The Wells Process Needs Modernization

The SEC’s Wells process, which allows prospective respondents to respond to potential charges, has remained largely unchanged since the 1970s despite significant evolution in enforcement practices and market complexity.

It’s time for the SEC to reform and update the process. The stakes in SEC enforcement actions have grown, with higher penalties and broader consequences for respondents.  Opaque and inconsistent practices undermine the process’s core purpose: ensuring all relevant material is considered before imposing sanctions.

• Current Criticisms of the Wells Process
  • Lack of uniformity: Procedures vary widely across SEC offices and even within investigations.
  • Limited transparency: Notices often lack factual detail, and access to evidence is inconsistent.
  • Fairness concerns: Short response windows, limited advocacy opportunities, and risks associated with admissions or remediation.
• Some Proposed Reforms
  • Adopt uniform rules: Standardize when and how Wells notices are issued, what they must contain, and set a baseline 35-day response period.
  • Guarantee file access: Presumptive right for respondents to review non-privileged investigative materials, with denials requiring senior approval.
  • Protect advocacy: Treat Wells submissions as non-admission settlement material, limit sharing with other agencies, and seek FOIA exemptions for closed investigations.
  • Publish metrics: Regularly release anonymized statistics on Wells notices, outcomes, and response periods to build confidence and inform practitioners.
  • Resource fairness: Provide guidance and pro bono resources for individuals and small businesses, and consider an independent advisory committee for ongoing review.

The bottom line is that reforming the Wells process would not weaken SEC enforcement but would enhance its legitimacy, consistency, and fairness—ultimately strengthening investor protection and market integrity.

For a deeper dive, read the full article on Bloomberg.