Brook Taube Wells Notice: The $4M SEC Penalty Explained

In April 2022, Brook Taube—Harvard-educated financier and co-founder of Medley Management—faced one of the most serious regulatory actions in his career. The Securities and Exchange Commission issued a Wells Notice that led to $4 million in personal penalties and exposed systematic misrepresentations to investors. This case offers important lessons about regulatory compliance, fiduciary responsibility, and the consequences of inflating financial metrics.

What Is a Wells Notice?

A Wells Notice is a formal letter from the SEC informing individuals or firms that the agency’s enforcement division plans to recommend legal action against them. Named after John A. Wells, who chaired a 1972 committee that proposed this pre-enforcement notification process, the notice serves as a final warning before formal charges.

The Wells Notice isn’t a finding of guilt. It’s a procedural step that gives recipients a chance to respond before the SEC makes its final decision. Recipients typically have 30 days to submit a Wells Submission—a legal brief presenting factual evidence and arguments against the proposed charges.

The process reflects a balance between protecting potential defendants’ rights and maintaining the SEC’s enforcement authority. Once issued, the notice often becomes public information, which can damage reputations even before any formal action.

Key facts:

• Wells Notices signal serious SEC enforcement intent, though they don’t guarantee charges
• Recipients can respond within 30 days with a Wells Submission to present their defense
• Historical data shows approximately 80% of Wells Notice recipients between 2011 and 2013 ultimately faced formal charges

Who Is Brook Taube?

Brook B. Taube built his reputation as a credit investor and business builder. After earning his degree from Harvard University, he started his finance career at Bankers Trust Corporation in 1992, working in structured finance and capital markets. He later partnered at Griphon Capital Management before co-founding Medley Management in 2006 with his identical twin brother, Seth Taube.

Medley Management became an alternative asset management firm focused on providing debt capital to middle-market companies. Brook served as co-CEO and co-Chairman of Medley Management Inc. from its September 2014 initial public offering until his resignation in May 2021.

He simultaneously held leadership roles at Medley Capital Corporation, a publicly traded business development company, where he was CEO and Chairman from January 2011 through 2021. At its peak between 2015 and 2016, the Medley empire managed over $5 billion in assets.

Career highlights:

• Founded multiple billion-dollar financial companies and took them public
• Specialized in middle-market lending and BDC management
• Provided capital to over 500 businesses across 35 industries before regulatory issues emerged

Why Brook Taube Received the Wells Notice

The trouble began in August 2016, when Medley Management started overstating its assets under management (AUM) in public filings and bond offering materials. The firm inflated its reported AUM by including “committed capital” from clients who had no legal obligation to invest those funds with Medley.

This wasn’t a small accounting error. Medley overstated its assets by more than $1 billion. The inflated figures appeared in SEC filings, bond prospectuses, and investor presentations, creating a false impression of the firm’s growth trajectory and future fee income potential.

The deception went further in June 2018. Brook and Seth Taube proposed a complex merger where Sierra Income Corporation and Medley Capital Corporation would acquire Medley Management. The merger would’ve given the Taube brothers lucrative employment contracts and high-paying executive positions.

To sell this deal to shareholders, the Taubes presented growth projections that the SEC later determined had “no reasonable basis.” These misleading forecasts appeared in proxy materials sent to investors, encouraging them to vote for a transaction that primarily benefited the Taube brothers rather than shareholders.

The SEC found that Medley and the Taubes “did not disclose that there was a risk that a significant amount of the clients’ capital would never be invested and would therefore never generate the fee income on which Medley’s financial growth depended.”

Critical violations:

• Starting August 2016, Medley inflated AUM by over $1 billion using uncommitted capital
• The firm failed to disclose that much of this “committed capital” would never generate fee income
• June 2018 merger materials contained materially misleading growth projections with no factual foundation

The SEC’s Allegations and Legal Violations

The SEC’s enforcement action cited multiple violations of federal securities laws. The agency charged Brook Taube, Seth Taube, and Medley Management with breaching antifraud provisions designed to protect investors from material misstatements.

Specifically, the respondents violated Section 17(a) of the Securities Act of 1933, which prohibits fraudulent conduct in the offer or sale of securities. The SEC also found violations of reporting requirements and books-and-records provisions under the Investment Company Act of 1940.

According to Lara Shalov Mehraban, then Acting Director of the SEC’s New York Regional Office: “Under the federal securities laws, investors are entitled to complete and accurate information about the companies they invest in. The Taubes failed to ensure that investors were given correct information about the company’s assets under management and adequate disclosures about its risks.”

Brook Taube signed multiple certifications as co-CEO stating that Medley had evaluated its disclosure controls and procedures. The SEC found these certifications false—the company maintained no such controls. This failure allowed materially misleading information to flow to investors unchecked for years.

What the SEC determined:

• The Taubes violated Securities Act Section 17(a)(2) and 17(a)(3) antifraud provisions
• Medley maintained no policies, controls, or procedures to ensure accurate public disclosures
• The defendants signed certifications claiming adequate disclosure controls when none existed

Settlement and Penalties

Rather than fight the charges, Brook Taube, Seth Taube, and Medley Management reached a settlement with the SEC in April 2022. The total penalty reached $10 million in civil fines.

Brook Taube personally paid $4 million—the largest individual penalty in the case. His brother Seth paid $2 million, and Medley Management was responsible for the remaining $4 million. The respondents neither admitted nor denied the SEC’s findings but agreed to cease further violations and accepted formal censure.

The payment structure reflects an unusual arrangement tied to Medley LLC’s bankruptcy proceedings. The SEC structured the settlement so payments would go to bondholders through Medley LLC’s Chapter 11 bankruptcy case, which had been pending since March 2021.

The settlement order permanently enjoined the respondents from future violations of the antifraud, reporting, and books-and-records provisions they had breached. While no criminal charges were filed, the civil enforcement action carried significant financial and reputational consequences.

For context, SEC enforcement actions in fiscal year 2022 resulted in $4.2 billion in total monetary remedies. The $10 million Medley settlement represented a substantial penalty relative to the firm’s size, especially given that Medley LLC had only $5.4 million in assets when it filed for bankruptcy.

Penalty breakdown:

• Brook Taube: $4 million in civil penalties
• Seth Taube: $2 million in civil penalties
• Medley Management Inc.: $4 million in civil penalties

The Aftermath and Broader Impact

The Wells Notice and subsequent settlement marked the collapse of an empire. Just weeks before the SEC charges became public, Medley LLC filed for Chapter 11 bankruptcy on March 7, 2021. The filing revealed devastating financials: $5.4 million in assets against $140.8 million in liabilities.

The bankruptcy court approved Medley LLC’s reorganization plan on October 18, 2021, with settlement funds from the SEC case flowing to bondholders who had invested $122.6 million in publicly-traded bonds. For retail investors who trusted Medley with their capital, the outcome was catastrophic.

Medley Management Inc.’s stock told the story of shareholder destruction. The NYSE suspended trading and commenced delisting proceedings in July 2021. Shares that once traded at $18 during the 2014 IPO had become worthless.

Medley Capital Corporation, the BDC that Brook Taube chaired, saw its net asset value per share plummet from $79.46 in 2019 to $5.30 by 2020—a decline of more than 90%. The proposed merger that featured misleading projections never closed. Sierra Income Corporation terminated the merger agreements in May 2020, citing changed valuations and economic uncertainty from the COVID-19 pandemic.

The Medley case serves as a warning about the consequences of prioritizing short-term appearances over accurate disclosure. For business development companies and asset managers, it highlights the critical importance of transparent AUM calculations and proper disclosure controls.

Lasting consequences:

• Medley LLC filed Chapter 11 bankruptcy in March 2021 with $140.8 million in liabilities
• NYSE delisted Medley Management Inc. in July 2021, wiping out shareholder value
• The case reinforced SEC scrutiny of asset management firms inflating AUM through uncommitted capital

Frequently Asked Questions

What is a Wells Notice from the SEC?

A Wells Notice is a formal letter from the SEC informing a person or company that the agency plans to recommend enforcement action for alleged securities law violations.

Why did Brook Taube receive a Wells Notice?

Brook Taube received a Wells Notice because Medley Management overstated assets under management by over $1 billion starting in August 2016 by including uncommitted capital.

How much did Brook Taube pay in penalties?

Brook Taube personally paid $4 million in civil penalties as part of a $10 million total settlement with the SEC in April 2022.

What happened to Medley Management after the SEC charges?

Medley LLC filed Chapter 11 bankruptcy in March 2021 with $140.8 million in liabilities, and Medley Management Inc. was delisted from the NYSE in July 2021.

Can you avoid charges after receiving a Wells Notice?

While possible, it’s rare—approximately 80% of Wells Notice recipients between 2011 and 2013 faced formal charges despite having 30 days to submit a Wells Submission defense.