Securities & Regulatory Enforcement

The U.S. Securities and Exchange Commission (SEC) on May 18 officially rescinded the agency’s long-standing administrative rule that prohibits settling parties from publicly denying fault, known in the industry as the “no admit, no deny rule” or the “gag rule.” This comes just 10 days after the agency submitted a final proposal to the White House’s Office of Management and Budget titled “Rescission of Policy Regarding Denials in Settlements of Enforcement Actions,” seeking interagency review under Executive Order 12866 to terminate the rule. Notably, the SEC administratively rescinded the rule at the same time the U.S. Supreme Court is considering whether to review a challenge to the same policy.  

What Is the Gag Rule?

For well over 50 years, the SEC maintained a policy that required all defendants and respondents in civil or administrative enforcement actions to agree not to deny the SEC’s allegations as a condition to settlement. Defendants that chose to settle SEC enforcement actions were required to agree to this gag rule, codified in 17 C.F.R. § 202.5(e), which effectively imposed a lifetime ban on criticizing the SEC’s charges or the basis for the action.

When settling with a defendant, the SEC’s practice is to issue a public recitation of the facts that purports to inform the industry of alleged misconduct under the federal securities laws. In the settlement context, this is the only version of the facts available to the public — the agency’s version of the story, which settling parties, hamstrung by the gag rule, have not been able to dispute. Accordingly, critics have contended that the rule abridged the First Amendment and due process rights of settling parties, who have had no choice but to pay for the right to settle with their silence.

The SEC’s Reasons for Rescission

In the SEC’s release announcing the end of the policy, Chair Paul Atkins echoed the free-speech-related concerns of the rule’s biggest critics, stating, “Speech critical of the government is an important part of the American tradition. This rescission ends the policy prohibiting such criticism by settling defendants.” In addition to free-speech infringement, the SEC’s final rule enumerated several reasons supporting the rescission:

• Any negative effect that denials by settling parties have on the public trust — the SEC’s chief reason for implementing the policy — is minimal.
• The benefits of the policy are negligible. In fact, the SEC’s final rule admits there is no known instance of the commission reopening adjudicatory proceedings due to breach of a no-deny settlement provision since Rule 202.5(e) was adopted.
• Social media, technology and the often-blurred continuum of public and private speech in the digital era have rendered the policy too challenging to implement.
• Eliminating the gag rule aligns the SEC with most other federal agencies that have no such policy.
• Without the rule, the SEC will have greater flexibility in negotiating settlements, leading to more certainty, resource conservation, and streamlining the return of funds to harmed investors.

Previous and Pending Challenges

The rescission follows increased scrutiny of, and multiple major challenges to, the rule. In 2022, former Xerox Chief Financial Officer Barry Romeril sought Supreme Court review of the gag rule’s constitutionality after settling with the SEC in 2002 related to Xerox’s accounting practices and failing to challenge the rule in the U.S. Court of Appeals for the Second Circuit.[1] The Supreme Court declined Romeril’s petition. In 2024, Christopher Novinger and his company, ICAN Investment Group LLC, appealed a district court decision denying their motion for declaratory relief from the gag rule. The Fifth Circuit dismissed the appeal, finding that the motion was procedurally improper.[2]

In 2018, the New Civil Liberties Alliance (NCLA), a nonprofit public interest law firm that has now fought the gag rule for over eight years, petitioned to amend the rule so that settling defendants could admit, deny or opt not to comment on allegations. The SEC denied that petition in 2024, reasoning that the rule was critical to maintain public trust in the SEC’s enforcement apparatus.[3] The Ninth Circuit upheld the SEC’s denial on appeal in 2025, finding that while the rule did raise First Amendment concerns, it was not facially unconstitutional.[4] Joining the NCLA, Novinger, Romeril and several other business owners and former SEC defendants filed a new petition seeking review of the rule on March 16, 2026. The petition is now pending before the Supreme Court.

The Effect of Rescission and Practical Takeaways

The SEC’s rescission of the policy carries several implications of note:

• Defendants can now cast their own judgments about the SEC’s allegations without jeopardizing agreed-upon settlement terms.  
• The SEC committed to refrain from taking action to vacate previously agreed-upon settlement terms in matters that were settled while the “gag rule” was still in effect.  
• The SEC’s decision to rescind the gag rule does not prevent a later commission from reinstituting it. Until and unless a court rules that the gag rule is unconstitutional, it may be reactivated at any time.
• Depending on the Supreme Court’s interpretation of the agency’s action, administrative rescission of the gag rule may render the pending petition moot.

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