The SEC Updates Its Enforcement Manual

On February 24, 2026, the SEC’s Division of Enforcement released its first significant updates to the Enforcement Manual since 2017. According to the Commission, the changes are intended to promote “fairness, transparency, and efficiency” and “enhance consistency and uniformity.” In particular, the updated Manual introduces reforms across the Wells process, settlement mechanics, cooperation standards, criminal referral procedures, and investigation management — changes that collectively shift the balance toward greater predictability and more substantive engagement between the Division and parties under investigation.

LET’S LEVEL SET: How the SEC Investigates.

Contrary to popular depictions, SEC enforcement does not begin with charges or federal agents barging in and ordering a suspect to step away from the shredder and drop the documents. The process typically starts quietly, often before a party under investigation is even aware of the inquiry. The decisions made before the formal process begins often determine how a matter ultimately is resolved. The process may proceed as follows:

• Preliminary Inquiry (MUI). Most matters begin as a Matter Under Inquiry — although certain matters may begin with a formal investigation. During the MUI stage, the staff gathers information to assess whether a formal investigation is warranted — reviewing public filings, trading data, tips, or referrals from other regulators such as state regulators, other agencies, or FINRA. Unless the staff contacts the company or individual under investigation, the subject of the inquiry is often unaware of the inquiry. The staff does not issue subpoenas or formal notice but rather relies on voluntary cooperation to gather information if the subject is contacted. Sixty days after the start of the MUI, the SEC must decide whether to close the MUI or convert it into a formal investigation.
  
  
• Formal Order of Investigation. If a preliminary inquiry warrants deeper examination, the staff seeks a Formal Order from the Commission, a short document outlining the securities law violations that the staff believes have occurred. A Formal Order authorizes staff to issue subpoenas compelling the production of documents and testimony. While receipt of an SEC subpoena is not an accusation, it is nonetheless a serious procedural event requiring immediate legal attention. Under the 2026 Manual, this stage of the investigation now requires Commission approval — a check that did not previously exist in the same form.
  
  
• Investigation and Evidence-Gathering. Once a formal investigation is open, staff may issue document subpoenas, take sworn testimony, interview witnesses, and analyze trading records and financial data. This phase can last months or years. Companies have legal obligations — including document preservation — that attach immediately. As with the response to a MUI or a formal investigation, the type of response during this phase, including whether to cooperate proactively or merely comply with what is compelled, affects the outcome of the investigation meaningfully.
  
  
• Wells Notice and Wells Submission. Before recommending charges, staff usually issues a Wells notice — named after securities lawyer John A. Wells, who chaired the Advisory Committee on Enforcement Policies and Practices in 1972. The letter informs the recipient that the staff intends to recommend an enforcement action and invites a written response called a Wells submission. This is often the last opportunity to persuade the staff not to file formal charges. Note, however, that the staff does not always issue a Wells notice, particularly when doing so could compromise the investigation. As discussed below, the 2026 Manual significantly reforms this stage, including the approval, notice requirements, timeline, and issuance of the letter.
  
  
• Enforcement Action or Closing. At this stage, the staff either recommends charges — in federal court or an SEC administrative proceeding — or closes the investigation. If closed, staff sends a termination letter. Under the 2026 Manual, that letter now goes to a broader circle of recipients beyond subjects and targets of an investigation to include any party that made significant productions to the staff — companies or individuals who received document subpoenas and produced materials as part of the investigation but were never the focus of it. For third parties who were not the subject of the investigation, this means they will no longer be left wondering whether an investigation they were drawn into — through a subpoena or document request — has concluded, allowing them to make informed decisions about their own legal exposure and any related disclosure obligations.

KEY CHANGES: The 2026 SEC Enforcement Manual

As noted above, the Enforcement Manual is the Division’s internal operational guide, governing how staff conducts investigations, makes charging decisions, and interacts with parties under examination. Defense counsel study the Manual carefully as a reference point for procedural rights and agency expectations. The 2026 Manual includes the following changes:

• A More Structured Wells Process — Dual Approval and Advance Notice. Staff must now obtain dual approval — from an Associate Director and from the Office of the Director — before issuing a Wells notice, which adds a second layer of review. Also, oral advance notice is expected when feasible, and the carve-out for delaying notice due to a parallel criminal investigation has been narrowed to specifically “covert” investigations. These changes add accountability and structure to what had historically been a largely discretionary process.
  
  
• Concrete Timelines and Senior Engagement. Recipients receive four weeks — rather than the prior default of two — to prepare Wells submissions. Post-Wells meetings must be attended by an Associate Director or above and scheduled within four weeks of submission. Settlement offers included in Wells submissions now trigger mandatory rejection rather than merely permissive consideration.
  
  
• Investigative Transparency and What a Strong Wells Submission Looks Like. One of the more consequential changes in the 2026 Manual entitles respondents to access evidence before responding with their Wells submission. The Manual directs staff to flag “salient, probative evidence” in the investigative record and to be open about the broader contents of the file, taking reasonable steps to give the recipient access to relevant material that is not privileged or otherwise off-limits. That obligation alone represents a meaningful shift, as respondents and their counsel will be able to draft their responses more strategically. Similarly, a strong Wells submission must not merely assert innocence: it must directly address the evidence the government has gathered and shared, including explaining specifically why that evidence fails to meet the legal standard for each charged element and supporting its arguments with documentary evidence and expert analysis where available.
  
  
• Contingent Settlements Restored. The revised Manual restores the SEC’s prior practice of allowing settling parties to request that the Commission simultaneously consider settlement offers alongside requests for waivers from automatic disqualification and other collateral consequences that can result from an enforcement order. If the settlement is accepted but the waiver is denied, the party has five business days to decide whether to proceed. This change is directly consequential for any person or regulated entity whose licenses or exemptions could be affected by a settlement finding, including “bad actor” disqualification under Regulation D and other disqualifications under other federal securities laws — and possibly certain state blue sky laws. Counsel must raise the issue and build the waiver request into negotiations from the outset of settlement discussions, as it will not happen by default.
  
  
• Cooperation and Self-Reporting — Narrowed Standards. Self-reporting credit applies only when disclosure precedes the staff’s knowledge of the alleged misconduct from any other source and before any imminent threat of investigation — and is rarely available if the conduct has already received media attention or attracted another regulator’s scrutiny. Cooperation requires more than complying with a subpoena; it requires proactively surfacing documents and witnesses, summarizing internal investigation findings, and providing expert analyses. Companies that respond reactively often arrive at the Wells stage with an unfavorable record in which they had little input. Respondents that choose to cooperate fully with the staff should nonetheless engage counsel throughout the process. Voluntary cooperation does not require waiving privilege, and maintaining the attorney-client relationship over internal investigation findings is essential to preserving the respondent’s ability to control its own narrative.
  
  
• Criminal Referrals — Codified Factors. For the first time, the Manual publishes the specific factors the SEC considers when deciding to refer a matter to the Justice Department or state prosecutors for potential criminal charges — including the harm caused, whether the defendant held specialized industry knowledge, whether there was a pattern of conduct, and whether the defendant knew the conduct was unlawful. Previously, that decision was largely opaque. Companies and counsel can now evaluate whether a matter has the profile of one the SEC would refer — and structure their response accordingly, including engaging criminal defense counsel early if the risk warrants it. The decision to refer must be approved at the Associate Director or Unit Chief level or above, ensuring senior review before any referral is made.

INDUSTRY IMPACT

Taken together, the 2026 Manual’s reforms make the SEC’s enforcement process more rule-bound and predictable — which benefits both the agency and the companies it investigates by enabling faster, more efficient resolutions, without necessarily sacrificing investor protection. For companies that discover potential securities violations, the updated Manual now provides a meaningful roadmap for responding to and cooperating with the staff during investigations. While self-reporting and remediation still carry no guarantee of credit, respondents can structure their response around what the Division has explicitly identified as effective and exemplary conduct rather than guessing how to persuade the staff. During his Senate confirmation last April, Chairman Atkins promised regulatory efficiency and clear rules of the road — the 2026 Manual is a significant step toward that commitment, and likely one of several changes to come.

At Basswood Counsel, we monitor regulatory and industry developments to help our clients navigate evolving compliance requirements and regulatory risks. If you have questions about how these changes affect your specific situation, please do not hesitate to reach out.