SEC Lifts the Veil on Its Enforcement Process by Publishing Enforcement Manual

In an effort to make its processes more transparent, last week the SEC made public its Division of Enforcement Manual. Substantial sections of the 122-page manual will be familiar to veterans of the Division of Enforcement, because a version of this document, known internally at the SEC as the “Red Book,” has long been used by the Division’s staff as a guide to conducting investigations. Notably, the release of the manual comes only eight months after former Commissioner Paul Atkins publicly encouraged the staff to publish such a document to bring more “predictability” to the SEC’s enforcement process.

Future investigations will test how much predictability the manual actually brings. The manual does set forth standard practices for key SEC enforcement processes, such as opening and closing investigations, obtaining formal orders of investigation, conducting witness interviews and testimony, and issuing Wells notices. However, with regard to certain practices, in particular those that occur after an investigation is completed but before an action is instituted, the manual is either silent or provides Division staff, as well as those facing an SEC investigation, with much flexibility. As a result, such issues as the scope of investigations or particular subpoena requests, the usefulness of “pre-Wells” submissions, who and what violations will be covered in a potential settlement, the sanctions that will be included in the settlement, and many other issues will continue to be negotiated with the staff on a case-by-case basis.

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