In the following guest post, Sarah Abrams reviews the SEC’s recent updates to its Enforcement Manual and considers the directors’ and officers’ liability implications. My thanks to Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.
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On February 24, 2026, the SEC announced that it had updated its Enforcement Manual. The Manual offers detailed procedural guidance for Enforcement Division staff, and although it does not create enforceable rights, it provides a blueprint for how the current SEC’s enforcement investigations and actions may unfold. These updates matter because they compress timelines and elevate expectations for advocacy. The following discusses Manual changes which stood out and potential D&O underwriting implications.
Ensuring a Uniform Wells Process
Historically, the timing and procedural approach of Wells practice could vary across matters and agency teams. For D&O underwriters, the Wells process involves risk because Wells submissions are discoverable and may be used by the Commission in subsequent actions or by third parties in accordance with applicable law.
Under the updated Manual, SEC staff must obtain approval at the Associate Director/Unit Chief level and from the Office of the Director before issuing a Wells Notice, a formal letter from the U.S. Securities and Exchange Commission (SEC) or FINRA staff notifying individuals or firms that a regulatory investigation has concluded and that enforcement action is recommended for alleged violations of securities laws.
The Manual requires SEC staff to obtain approval before proceeding to recommend an enforcement action without issuing one. Also, a Wells Notice should identify the specific charges and relief staff preliminarily plan to recommend, and it must advise that the recipient may submit a written or video statement within the set limits (ordinarily the four‑week window, unless timing constraints warrant another approach).
The Manual further states that Wells recipients will “ordinarily” get four weeks to submit a Wells response, and staff guidance for what the SEC finds most useful: submissions anchored in the record; candid treatment of adverse evidence; tight engagement with the elements of the proposed charges; and forthright discussion of litigation risk or policy/programmatic concerns. In addition, Wells meetings will be scheduled within four weeks of the submission and include a senior Division leader.
This standardized Wells timetable may pull claim notice and spend forward, concentrating the defense intensity into the first ~60 days after a Wells Notice. The updated timeline may also increase tenders under “formal investigation,” “Wells notice,” or “potential enforcement” triggers. Because the timeline is compressed, this may lead to an earlier use of experts (accounting, market analytics, cyber forensics) and steeper early exposure to any formal investigation coverage available.
Finally, the updated Manual prescribes what makes a “helpful” Wells submission (‑anchored analysis, engagement with adverse evidence, and frank discussion of legal and program risks). This may reduce outcome variability across cases and impact on the quality-of-response bar for Wells’ recipients.
As a result of the Manual updates to the Wells process, D&O underwriters may want to consider governance maturity, documented controls, escalation, and remediation capacity, because those capabilities may impact cooperation credit and penalty outcomes under the SEC’s refreshed framework.
Simultaneous Consideration of Settlements and Waiver Requests
In the updated Manual the Commission restores its prior practice of permitting a party settling with the SEC to request simultaneous consideration of the settlement and any waiver from automatic disqualifications (e.g., Rule 506 “bad actor” consequences which include being barred from raising private capital) that would flow from the resolution. Under the renewed process, the party settling with the SEC will be able to see both the enforcement terms (penalties, undertakings, etc.) and the SEC’s decision on whether it will grant the necessary waiver at the same time.
The SEC frames this approach as enhancing transparency. Previously, parties could settle only to find out later that key waivers were not granted, which could lead to unexpected compliance burdens, business disruptions, or financing impediments. Under the updated manual, if waiver is denied while a settlement is accepted, the truncated timeline (five days) allows a company to decide whether to go forward with the settlement regardless of the penalties, or to withdraw from the settlement and potentially face a litigated action Parallel DOJ engagement remains.
For D&O underwriters, the updated settlement‑and‑waiver process introduces both improved predictability and heightened severity risk. On one hand, the SEC’s simultaneous consideration of settlements and waivers eliminates the historical uncertainty in which a company would settle first only to discover later that it had been disqualified from critical activities, bringing greater certainty to severity modeling and helping underwriters more accurately assess potential downstream exposure.
Coordinating with the DOJ
The Manual underscores that the SEC routinely coordinates with the DOJ and other authorities through established discussion and access‑request channels, so anything said to SEC staff can be reviewed by prosecutors in a parallel criminal matter. As a result, asserting the Fifth Amendment (the right to remain silent) in SEC testimony may impact on civil liability, where courts could draw adverse inferences from taking the Fifth.
D&O underwriter exposure may thus increase with advancement of defense expenses until a final, non‑appealable adjudication of fraud or willful misconduct and a DOJ investigation can often extend the matter’s duration, even if there is settlement with the SEC.
Discussion
For D&O underwriters, the above developments may result in earlier tenders, steeper front‑loaded defense spend, and perhaps increased scrutiny over an insureds’ governance rigor, investigation readiness, and escalation culture.
The SEC’s announcement and updates to its Enforcement Manual signal its intent to create an enforcement environment marked by greater speed, tighter coordination, and what appear to be higher expectations for developed advocacy. A more structured Wells process compresses the timeline for response and with the intent to elevate the quality bar for submissions, while simultaneous settlement‑and‑waiver consideration adds predictability but also introduces short‑fuse decision points that may escalate costs if parties pivot away from settlement. Meanwhile, the Manual’s explicit recognition of routine parallel DOJ engagement underscores that civil matters can quickly acquire criminal dimensions, prolonging the lifecycle of a claim and intensifying defense burdens.
How aggressively the SEC applies the Manual’s outlined procedural changes remains to be seen, including how the current SEC’s enforcement landscape continues to play out.
