SEC Ends Decades-Old ‘Gag Rule’ On Denying Allegations in Settlement Orders

On May 18, the U.S. Securities and Exchange Commission (SEC or the Commission) rescinded a long-standing rule under which the Commission refused to settle with defendants in SEC enforcement proceedings unless the defendants agreed not to publicly deny the allegations in an SEC complaint.¹

The rule was codified as SEC Rule 202.5(e) in 1972 and stated that the Commission had “adopted the policy that in any civil lawsuit brought by it or in any administrative proceeding of an accusatory nature pending before it, it is important to avoid creating, or permitting to be created, an impression that a decree is being entered or a sanction imposed, when the conduct alleged did not, in fact, occur,” and that the SEC therefore would have a “policy not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings.”²  The rule also noted that the Commission believed that “a refusal to admit the allegations is equivalent to a denial, unless the defendant or respondent states that he neither admits nor denies the allegations.”³

The SEC stated in a press release that rescinding the rule “aligns the Commission with the overwhelming majority of federal agencies that do not have” similar rules 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.”⁴  The SEC also stated that, in its view, the “effect on public interest from such denials may be minimal,” while the existence of the policy “may have created an incorrect impression that the Commission [was] trying to shield itself from criticism.”⁵

In the release, SEC Chair Paul S. Atkins described the rescission in First Amendment terms, noting that “[s]peech critical of the government is an important part of the American tradition.”⁶

The release also noted that there was “no known instance of the Commission seeking to reopen an administrative or civil proceeding as a consequence of a defendant … violating a no-deny provision to which they [had] consented,” although the SEC did not disclose how often, if ever, such defendants may have violated such a provision.⁷

The release also noted that the SEC will not enforce existing no-deny provisions to which defendants have already agreed, specifically stating that in the event of a breach of an existing no-deny provision, “the Commission will take no action to ask a district court to vacate a settlement….”⁸

It is unclear whether the impact of the rescission will be as marginal as the SEC states. There is no measure of the extent to which the rule impacted past negotiations of settlements between the SEC and defendants or whether the rescission will materially change the dynamics of future negotiations. (We are not aware of any former defendants in SEC proceedings, in the immediate wake of the rescission, having made statements denying previously settled charges.) Defendants may be somewhat less focused on the language of settled orders, knowing that they can deny all of the SEC’s allegations. On the other hand, defendants may argue more forcefully to have their denials included in settled orders themselves, which the SEC previously could refuse in part because of the gag rule.

The rule change could also affect how companies and individuals, in particular regulated entities, evaluate collateral consequences of settling, such as reputational risk, disclosures and follow‑on litigation.

The rescission may moot the U.S. Supreme Court’s review of the Ninth Circuit’s decision in Powell v. SEC, in which the Ninth Circuit denied review of the SEC’s denial of a request to amend Rule 202.5.⁹  The petitioners argued that Rule 202.5(e) was facially invalid under the First Amendment. The Ninth Circuit disagreed, finding that “longstanding precedent” permitted the “voluntary waiver of constitutional rights, including First Amendment rights.”¹⁰

Hughes Hubbard continues to closely monitor these developments. For more information, or with any questions, please contact Carl Mills or Gary Simon.

1. https://www.sec.gov/newsroom/press-releases/2026-45-sec-rescinds-policy-regarding-denials-settlements-enforcement-actions.

2. 17 C.F.R. § 202.5(e).

3. Id.

4. Id.

5. Id. 

6. Id. 

7. Id.

8. Id.

9. No. 24-1899 (9th Cir. Aug. 6, 2025). 

10. Id. at 5-6.