(May 19): Companies and individuals making deals to settle Securities and Exchange Commission (SEC) cases no longer have to remain silent after the settlements, the US regulator said on Monday.
The update rescinds a decades-old policy that lets companies and individuals settle enforcement actions without admitting wrongdoing if they agree not to later dispute the allegations.
In place since 1972, the so-called “gag rule” has drawn criticism that the agency takes away defendants’ First Amendment rights. The SEC targets like Elon Musk and Mark Cuban have spoken out against the policy and supported attempts to end the rule. The SEC in 2024 rejected a petition to change its policy.
“Speech critical of the government is an important part of the American tradition,” SEC chairman Paul Atkins said in a statement.
Individuals who settle with the agency may take advantage of the new policy but it will be tougher for corporations to back away from allegations and be credible, said Martin Weinstein, the head of Cadwalader Wickersham & Taft’s compliance, investigations and enforcement practice.
“I don’t think corporations are going to wake up the next day and say, ‘Oh that’s not true’,” he said.
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The SEC said the agency will not enforce existing no-deny provisions that have already been entered and if a party breaches an existing deal it will not take action. The agency also said that rescinding the rule won’t affect the SEC’s ability to negotiate for admissions as part of a settlement.
Benjamin Schiffrin, the director of securities policy at Better Markets, a financial policy think tank, said the policy favoured SEC defendants and there was no reason for the agency to change it.
“The inescapable conclusion is that the SEC is more concerned with protecting defendants who violated the securities laws than the investors who are the victims of those violations,” Schiffrin said in a statement.
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The majority of federal agencies don’t have policies requiring defendants to sign no-deny provisions. The US Commodity Futures Trading Commission, a fellow Wall Street regulator that serves as a watchdog for the derivatives market, is considering rescinding its version of the no-deny rule, chairman Michael Selig recently said.
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