The U.S. Securities and Exchange Commission has officially rescinded its 50-year-old no-deny policy, removing a rule that barred settling defendants from publicly challenging enforcement allegations. According to the SEC's statement released Monday, the repeal removes Rule 202.5(e) of the agency's informal rules of procedure, which was first adopted in 1972 and required settling parties to agree not to challenge the agency's claims in public. SEC Chair Paul Atkins stated in the announcement that the policy had created unnecessary limits on criticism of the agency during settlement agreements, ending the practice that had been in place for more than five decades. As per the SEC, "For more than 50 years, the Commission has conditioned settlement on a defendant's promise not to publicly deny the Commission's allegations. I am pleased that we are rescinding the no-deny policy today," Atkins emphasized, noting that "Speech critical of the government is an important part of the American tradition. This rescission ends the policy prohibiting such criticism by settling defendants."
The SEC's decision addresses concerns that the policy created the impression that the agency was attempting to insulate itself from criticism while placing the SEC out of step with most other federal regulators. As reported by the SEC, the agency adopted the original policy because it did not want settlements to create the impression that sanctions were being imposed over conduct that never occurred. Commissioner Hester Peirce argued that preventing defendants from speaking publicly did little to support market transparency or investor protection. She emphasized that transparent enforcement helps create the environment in which free markets thrive, enabling both parties in enforcement actions to speak freely. Peirce stated that "Settlements shrouded in forced silence by the non-governmental party do not serve either the markets or the Commission's investor-protection mission." Her statement added that the SEC's enforcement staff should be able to stand behind the strength of their investigations without relying on restrictions placed on defendants' speech after settlements are reached.
Under the new framework, companies or individuals settling with the SEC can neither deny the allegations nor allow others to issue denials on their behalf. According to the agency's clarification, the SEC may still require certain defendants to admit wrongdoing or liability as part of future settlements. Existing no-deny provisions will no longer be enforced, according to the agency's statement. The SEC has clarified that it will not enforce existing 'no-deny' provisions already embedded in past settlements, even if a defendant breaches such a clause. The agency stated it will not seek to reopen proceedings or ask courts to vacate settlements on that basis. The decision comes as the SEC has informed the White House of its intention to eliminate the rule and submitted its rescission proposal to the Office of Management and Budget earlier this month. Importantly, the rescission does not touch the commission's separate practices around admissions, with the SEC retaining discretion to settle with parties who neither admit nor deny facts. The SEC noted that "There is no known instance of the Commission seeking to reopen an administrative or civil proceeding as a consequence of a defendant or respondent violating a no-deny provision to which they have consented."
The American Securities Association has welcomed the policy change, with ASA President and CEO Chris Iacovella stating that "ASA applauds Chairman Atkins for rescinding the Gag Rule and recognizing that the government may enforce the law, but it cannot permanently extinguish the First Amendment rights of every individual that feels forced to settle rather than fight." The ASA had long argued the policy created a perverse outcome where defendants who took cases to trial and lost retained more freedom to speak publicly than those who chose to settle. According to the ASA, the rule suppressed the speech of an estimated 2,700 individuals and businesses between 2017 and 2023 alone. Legal experts caution that while the change expands free speech rights, it may introduce new complexities, with settlement outcomes potentially resembling a two-track process where legal resolution occurs alongside ongoing public disagreement about underlying facts. The ability to publicly push back against SEC findings could serve as a reputational lifeline in some cases, but it also introduces new risks around how public denials are perceived by clients, regulators, and courts in parallel proceedings. The SEC has faced lawsuits over the policy, including from the New Civil Liberties Alliance, which has called it a "gag rule." The group recently urged the Supreme Court to hear a case, Powell, et al. v. Securities and Exchange Commission.
