Summary
The US Securities and Exchange Commission (SEC) has denied a petition to amend its rule that prohibits defendants from claiming innocence after settling with the regulator. The nonprofit New Civil Liberties Alliance (NCLA) had filed the petition in 2018, arguing that the rule was unconstitutional. The SEC stated that the rule is necessary to ensure that parties do not settle and accept sanctions for alleged violations that never occurred. The NCLA criticized the rule, stating that it allows the SEC to have the final say in settlements and can harm defendants’ future employment prospects. The denial comes as the SEC increases its enforcement actions against crypto firms, many of which result in settlement agreements. SEC Commissioner Hester Peirce dissented, stating that the rule threatens Americans’ freedom of speech. The NCLA plans to continue advocating against the gag-order policy in federal court.
Key Points
1. The US Securities and Exchange Commission has rejected a petition to amend its rule that prohibits defendants from publicly claiming innocence after settling with the regulator. The rule, known as the “gag-order” rule, has been in place since 1972 and bars defendants from suggesting that the complaint against them is without factual basis.
2. The nonprofit New Civil Liberties Alliance (NCLA) filed the petition in 2018, arguing that the rule violated US citizens’ constitutional rights and lacked legal authority. The NCLA renewed its petition in December 2023 after receiving no response from the SEC. However, the SEC denied the request, stating that it is important to ensure that settlements do not create the impression that the alleged violations never occurred.
3. The NCLA criticized the gag-order policy, claiming that it allows the SEC to have the final say when announcing settlements and can harm defendants’ future employment prospects. The denial of the petition comes as the SEC increases its enforcement actions against cryptocurrency firms, many of which result in settlement agreements. Commissioner Hester Peirce expressed dissent, arguing that the policy infringes on Americans’ freedom of speech and undermines regulatory integrity. The NCLA plans to continue advocating against the gag order policy in federal court.