Wells Notices

Under the Securities Exchange Act of 1934 (the Exchange Act), the broker-dealer industry is regulated by the Securities Exchange Commission and a self-regulatory organization (SRO). The Financial Industry Regulatory Authority (FINRA) has emerged as the primary self-regulatory body for broker-dealers in the United States, entrusted with the responsibility of protecting investors and strengthening investor confidence in the securities industry. When a brokerage firm or a broker abuses investors' trust, breaches industry rules, or cause financial losses, the self-regulatory body FINRA may step in to initiate disciplinary proceedings. It also provides a lower cost and faster forum FINRA Dispute Resolution to arbitrate disputes in the industry, similar to a court. Malecki Law’s New York regulatory lawyers are here to help you navigate these parallel regulators.

In certain circumstances, FINRA will refer fraud and insider trading cases to the SEC and other agencies for litigation and prosecution. FINRA receives complaints directly from investors and industry members, but also refers fraud and insider trading cases to the SEC and other regulatory bodies for litigation and/or prosecution.

However, long before you find yourself tied up in litigation with the SEC or FINRA regulatory, and even prior to formal charges being brought against you, there is a potential step in the beginning of this whole process where regulators serve a Wells Notice. It takes an experienced New York Wells Notice lawyer like the lawyers at Malecki Law to help you make that decision appropriately on a case-by-case basis.

A Wells Notice is usually verbal and written notification by the SEC or FINRA stating that they intend on recommending a civil enforcement action be taken against you. This notification serves to make you aware that the SEC intends on filing charges or FINRA plans on taking action against you. The notice will often note the specific alleged securities violations and may also outline potential remedies.

A Wells notice is typically sent out by the SEC or FINRA once they have completed their investigation but before any formal legal action is taken.

No, sending a Wells notice is not mandatory, but discretionary. The SEC and FINRA have no obligation to do so and may elect not to send a Wells Notice, for instance, if they are concerned that notification could lead to destruction of or tampering with evidence.

As the recipient of a Wells Notice, if you chose to respond to it, you may do so verbally or in writing typically within 14 days of receiving it—though it is not uncommon for extensions to be given upon request. Our New York Wells Notice lawyers are skilled at making the call as to whether you should or should not submit a Wells Notice. This response, the Wells Submission, is your opportunity to present your own facts and counter-arguments as to why legal action should not be taken against you. It is important to note that the majority of Wells Submissions do not succeed in deterring civil action and, according to the SEC and FINRA, anything communicated in a Wells Submission may be used against a party later in any legal action taken. It is for these reasons that one should consider long and hard the potential benefits of responding versus the potential costs.

As stated above, it is not often that a Wells Submission is successful in deterring legal action from being taken, but Malecki Law’s Wells Notice attorneys in New York have been successful using this tool. Even if you do not succeed in avoiding charges altogether, a Wells Submission can be a good way to let the other side know of potential weaknesses in their case, facts they are not aware of, mitigating factors, etc. This can be a jumping off point for discussing a favorable settlement and/or lesser charges. That said, as also indicated above, the SEC and FINRA have made their position known—that anything communicated in a Wells Submission is fair-game for any subsequent legal proceedings. Though this belief is not universal, it has not been litigated sufficiently to clearly establish or refute its validity, so you should remain cautious and proceed as though anything in the Wells Submission will be able to be used in any subsequent proceedings. Another disadvantage is that you must give your Wells Submission prior to knowing all the evidence against you. While the Wells Notice will usually outline charges and presumed violations, it will not detail the specifics of the case against you, so you and your attorney will be hypothesizing, at best, as to what the other side knows and what is in your best interest, strategically, to communicate.

While a Wells Submission may be your last chance to stop impending charges from being filed, it may also be a way to inadvertently undermine yourself or your case. Very often, the decision to file a Wells Submission turns on irrefutable facts and/or weak factual and/or legal positions of the regulator, not actual gray area or well-established law supporting the charges. In the end, responding to a Wells Notice is something that you and your Wells Notice law firm in New York should discuss at length before coming to a decision. If you have received a Wells Notice or would like to review anything discussed above, please do not hesitate to contact one of the attorneys at Malecki Law, who have stopped regulatory action by Wells Submission in the right cases and not filed in those where it would not yield results.