The U.S. Securities and Exchange Commission (“SEC”) released significant revisions to its Enforcement Manual, marking the first comprehensive overhaul of the guidelines since 2017. SEC Chairman Paul Atkins commented that changes to the staff reference guide were “long overdue” and are meant to promote “transparency, fairness, and process.” The question that shareholders and institutional investors have to be asking is, “For whom?”
The Enforcement Manual is a 115-page document that serves as the internal guide for SEC staff on how they should investigate potential violations of the federal securities laws, craft enforcement recommendations, engage with individuals and entities, and resolve matters. This guide heavily influences how Commission staff operate and interact with regulated entities.
One meaningful change came in the form of revisions to the Wells process. A Wells Notice is a pre-charge notice and response mechanism through which targets are informed of potential SEC actions and can submit responsive arguments against enforcement. Under the updated Manual, entities or individuals who receive a Wells Notice have four weeks to respond. Prior to this Manual update, the typical Wells Notice response deadline was approximately two weeks, although in practice extensions were at times granted. The Manual now also calls for a Wells meeting with senior enforcement leadership within four weeks of the submission.
Another centerpiece revision was the restoration of a process through which the SEC may consider offers of settlement and requests for waivers of automatic disqualifications at the same time. A waiver of automatic disqualification is an exemption granted by the Commission to firms or individuals, allowing them to continue business activities (such as using certain registration exemptions) despite triggering “bad actor” provisions from a legal settlement or conviction. Prior to this change, these waivers were commonly handled sequentially, rather than simultaneously. A statement from the SEC states that these updates “conserve Commission resources, enhance the transparency of its processes, and protect investors by driving significant efficiencies in the resolution of investigations.”
Other changes to the Manual included a detailed framework for how meaningful cooperation from enforcement targets may mitigate—or even eliminate—regulatory penalties. According to the updates, cooperation from entities or individuals, including self-reporting violations early or implementing effective compliance fixes, could lead, under certain circumstances, to reduced or even no civil penalties.
The Commission stated that the Enforcement Manual will undergo annual reviews going forward.
For shareholders and institutional investors, these updates could have mixed implications. The revisions could offer predictability in enforcement process and outcomes—potentially stabilizing corporate governance and mitigating downstream impacts on investment portfolios. Inversely, the changes may also delay enforcement outcomes, and longer Wells timelines can slow charging decisions and the subsequent public disclosure of misconduct. Further, greater procedural leverage for well-resourced respondents could result in narrower or fewer enforcement actions, weakening deterrence and reducing the regulatory findings that institutional investors often rely on for risk management and recovery strategies.