- within Transport, Media, Telecoms, IT, Entertainment and Tax topic(s)
- with Inhouse Counsel
The new manual makes modifications to SEC enforcement procedures in several key areas
On February 24, 2026, the Securities and Exchange Commission (SEC) released the first updates to its enforcement manual since 2017. The new manual makes modifications to SEC enforcement procedures in several key areas, including Wells Notices, consideration of disqualification waivers and cooperation credit. While the cooperation section focuses primarily on corporate cooperation, these updates, coupled with recent SEC trends and federal court decisions, support avenues to incentivize individual cooperation as well.
The 2026 SEC Enforcement Manual (the 2026 Manual) includes several significant changes concerning Wells Notices, communications informing a company or individual that the SEC staff intends to recommend an enforcement action against them. The 2026 Manual emphasizes a more transparent Wells Notice process by requiring the staff to inform recipients of "salient, probative evidence" that may not be known to the recipient and instructing them to make "reasonable efforts" to share relevant portions of an investigative file with the recipient, a change from the 2017 Enforcement Manual, which merely told staff to use their discretion in responding to requests to view such files. (2026 Manual, pp. 2-23-2-24). The 2026 Manual further lays out criteria for helpful Wells submissions (voluntary submissions from the notice recipient in response to the Wells Notice), emphasizing that submissions should engage with the evidence and relevant legal precedents and note litigation risks or programmatic concerns associated with proceeding on the recommended charges. (2026 Manual, p. 2-24). The 2026 Manual additionally instructs staff that Wells recipients should be given at least four weeks to provide their response submissions, absent serious time constraints. In addition to updates to the Wells Notice section, the 2026 Manual notes that the SEC is resurrecting its policy allowing parties to request that the SEC simultaneously consider an offer of settlement and requests for waivers from automatic disqualifications and other associated consequences resulting from the enforcement action. (2026 Manual, p. 2-27).
Notably, the 2026 Manual makes various changes to its sections on cooperation. The 2026 Manual expands the framework used when considering corporate cooperation, although not commenting extensively on changes for cooperation by individuals. (2026 Manual, pp. 6-95-6-97). The revised corporate cooperation section comments specifically on self-reporting, remediation, cooperation with governmental authorities and timeliness. On self-reporting credit, the manual notes that such credit is not appropriate when the conduct in question has already received media attention or is under investigation by another regulator. On remediation, the 2026 Manual includes a number of examples of effective remediation, including clawing back compensation from responsible executives and making prompt disclosures. The 2026 Manual also notes that SEC staff should consider the ways in which the company provided assistance beyond what is required by law, including by summarizing factual findings from internal investigations, identifying key documents and witnesses, and providing expert financial analyses. The 2026 Manual also instructs SEC staff to consider whether cooperation is provided early in an investigation as opposed to in its later stages. (2026 Manual, pp. 6-96-6-97).
On cooperation agreements for individuals, the 2026 Manual's significant change is noting that SEC staff should seek approval from the Cooperation Committee before entering into a cooperation agreement. For corporations, the 2026 Manual suggests that some companies can receive deferred prosecution agreements, non-prosecution agreements or zero-penalty settlements in exchange for cooperation (2026 Manual, pp. 6-98-6-102). Finally, in a new section addressing the benefits of cooperation, the 2026 Manual instructs staff, when considering whether to recommend reduced penalties against individuals, to account for factors such as the extent of cooperation provided, the importance of the underlying matter and the profile of the individual. For corporations, this new section notes that the SEC can exercise its discretion to impose a reduced penalty or zero-penalty outcome and may further recommend that the SEC forgo seeking civil penalties or seek reduced civil penalties against entities in consideration of the cooperation furnished. (2026 Manual, p. 6-103).
Some of us have previously written that the SEC's enforcement interests would be further served were it to apply certain aspects of its framework for corporate cooperators with equal force to individual cooperators.1 The cooperation of individuals, whose testimony is often key to uncovering wrongdoing, could be incentivized through reduced suspensions from the industry, more favorable disgorgement formulas and reduced monetary penalties. Given the manual's updates and in light of recent rulings limiting SEC enforcement mechanisms, the SEC should continue to consider applying such remedies to incentivize individual cooperation. The staff has historically focused on industry suspensions as a key remedy and will likely continue to do so. In SEC v. Jarkesy, 603 U.S. 109 (2024), the Supreme Court held that respondents had a Seventh Amendment jury trial right in proceedings brought by the SEC seeking monetary penalties, thus curtailing the commission's ability to bring such proceedings administratively. However, some courts have declined to extend Jarkesy to require Article III federal court proceedings with respect to industry suspensions.2 The ability to withhold or shorten such suspensions remains an important carrot when the Commission prefers to proceed administratively.
Similarly, the SEC can incentivize individual cooperators by applying loss causation concepts to the calculation of disgorgement as well as by deducting appropriate expenses from the disgorgement award. Such limits may, in fact, be required under federal precedent. In SEC v. Govil, 86 F. 4th 89 (2023), the Second Circuit held that disgorgement can only be awarded where investors suffered pecuniary harm, effectively limiting disgorgement to those who suffered damages resulting directly from the alleged fraud. As noted in our January 2026 alert, the Supreme Court recently granted certiorari in Sripetch v. SEC to resolve a circuit split on the issue of whether the SEC must prove pecuniary loss to obtain disgorgement in civil enforcement actions. Sripetch may compel the SEC to take a more limited approach to disgorgement but, however the issue is resolved, the staff in its discretion can apply traditional loss causation principles to reduce disgorgement awards where appropriate in the case of cooperators.
With regard to expenses, the Supreme Court held in Liu v. SEC, 591 U.S. 71 (2020), that legitimate business expenses may be deducted from disgorgement, including items with value independent of the fraud in question. That holding suggests that the SEC should be amenable, at least with respect to cooperators, to taking various business expenses into account to reduce the ultimate award, including taxes that the respondent has paid and that can no longer be recouped.
Ultimately, the SEC's 2026 Enforcement Manual has brought with it positive changes in key areas such as Wells Notices and cooperation by corporations. Consistent recognition and encouragement of both corporate and individual cooperators by the SEC should serve to enhance the Commission's enforcement priorities while at the same time dealing fairly with those who provide substantial assistance.
Footnotes
1 See Naftalis, Gary P. & Friedman, Alan R., "Encouraging Individual Cooperation in SEC Enforcement Actions," Securities Regulation Law Journal, Vol. 30, No. 2 (Summer 2002), page 123.
2 SeeSztrom v. Securities and Exchange Commission, No. 24-3548 (D.D.C. Jan. 8, 2026), https://www.govinfo.gov/content/pkg/USCOURTS-dcd-1_24-cv-03548/pdf/USCOURTS-dcd-1_24-cv-03548-0.pdf
