New York partner John Carney, co-leader of the firm's national White Collar Defense and Corporate Investigations group, and associate Francesca Harker co-authored an article, "Benefits And Dangers Of An SEC Wells Submission," which was published in the December 17, 2009, edition of Securities Law360.
According to Carney and Harker, "The SEC has recently adopted new strategies and techniques in an effort to 'bring cases faster, with greater impact and, most importantly, to secure litigation victories at trial.' In Securities Act Release 5310, the commission gave public notice of its discretionary practice of allowing those involved in commission investigations to submit a statement setting forth their position on the matter. This submission, commonly referred to as a 'Wells submission,' can be a useful opportunity for prospective defendants to sway the commission to reduce potential liability or in some cases even convince the commission to stop their investigation."
The authors continue: "Tempted with the possibility of halting litigation before it even begins, many practitioners might not stop to consider the very real dangers a Wells submission presents. Before submitting a Wells submission, practitioners need to be aware of the commission's position that the submission could be used against their client in a future proceeding by the commission as an admission against interest under Federal Rule of Evidence 801(d)(2); shared with the U.S. Department of Justice in a parallel criminal proceeding; expose the client to potential false statement charges; and be used by third parties in civil litigation. With the Division of Enforcement focused on becoming leaner, faster and tougher—does this mean that the Wells process, long thought of as an avenue to prevent unnecessary enforcement actions, could become a risk not worth taking?"
Carney and Harker's article goes on to describe the submission process, the benefits and dangers of a submission, as well as advice on minimizing those dangers. The authors conclude: "If after careful deliberation, the decision is made to submit a Wells, a carefully drafted submission can minimize the collateral risks. The Wells should focus on policy issues and litigation risks that the commission will face in an enforcement proceeding. While it is common for submissions to begin with a factual summary, this section should be brief and only contain facts that are not open to dispute. With careful drafting and an eye toward possible downstream litigation, a Wells submission can be a powerful tool for a skilled defense counsel. However, with the promise of more staff, more aggressive tactics and a hardliner at the helm, the careful SEC defense counsel has to ponder whether a Wells submission intended to be a shield against an unfounded enforcement action could wind up being a sword used against their own client."
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