SEC Overhauls Enforcement Manual, Requiring Commission Approval for Formal Probes

The SEC has finalized its first comprehensive overhaul of its Enforcement Manual since 2017, fundamentally restructuring how the agency investigates securities violations. The most significant change strips the Division of Enforcement of its delegated authority to unilaterally issue "formal orders of investigation"—the legal mechanism required to subpoena documents and compel witness testimony.[1][2][3]

Under the revised manual, enforcement staff must now draft a detailed memorandum justifying the need for a formal order and submit it for approval by a majority vote of the SEC Commissioners. For the past 15 years, this subpoena power had been delegated directly to the Director of Enforcement, allowing staff attorneys to launch formal probes with significantly less bureaucratic friction.[2][3][5][6]

The shift centralizes power back with the politically appointed Commissioners and is expected to alter the pace of new investigations. Staff attorneys will now have to clear a higher evidentiary bar and align their targets with the Commission's broader priorities before they can force companies to hand over internal communications or sit for sworn testimony.[3][4]

Beyond subpoena power, the overhaul introduces strict new parameters for the "Wells process"—the critical window when the SEC notifies a target of impending charges and allows them to submit a defense. The new manual requires dual-approval from senior leadership before a Wells notice can be issued, ensuring that preliminary charging decisions are vetted at the highest levels of the division.[2][4]

In a major win for defense counsel, the manual now mandates that enforcement staff affirmatively share "salient, probative evidence" with targets during the Wells process. Historically, staff had broad discretion over how much of the investigative file to reveal, but the new directive requires them to disclose key information that the defense may not possess, subject to confidentiality constraints.[2][5]

The manual also establishes firmer timelines to prevent investigations from languishing indefinitely. Wells meetings must now generally be scheduled within four weeks of the staff receiving a defense submission, and a member of the division's senior leadership must be present. Staff are also explicitly instructed to continuously review open investigations and issue termination letters promptly when a case is closed.[1][4][6]

In a nod to modern communication habits, the manual explicitly expands the definition of "documents" subject to SEC subpoenas. The updated guidance now formally encompasses off-channel messaging applications like WhatsApp, Signal, and iMessage, including communications conducted on personal devices.[4][5]

The SEC has also formalized its framework for referring cases to criminal authorities like the Department of Justice. The manual codifies a six-factor test for criminal referrals—including the scale of victim harm and the defendant's recidivism—and elevates the approval authority for such referrals to the Director of Enforcement.[3][4]

Finally, the SEC has formally reinstated the practice of allowing companies to simultaneously negotiate settlement offers and request waivers from automatic disqualifications. In recent years, settling parties often had to agree to financial penalties without knowing if the Commission would grant waivers allowing them to continue certain business operations.[1][4][6]

This procedural change provides settling parties with greater certainty. If the Commission is willing to accept a financial settlement but refuses to grant the necessary regulatory waivers, the company will be notified and given the opportunity to withdraw its settlement offer entirely before it becomes binding.[4][6]