigation, it is important to provide those details for mitigation purposes. 

Importantly, prior to endeavoring on putting together a Wells Submission, your attorney will need to be well versed on both the law and the facts alleged. Thus, as soon as you are served with a Securities and Exchange Subpoena for production of documents or for on the record testimony (commonly abbreviated as ‘OTR’), it is important to engage counsel.

How Should I Format My Wells Submission?

It is equally as important to follow the guidelines provided in the Wells Notice on how to craft a submission. First, a submission should be addressed to the specified Assistant Director. As mentioned previously, the Wells Submission may take the form of a written document (of up to 40 pages, excluding exhibits), or a video (of twelve minutes or less).  Most attorneys prefer to write the submissions because of the complex facts and arguments that are usually involved. Video submissions are rare and, in the past, have been considered to be less effective than a written submission. However, over time, video submissions have increased a bit and views have shifted. Video submissions can be very persuasive because they can create an impact (especially if witnesses are included). 

When framing a submission, many attorneys will focus on the legal elements of the charge and organize their submission in this manner. In regard to length and time frames, an individual and their attorney must carefully review the limitations on the length of submissions as well as the time period permitted in order for a submission to be made. These will almost always be presented in the Wells Notice. If not, it will be helpful to reach out and ask. 

Contact Us for Further Assistance 

If you or a loved one has received a Wells Notice from the SEC, it is important to reach out to an experienced attorney immediately in order to protect yourself. We have defended numerous individuals who have been investigated by the SEC, many of whom had parallel criminal cases against them. When considering which counsel to hire to handle the Wells Submission, it may be prudent to retain counsel with both securities and federal criminal defense experience. Please contact us today to schedule your free consultation to determine if we are the right counsel for you.