What is a Wells Notice?
A Wells Notice is a letter from a regulator such as the Securities and Exchange Commission that warns a financial institution or financial professional that the SEC is beginning an investigation into the institution's or professional's activities.
How Does a Wells Notice Work?
Specifically, a Wells Notice informs a person or institution that a regulator intends to recommend that the Justice Department or other authority begin enforcement proceedings against the person or institution. A Wells Notice must advise the receiver of the nature of the investigation, though they don't always go into great detail.
The prospective defendant then has a chance to respond, typically in writing, to the entity sending the Wells Notice. This is called a Wells Submission.
Regulators typically provide Wells Notices as a courtesy; they generally aren't required by law.
Why Does a Wells Notice Matter?
Wells Notices are never good news, because they suggest that a regulator suspects wrongdoing. However, they are usually not surprises. By the time the prospective defendant gets a Wells Notice, a preliminary investigation usually has already occurred.
It is important to note that a Wells Notice does not mean the prospective defendant is already guilty. The investigation will bear out that determination.