SEC chairman’s Wells process comments encouraging for lawyers

Securities and Exchange Commission Chairman Paul Atkins in a recent speech stressed the need for a fair and transparent Wells process, a message that was encouraging to attorneys whose jobs involve helping clients navigate SEC probes. 

Atkins’ Wells process comments were contained in a speech for an Oct. 7 event hosted by Fordham’s Corporate Law Center. 

“The Wells process should be viewed as an extension of due process and fundamental constitutional rights that play an integral role in protecting citizens from a powerful government agency that could become policeman, prosecutor, judge, jury, and executioner all in one,” the SEC chairman said in his speech, posted on the SEC’s website. 

Atkins described the Wells process as “the mechanism through which the enforcement staff notifies potential respondents or defendants of any charges—and the basis for such charges—that the staff intends to recommend to the Commission.” Those notified are given an opportunity to make submissions to the commission setting forth their position with respect to the matter being investigated, he said. 

In his remarks, Atkins said the staff  “must be forthcoming” when it comes to material in the investigative file. 

“Some materials in the file will not be available to potential respondents or defendants, and the staff must make every effort to share information that it has gathered, while scrupulously adhering to statutory and programmatic limitations,” he said, citing “whistleblower-identifying information, and matters that would implicate a parallel criminal investigation” as examples of information that must remain confidential. 

The staff also needs to “be realistic” regarding time periods for submissions, particularly when it comes to “long, complicated cases,” Atkins said. 

“Going forward, the staff will provide the other side with at least four weeks to make Wells submissions,” the SEC chairman said. 

Ed Fierro, a partner at Bracewell who previously served as senior counsel to the director of the SEC’s Office of Municipal Securities, said the “key takeaway” from Atkins’ remarks is that the SEC chairman wants to “promote fairness and transparency in the enforcement process.”

“While there is no rule change here, this is clearly a call by the chairman for SEC staff to be transparent and fair,” Fierro said. “These statements generally address concerns highlighted in the past by the defense bar.” 

As for Atkins’ comments about staff providing at least a four-week time frame for Wells submissions, Fierro said SEC staff in the past has typically provided about two weeks to respond, “sometimes less.” 

While the shift to at least four weeks is a welcome change, it’s not necessarily a big one because in Fierro’s experience SEC staff typically agree to extensions, provided there is justification, he said. 

Kathleen Marcus, a partner at Stradling Yocca Carlson & Rauth, said Wells notices typically give a response deadline that is two to three weeks from the notice’s issuance. 

“Historically, depending on the complexity of the case, the staff would grant extensions of an additional two to six weeks routinely,” said Marcus, who co-chairs Stradling’s enforcement defense and investigations practice.

That changed, however, during the administration of former SEC Chair Gary Gensler, Atkins’ immediate predecessor, she said. 

“Under the last administration, the staff began to communicate to defense counsel that they could not give any extensions or only a very brief extension of time,” Marcus said.  “Chairman Atkins’ statement that the staff should grant ‘at least four weeks’ to submit a Wells response is a welcome change.” 

During the Wells process, certain evidence is made available to defense counsel for the first time, she said. That might include an opportunity to review “voluminous testimony transcripts” at an SEC office, said Marcus, who prior to joining Stradling in 2009 served as senior counsel in the SEC’s Division of Enforcement.

“Depending on the number of transcripts at issue, this on-site review process may involve travel and take multiple days,” she said. “Defense counsel must shepherd all the evidence and draft a comprehensive submission, attaching exhibits, to provide the staff with information or viewpoints, both legal and factual, that the staff may have overlooked or undervalued.”

Given that many SEC investigations can take years to complete, having to provide a response in just two to three weeks has often left defense counsel with “insufficient time to both review the evidence finally made available by the SEC staff and draft a complete and persuasive submission,” Marcus said.