SEC Benches Its Gag Rule

Since 1972, the SEC has run the same play on settlement: defendants resolved enforcement actions on a “neither admit nor deny” basis and, under the SEC’s Rule of Procedure 202.5(e), they agreed not to publicly deny the allegations in the complaint or administrative order. Critics labeled the defendants’ inability to challenge those allegations the “gag rule.” On May 18, 2026, the SEC tore that page from its playbook, rescinding the policy and ending a 50-year procedural rule.

In rescinding Rule 202.5(e), the SEC explained that the change “aligns the Commission with the overwhelming majority of federal agencies that do not have a similar rule and gives the Commission more flexibility in settling enforcement actions, which conserves resources, provides certainty, and potentially expedites the return of money to injured investors.” The SEC reasoned that the effect on the public interest from such denials “may be minimal” and that the rule “may have created an incorrect impression that the Commission is trying to shield itself from criticism.” SEC Chairman Paul Atkins framed the rescission under the First Amendment, observing that “[s]peech critical of the government is an important part of the American tradition.” The SEC also announced that it will not enforce existing no-deny provisions included in prior settlement documents.

The rescission likely ended legal challenges to the policy as well. For example, in Powell v. SEC, a group of entities and individuals who had settled with the SEC had challenged the rule as an unconstitutional restraint on speech. In August 2025, the Ninth Circuit upheld the rule but flagged “legitimate First Amendment concerns,” and the challengers petitioned the U.S. Supreme Court for review. On June 29, 2026, the Supreme Court denied certiorari without comment after the government argued that the repeal mooted the challenge, leaving the constitutional question undecided and the old play, at least in theory, available to a future SEC.

The rule change is now spreading through the league. In June, the Commodity Futures Trading Commission (CFTC) scrapped its own no-deny policy, acknowledging that it was not aware of any instance in which it had sought to reopen a settled matter following a violation of the requirement and that most federal enforcers, including the Department of Justice, settle cases without any comparable policy. Like the SEC, the CFTC will not enforce no-deny clauses in settlements already on the books.

So will the newly ungagged defendants rush to the microphone? Likely fewer than the headlines suggest, given that a public denial can invite fresh scrutiny and potentially hand ammunition to private plaintiffs. For most defendants, the smartest move may be to keep the new option in the playbook and to call it only when the down and distance demand.

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