For more than fifty years, a necessary feature of U.S. Securities and Exchange Commission (SEC or the Commission) enforcement settlements was a simple but controversial condition: defendants could virtually always settle without admitting wrongdoing, but they could not publicly deny the SECās allegations afterward. Critics long referred to the policy as the SECās āgag rule.ā
That era has now ended.
On May 18, 2026, the SEC formally rescinded Rule 202.5(e), the agency policy that prohibited settling defendants who agreed to a sanction from publicly denying the allegations underlying SEC enforcement actions.1 The decision marks one of the more consequential changes to SEC settlement practice in decades.
SEC settlements have long followed a familiar structure. Defendants would resolve the matter on a āneither admit nor denyā basis, agree to injunctive relief, monetary relief, or other sanctions, and accept a condition barring them from publicly asserting that the SECās allegations lacked factual support. In imposing the gag rule, the Commission maintained that allowing defendants to settle while simultaneously proclaiming innocence would undermine the integrity of its enforcement program.
In recent years, the gag rule increasingly came under constitutional attack. Critics argued that the SEC was conditioning settlement on the waiver of core First Amendment rights. Defendants, they argued, often settle for pragmatic reasons ā litigation costs, business disruption, collateral consequences, or the risk of catastrophic penalties ā rather than because they concede liability. Yet once they settled, they permanently lost the ability to publicly contest the SECās version of events. This reality was particularly concerning in cases where SEC staff rebuffed efforts to negotiate the text of settled charging documents.
Criticisms increased in recent years through a series of legal challenges spearheaded by former SEC defendants and public-interest litigants. The most prominent case, Powell v. SEC, challenged Rule 202.5(e) as an unconstitutional restriction on speech. Although the Ninth Circuit upheld the policy in 2025, concluding that parties may voluntarily waive constitutional rights in settlements, the circuit court also acknowledged the significant constitutional interests implicated by the SECās approach.2 Powell was pending review before the Supreme Court at the time of the policyās rescission.
In announcing the policyās rescission, SEC Chairman Paul Atkins framed the decision in explicitly constitutional terms, stating that ā[s]peech critical of the government is an important part of the American tradition.ā3 The Commission explained that eliminating the policy would provide greater flexibility in settlements, conserve enforcement resources, and align SEC practice with that of most other federal agencies. Of particular note, the SEC stated it will not enforce existing no-deny provisions contained in prior settlements. This has immediate consequences for thousands of former SEC defendants who have settled.
As a result of the policyās rescission, defendants may now be more willing to settle enforcement actions while simultaneously maintaining their innocence publicly. The shift also may drive SEC staff to seek more substantial settlement relief and perhaps admissions in particularly egregious cases, although requiring increased settlement relief would appear to be inconsistent with rescinding the rule in the first place. A future administration could theoretically ārescind the rescissionā pursuant to notice-and-comment rulemaking in compliance with the Administrative Procedures Act, but it would then be forced to defend the constitutionality of that action as the First Amendment will still be in effect. It would also be forced to defend an APA claim of arbitrary and capricious rulemaking.
The policy change could also impact parallel litigation strategy. In certain cases, SEC settlements spawn related securities class actions and derivative suits. Going forward, defendants may attempt to frame settlements as pragmatic business resolutions rather than indicators of scienter, causation, or liability. Relatedly, public relations strategy could become more central to securities defense practice. Companies and executives may increasingly coordinate settlement negotiations with public messaging campaigns directed at shareholders, counterparties, institutional investors, and potential plaintiffs to defuse the potential impacts of SEC settlements. As a result, the SEC will likely face more open criticism of its investigations and charging decisions than it historically permitted. In addition, SEC staff may become less willing to agree to defense counsel requests, in advance of settlement, to soften harsh language the staff proposes to include in the draft charging document in light of the defendantās or respondentās ability to publicly articulate their defenses.
The timing of public denials warrants serious consideration. Delaying and coordinating the issuance of public statements after SEC settlements are approved or announced by the Commission would be prudent in most cases. Additionally, public statements should be vetted for accuracy so that they cannot be used to cross examine parties in related litigation.
Whatever oneās view of the gag rule, the significance of its rescission cannot be overstated. For decades, the SECās no-deny policy shaped the public narrative surrounding SEC enforcement settlements. That framework has now fundamentally changed, and public discourse regarding SEC settlements is likely to get louder.
