The SEC Enforcement Division Announces Significant Changes to Its Processes

Introduction

The Securities and Exchange Commission’s Division of Enforcement this week announced significant changes to its approach to investigating and determining whether to prosecute individuals and entities suspected by the Division of having violated the federal securities laws. The Division included these changes in its first update of the SEC’s Enforcement Manual since 2017 and promised to review and update the manual annually going forward.

These changes reflect a significant policy departure from the approach taken in prior administrations and signal a more selective method for determining how to deploy the agency’s limited resources.  They also indicate a heightened commitment to considering the defense perspective before recommending that the Commission take enforcement action. 

The latest revisions emphasize the importance of a more robust dialogue between Staff and defense counsel in the Wells process, a more realistic approach to addressing collateral consequences in fashioning settlements of enforcement proceedings, and greater consistency across the Division’s many offices in determining appropriate matters to be investigated and prosecuted, the methodology for conducting investigations, the handling of the Wells process, and the exercise of prosecutorial discretion.  The new Manual also includes various changes intended to achieve greater efficiencies in the work of the Division’s staff.

The Wells Process

Of particular significance are the changes to the Wells process.  These updates provide the Office of the Director of the Division more direct involvement in, and control over, the decision to issue a Wells notice which indicates that the staff has reached a preliminary determination to recommend enforcement action.  The 2017 Manual stated that the approval of an associate director or regional director was a prerequisite to issuance of a Wells notice.  The new Manual requires that, after securing approval of an associate director or specialty unit head, the staff must also obtain the approval of the Office of Director to issue a Wells notice.  This additional requirement ensures that individuals with a broader perspective on the Division’s activities will have enhanced oversight and control over decisions to pursue enforcement actions which often have serious consequences for the subjects of that action, the Commission, and the investing public.

The new Manual also contains changes designed to make the Wells process more productive for both the staff and defense counsel.  These revisions provide the Commission with an opportunity to make more informed decisions when authorizing enforcement proceedings and may increase the likelihood of pre-filing settlements as the parties will have greater access to the evidence underlying their adversary’s position.

Unlike the 2017 Manual, the new Manual states:

As part of the Wells process, staff should inform the recipient of the Wells notice of the salient, probative evidence that the staff has gathered or received, which the staff may have or should have reason to believe may not be known to the recipient …

In addition, in recent years, the Division often informed recipients that they had only two weeks to prepare and deliver their Wells submission, although it frequently granted requests for short extensions of time.  The new Manual states that “in the absence of timing constraints a four-week time period [is] allowed for the recipient to provide a Wells submission.”  Relatedly, unlike the 2017 Manual, the new Manual provides:

In the interests of increasing transparency and efficiency of the investigative process and the Commission’s deliberations, the staff should be forthcoming about the content of the investigative file. 

The 2017 Manual stated that “the staff has the discretion to allow the recipient of the notice to review portions of the investigative file.  The new Manual provides that “the staff should make reasonable efforts to allow the recipient” to do so.  This change in tone reflects the views of the Chairman, as expressed in his keynote address on October 7, 2025, at the 25th Annual A.A. Sommer, Jr. Lecture on Corporate, Securities, and Financial Law.”

Finally, the 2017 Manual did not state whether a Wells notice recipient’s request for a meeting should be granted.  The new Manual provides:

Requests for a post-Wells notice meeting are typically granted …  [Such] meeting should be scheduled to occur within a reasonable period of time after the recipient makes a Wells submission, but in any event no later than four weeks after the receipt of the Wells submission.

The provision in the new Manual stating that such meeting “will include a member of senior leadership at the Associate Director level or above” further promotes transparency by ensuring that the very person responsible for approval of the Wells notice and the staff’s action memorandum to the Commission recommending enforcement action must engage with defense counsel concerning the soundness of the staff’s position.

Authority to Issue Formal Orders

The new Manual also reflects the decision to discontinue the Commission’s delegation to the Division Director of authority to issue formal orders of investigation (empowering the staff to issue subpoenas), submit witness immunity order requests, and file subpoena enforcement actions.  This change underscores the desire of the current administration to exert more control than in the past over decisions to deploy Commission resources in these areas and will likely promote greater consistency between the priorities of the Commission and the day-to-day work of the Division.

Simultaneous Consideration of Enforcement Action and Collateral Consequences

Finally, the new Manual restores the Commission’s prior practice of permitting settling parties to request that the Commission simultaneously consider an offer to settle a proposed or pending enforcement proceeding and any related request for Commission waivers of disqualifications that could be triggered by such settlements.  These disqualifications potentially include the inability to raise capital under the safe harbor from registration afforded by Regulations A, D, and E, the elimination of the safe harbor for forward-looking statements in periodic reports, and disqualification from being able to serve as an investment advisor or an affiliate of a mutual fund.  By relieving settling parties of the uncertainty about the collateral consequences of settlement, this change should inject more efficiency into the process of settling potential and pending enforcement proceedings.  The additional certainty may encourage more settlement offers and allow the Commission to consider in a single meeting the conduct that prompted the enforcement recommendation and that, at the same time, drives the decision whether to grant the waiver.  This change will also promote similar efficiencies at the staff level. 

Cooperation Credit

Consistent with the approach taken in the 2017 Manual, the new Manual directs the staff to consider the factors set forth in the Seaboard Report in determining the degree to which those under investigation should receive credit for their cooperation. Unlike the 2017 Manual, however, the new Manual states that the SEC “cooperation program is overseen and administered by the Division’s Cooperation Committee” to ensure that “decisions regarding cooperation are made in an appropriate and consistent manner.”  The committee is also charged with responsibility for recommending improvements to the program “when needed.”  Relatedly, the new Manual directs the staff to seek the approval of the committee before entering into cooperation agreements, deferred prosecution agreements, non-prosecution agreements, and immunity requests. Formalizing the role of the committee in this manner should contribute to enhanced coherence, consistency, and efficiency in the application of the cooperation program.

The foregoing changes should be welcomed by market participants, the SEC defense bar, and those advocating for a more effective enforcement program in pursuit of the Commission’s mission. 

For a more detailed comparison between the 2017 Manual and the new Manual, or any questions about the SEC’s enforcement process, please reach out to the authors of this alert or any of the attorneys in Foley’s Securities Enforcement and Litigation practice group.