Wednesday, May 24, 2023

The Evolution of a Wells Process and the Anticipated SEC Sweeps

       The Wells Process has a long history dating back to 1972 when SEC Chairman William J Casey appointed John Wells along with two others to the “Wells Committee.” The SEC is charged with the compliance and enforcement of the federal securities law to protect citizens from fraud and theft while maintaining a fair and efficient market. Before the Wells Committee, the SEC could investigate, as it does today, but did not bring forth any notice as to what they were investigating or even who they were investigating. Attorneys who were specialized in this field could formally write to the SEC, ask what charges were being brought against their client, and file a rebuttal. Veterans of this process knew how it worked and used that to their advantage, but the vast majority of the population had no idea about any investigation until the formal charges were made. Then in January of 1972, the Wells Committee saw this as an opportunity to change just that.

            The start of the Wells Process was born. The Wells Process starts with a written letter made near the end of an SEC investigation known as a “Wells Notice.” A Wells Notice is made up of three things. It informs the person(s) or business of the intent of the SEC to file an action against them. It identifies the exact laws allegedly being violated. And finally, it provides notice on how to make a submission for your own defense called a “Wells Submission.” The Wells Submission will have parameters on length and time set by the Wells Notice. According to the notice, one has 180 days to enter a submission. The SEC can choose to extend that time, but the one submitting cannot. It is important to note that the Wells Notice has never been a formal rule in the SEC, and the SEC is not required to give a Wells Notice to begin the Wells Process. In fact, if they deem it as a public safety issue, they can completely forgo the Wells Process, and the 180 days is strictly an internal time frame. The SEC can still file a complaint after 180 days has passed.

After a Wells Notice is made, the next step is a “Wells Call” and finally a “Wells Meeting.” The call is an informal call to gather information and ask questions, while the meeting is a bit more formal which includes the Wells Submission. These Wells Submissions are written documents that need to be very carefully written. There is no formal charge at this time, but the submission can be used in discovery later. At this time in the process, the meeting is conducted by the Director or Assistant Director of the SEC’s Division of Enforcement. This is the last chance for one to give their best defense. It is at this time, the Staff can: settle the case, drop the case, or formally file charges. There are not many statistics about the Wells Process, but we do know in 2012-2013, 20% of Wells Notices ended with the case being dropped and no charges ever filed. While 20% sounds promising, Wall Street Journal financial reporter Jean Eaglesham thinks the percentage was higher the decade before and is dwindling the decade after due to how the, “SEC stockpiles significant ammunition before issuing a Well.” Still, the 20% does give hope. The ultimate goal of the SEC is to settle these cases with the best outcome for all involved, not waste time and resources.

            That brings us to Gurbir Grewal, the current director of the SEC’s Division of Enforcement. Grewal is now taking the Well Process to the next evolutionary step. The Wells Process typically takes up to 2 years. That is a long time to be under investigation and requires a fair amount of resources. As mentioned, the Wells meeting used to be conducted by the Director or Assistant Director, but Grewal’s next step is opening the meetings to be conducted by regional directors. Grewal claims everyone will get a meeting, just not with him. “Unless there’s really a real factual dispute, a novel legal issue or an area of programmatic concern, you’re not going to get a meeting with the director or the deputy,” says Grewal. While some may not appreciate this, it will quicken the pace of investigations, but also quicken the pace of the number of investigations, famously known as SEC sweeps.

Author: Hanna Sprigg

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