When a public company is notified by the SEC that the SEC has initiated an investigation of potential securities law violations by the company, the company must confront challenging disclosure issues. Should the commencement of the investigation be disclosed? When? In what matter, and in what detail?

These issues can be even more sharply posed when the company receives a “Wells notice” in connection with the investigation. After the SEC staff has investigated a matter and believes that a violation of federal securities laws has occurred, it will often issue a “Wells notice” to the company and individuals involved, informing them that the staff intends to recommend to the Commission that an enforcement action be commenced against the company for violation of the securities laws. The recipient of the notice has the opportunity to make a “Wells submission” to the SEC, making the company’s case as to why the proposed action should not be brought.

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