Should You Make a Wells Submission? Strategic Considerations and Hidden Pitfalls

Dmitriy Smirnov

April 7, 2025

Firm News

For clients under SEC investigation, receiving a Wells Notice can feel like the beginning of the end. And while it signals that the SEC Staff intends to recommend an enforcement action to the Commission, it also presents an opportunity — often the first and only opportunity — to present arguments directly to the Commission before charges are filed. In this way, a Wells Submission may help avoid an enforcement action, narrow the scope of proposed charges, or influence settlement discussions. But it also carries meaningful strategic risks.

Counsel must tread carefully. The decision whether to submit — and how to structure the submission — can shape the course of any ensuing litigation, settlement, or even criminal exposure.

First, What Is a Wells Submission?

A Wells Submission is a written response provided after the SEC Staff issues a Wells Notice, which signals that the Staff intends to recommend an enforcement action. The submission is named after John Wells, who chaired the ABA’s 1972 committee on SEC enforcement practices.

While the process is discretionary, meaning there is no requirement that the SEC Staff issue a Wells Notice, it typically does unless special circumstances (e.g., flight risk or emergency asset freezes) make prior notice impractical. (See my commentary about a fugitive trader here.) The prospective defendant may then submit a written or videotaped statement — the Wells Submission — explaining why charges should not be brought. 

If the Staff after reviewing the Submission recommends an enforcement action, the prospective defendant’s Wells Submission is distributed to the Commissioners and to senior officers of the SEC along with the Staff’s “Action Memorandum.” The Commission typically meets in a closed-door session to consider the Staff’s recommendation within several weeks of the matter being docketed on its meeting calendar. In other words, because the Commission conducts this review without input from the prospective defendant or their counsel, the Wells Submission often serves as the defendant’s only opportunity to present their position directly to the Commission and challenge the Staff’s case.

Should You Submit a Response?

Whether to respond is a case-by-case decision that should be guided by several practical and legal considerations. There are compelling arguments on both sides.

Reasons to Consider Submitting a Wells Response

1. Avoiding Charges or Narrowing the Case.

If the facts are favorable to the defense or the Staff’s legal theory is shaky, a Wells Submission may persuade the Commission not to bring charges — or to bring lesser ones. Submissions have led to fraud charges being dropped in favor of negligence-based charges, or civil penalties being reduced.

1. Preserving Career and Reputation.

For clients in regulated industries — public company officers, broker-dealers, investment advisers, or accountants — even the filing of an SEC action can be devastating. A compelling Wells Submission may head off reputational damage even if enforcement seems likely.

1. Improving Settlement Position.

The Wells process often serves as a soft entry into settlement talks. By highlighting evidentiary weaknesses or policy concerns, a Submission can lead to more favorable terms than might be offered otherwise. But, as discussed below, not ever Submission will be considered a Settlement Proposal protected under F.R.E. 408.

Reasons Not to Submit a Response

While a Wells Submission can help avoid litigation, it may also backfire if not handled with care. Important risks include:

1. The Risk of Criminal Prosecution

If criminal exposure is reasonably foreseeable, submitting a Wells response can be risky. In cases involving allegations of intentional — or what the Commission refers to as “scienter-based” — misconduct, the SEC often shares information with criminal authorities such as the U.S. Attorney’s Office. This can lead to parallel criminal charges based on the same underlying conduct. In such cases, a Wells Submission may inadvertently reveal the defense’s legal strategy and highlight weaknesses in the government’s case, effectively providing prosecutors with a roadmap to avoid those vulnerabilities when framing their charges. Additionally, because the SEC treats Wells Submissions as potential party admissions under Federal Rule of Evidence 801(d)(2), they can — and often are — used against the defendant in related civil or even criminal proceedings.

This risk played out in SEC v. Jacobs, 2014 U.S. Dist. LEXIS 191542 (N.D. Ohio Feb. 25, 2014), where the court admitted a draft statement submitted after a Wells Notice. The defendant argued the submission was made during settlement negotiations and should be protected under Rule 408. The court rejected that view, finding that:

• The Submission did not include an actual settlement proposal; and
• The SEC had clearly warned the defendant that the Submission could be used in enforcement proceedings.

The key takeaway here is that Submissions made to avoid or narrow charges — without proposing settlement — will likely not be protected under Rule 408. Even if the goal is informal resolution, unless a real settlement proposal is included, the Submission may be admissible as an admission. (Cf. In re Allied Stores Corp., Admin. Proc. File No. 3-6869, 52 SEC Docket (CCH) 451) (excluding a Wells Submission where admitting it would impair settlement negotiations — presumably because it was submitted in the course of actual compromise discussions).

2. Giving the SEC a Chance to Fix Its Case

A Wells Submission may alert the SEC to weaknesses in its theory — and provide a roadmap to correct them. For example, if the Submission highlights gaps in the evidence or flaws in legal reasoning, the Staff may reopen discovery, find new witnesses, or revise its legal theory to overcome the issues.

In some cases, the better strategy is to preserve those weaknesses for litigation, rather than help the Staff cure them.

3. Futility

If the client has no interest in settling and the Staff appears committed to recommending charges, a Wells Submission may not change the outcome. In these cases, saving resources — and keeping your litigation strategy under wraps — may be the better call.

Best Practices If You Decide to Submit

If you do elect to submit a response, you should do so with caution and clarity:

• Understand the Purpose. If the goal is to persuade the Commission not to bring charges or to narrow the case — but not to settle — be aware that your submission likely won’t be protected under Rule 408. Do not assume Rule 408 applies just because you say the word “settlement.”
• If Settlement Is the Goal, Make an Offer.
• To maximize the chance that the Submission will be viewed as part of compromise negotiations and protected under Rule 408, include a specific, concrete settlement proposal in the Submission. Without that, the Submission may be deemed pure advocacy — and admissible.
• Label Clearly, But Don’t Rely Solely on Labels.
• While it’s advisable to include a statement that the Submission is “for settlement purposes,” courts will look beyond the label. What matters is whether the Submission was part of bona fide settlement discussions.

• Don’t Over-Admit. Carefully frame your arguments. Focus on legal principles, fairness, and evidentiary gaps. Avoid factual admissions unless absolutely necessary — especially in cases with criminal exposure or civil follow-on risks.
• Follow Up Strategically. Consider requesting a meeting with senior SEC Staff to emphasize key points, correct misunderstandings, or discuss settlement options. But be prepared: any new information you provide can and will be used in the SEC’s assessment.

Conclusion

The Wells process presents a strategic fork in the road — one that requires a clear-eyed understanding of both opportunity and risk. A well-crafted submission may head off litigation or secure a better outcome. But a poorly timed or ill-conceived submission can expose your client to greater harm, including the risk that their own words are used against them in future proceedings.

In each case, defense counsel must evaluate the likelihood of enforcement, the presence of criminal exposure, the strength of the SEC’s case, and the client’s risk tolerance. Above all, counsel must treat the Wells process not as a formality — but as high-stakes advocacy that could shape the rest of the matter.

Contact Us for SEC Investigation Help

If you receive a Wells notice, an SEC subpoena for documents or testimony, a FINRA 8210 request, a FINRA on-the-record (OTR) interview request, or a similar inquiry from a state regulator, such as Florida’s Office of Financial Regulation (OFR), act immediately. Contact Fridman Fels & Soto, PLLC to speak with an experienced SEC defense attorney. Prompt action is critical to protect your rights whether you need an attorney skilled in insider trading defense or to respond to a subpoena. 

Alejandro Soto is a former federal prosecutor and senior official with the SEC. He leads Fridman Fels & Soto, PLLC’s Securities Litigation and SEC Defense Practice Group and is admitted in Florida and Washington, DC.