Wells Notice is a type of notice that the SEC sends to those that it suspects to have violated the security laws. It has been used by the SEC to ask for clarifications against a perceived violation of the security laws in the US since the 1970s.
The notice is served by the SEC in accordance with the powers of the Securities Act 1933 and the Securities Exchange Act 1934.
Why Is It Called a “Wells Notice”?
John Allison Wells was the first to recommend in 1972 that the companies (or persons) in any SEC case should have the chance to present their side before formal charges were filed. Since then, the notice has been known as Wells Notice.
What Does It Mean?
Typically, I have seen the SEC serve this notice when it has found conclusive “reason” that a certain company or an institution has violated the Securities Act 1934. Once the Wells Notice is served, it typically means that the SEC will bring a lawsuit against that company. This has happened in cases against Ripple and Coinbase.
Topics Related To The SEC
Howey Test
The Howey Test is a list of instructions given by the US Supreme Court which mentions the process to determine if a “financial asset” is a security or not.
It has four major rules for classifying something as security all of which should be satisfied to classify an asset as a security.
- The financial asset should seek investments from others.
- Investment should be in a “Common Enterprise”.
- For the generation of profits.
- The profits should arise from the efforts of people other than investors.
The US Securities and Exchanges Commission
The US Securities and Exchanges Commission (SEC) is an authority that regulates the US Securities Markets as per the US SEC Act of 1934.
The SEC Act 1934
The United States Securities and Exchange Commission Act of 1934 established a list of rules and regulations to be followed by the US SEC to regulate securities markets within the United States of America.
Securities Act 1933
The US Securities Act of 1933 lays down the basis of investor protection. It resulted in the creation of the US SEC in 1934.
