Yesterday, the SEC’s Enforcement Division announced “significant updates” to its Enforcement Manual, which was last revised in 2017. The Enforcement Manual isn’t binding – but it operates as a guide for the Enforcement Division Staff. So, it’s helpful in the sense that it outlines the process for investigating federal securities law violations. Those processes are important to investigation targets, both to know what may be coming and to determine defense strategies and some disclosure decisions.

In general, the latest changes are aimed at making the investigative process more predictable and transparent. The Division’s announcement summarizes the key updates (also see this Reuters article):

1. Ensuring a uniform Wells process: The updated Enforcement Manual emphasizes the importance of open, informed, and thoughtful dialogue between SEC staff and potential respondents and defendants, with the goal of producing better outcomes and ensuring the fair and timely resolution of investigations and recommendations of possible enforcement actions.

– To encourage this dialogue and facilitate greater consistency in the Wells process, the Enforcement Manual updates provide that recipients of a Wells notice will ordinarily receive four weeks to make Wells submissions. The update also gives guidance on what makes a Wells submission most helpful to the staff and the Commission. The updated Enforcement Manual provides that Wells meetings will be scheduled within four weeks of receipt of a Wells submission and will include a member of senior leadership within the Division.

– The processes and timelines set out in the updated Enforcement Manual are intended to ensure that the Division acts promptly to achieve the Commission’s three-part mission while also allowing parties affected by an enforcement investigation to learn more quickly whether the staff will recommend closure of an investigation or an enforcement action, as well as help ensure efficient use of Commission resources.

2. Facilitating simultaneous consideration of settlement recommendations and waiver requests: The updated Enforcement Manual reflects that the Commission recently restored its prior practice of permitting a settling party to request that the Commission simultaneously consider an offer of settlement and any related request for a Commission waiver from automatic disqualifications and other collateral consequences that result from the underlying enforcement action. By providing potential parties to an SEC action with greater visibility into the collateral effects of a settlement, these updates conserve Commission resources, enhance the transparency of its processes, and protect investors by driving significant efficiencies in the resolution of investigations.

3. Additional Updates to the Enforcement Manual: The updated Enforcement Manual details the Division’s framework for evaluating cooperation, including the impact of cooperation on civil penalties. It also includes: changes intended to encourage more consistent internal collaboration, updates regarding the formal order process, an updated framework for referrals to criminal authorities, and other changes intended to conform the Enforcement Manual to current best practices within the Division.

– Liz Dunshee