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The U.S. Securities and Exchange Commission (SEC) announced on May 18 that it has rescinded its decades-old “Gag Rule” policy, codified at 17 C.F.R. § 202.5(e). Under that policy, SEC consent judgments (i.e., settlement agreements) were required to include a provision prohibiting companies and individuals targeted by the SEC from publicly denying the allegations in SEC enforcement complaints. According to the SEC’s press release:
“Rescinding Rule 202.5(e) 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 rescission recognizes that the effect on the public interest from such denials may be minimal and that the policy itself may have created an incorrect impression that the Commission is trying to shield itself from criticism.”
The New Civil Liberties Alliance (NCLA), through Senior Litigation Counsel Peggy Little and her colleagues, petitioned the SEC in 2018 to rescind the Gag Rule policy on the ground that it abridged enforcement targets' First Amendment freedom of speech. After the SEC denied that rulemaking petition in 2024, the Ninth Circuit rejected NCLA’s constitutional challenge. NCLA then sought Supreme Court review by filing a petition for a writ of certiorari in Powell v. SEC (25-1100), a petition that remains pending as of today.
The Atlantic Legal Foundation not only filed an amicus brief supporting the Powell certiorari petition, but also an amicus brief on behalf of Constitutional Law and First Amendment Scholars in support of the certiorari petition in Romeril v. SEC (21-1284), an earlier Gag Rule challenge that the Supreme Court declined to review. ALF’s amicus briefs in both cases argued that the Gag Rule policy was invalid because it imposed an “unconstitutional condition” for settling enforcement complaints.
ALF is pleased that the SEC finally got the message and has rescinded its unconstitutional Gag Rule policy.
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