SEC ends 54-year gag rule on settling defendants

The Securities and Exchange Commission adopted Rule 202.5(e) in 1972 as part of its informal rules of procedure. The rule required any defendant or respondent who settled an SEC enforcement action — civil lawsuit or administrative proceeding — to agree, as a condition of the settlement, not to publicly deny the Commission's allegations. The rule was never subject to public notice-and-comment rulemaking: the SEC classified it as an internal procedural rule when it adopted it, a characterization critics later challenged.

For more than 50 years the rule operated as a binding condition on every SEC 📖consent decree. Settling parties could say they neither admitted nor denied the charges — the famous no-admit, no-deny formula — but they couldn't go further and publicly dispute the facts. The SEC's stated rationale in 1972 was to avoid creating the false impression that sanctions were imposed when no misconduct occurred.

On May 18, 2026, SEC Chair Paul Atkins announced the rescission of Rule 202.5(e). The final rule, designated Release No. 33-11417, was published in the Federal Register on and took effect that day. The Commission acted without advance public notice or comment, citing the APA exemption for procedural rules and general statements of policy.

Atkins framed the decision in 📖First Amendment terms. He said that speech critical of the government is an important part of the American tradition. The rescission made the SEC consistent with the Justice Department and most other federal agencies, which don't require defendants to waive the right to dispute allegations as a settlement condition.

The no-deny rule had faced sustained legal challenge for years. The New Civil Liberties Alliance first petitioned the SEC to rescind the rule in 2018; the agency ignored the petition for five years before denying it in early 2024. NCLA then sued in the Ninth Circuit in Thomas J. Powell et al. v. SEC. The Ninth Circuit upheld the rule in 2025, finding that parties may voluntarily waive constitutional rights in settlement agreements. NCLA escalated to the Supreme Court, filing a cert petition in — just two months before the rescission was announced with that petition still pending.

Commissioner Hester Peirce had long argued the no-deny rule was counterproductive. In her , she wrote that settlements shrouded in forced silence by the non-governmental party don't serve either the markets or the Commission's investor-protection mission. She had described the rule in January 2024 as a plain 📖prior restraint on speech and warned it suppressed criticism of the agency itself.

The Commission identified four practical reasons for the change: the only available remedy for breach — asking a court to vacate the settlement — had never been used in the rule's 54-year history; social media made policing public denials increasingly unworkable; virtually no other federal agency operated under a comparable constraint; and eliminating the rule gives enforcement staff more flexibility to reach settlements and return money to harmed investors.

The rescission is retroactive in a significant practical sense. The SEC announced it won't enforce existing no-deny provisions in cases already settled. If a party who settled an enforcement action years ago publicly denies the allegations, the SEC won't seek to vacate the settlement or reopen the proceeding. Former defendants — in some cases people who settled with the SEC a decade or more ago — can now publicly dispute what the agency alleged.

The SEC retained its authority to seek admissions of wrongdoing in appropriate cases, which it has done selectively since Chair Mary Jo White introduced that option in 2013. Nothing in the rescission prevents the Commission from conditioning a settlement on a public admission where the facts warrant it.

Ben Schiffrin, Director of Securities Policy at Better Markets, criticized the rescission immediately. He argued the SEC bypassed public notice-and-comment rulemaking, depriving investors and the public of the chance to weigh in. When defendants publicly deny settled allegations, Schiffrin warned, they risk creating false impressions among investors who rely on enforcement actions to understand whether misconduct actually occurred.

Better Markets has documented the Atkins-era SEC as engaged in across multiple policy fronts. Prior administrations used enforcement authority to extract public accountability from wrongdoers; the current Commission is prioritizing defendant speech rights and settlement flexibility.

In fiscal year 2024, the SEC filed and secured $8.2 billion in financial remedies, the highest total on record. The agency filed 80 actions against public companies and subsidiaries, with average monetary settlements of $19.8 million per case.

Under the new policy, a public company that settles a fraud charge can now simultaneously pay a penalty and issue a statement disagreeing with the SEC's factual allegations. For investor relations purposes — and for fending off private securities class actions, which often rely on SEC findings — the ability to publicly dispute the regulator's version of events has substantial commercial value.

Defense attorneys at firms like Gibson Dunn and Sullivan & Cromwell noted that settling parties now gain meaningful public-relations flexibility that could accelerate settlements. Cleary Gottlieb advised clients in a May 2026 memo to proceed with care: public denials after settlement could expose companies to contradictory positions in follow-on private litigation, where plaintiffs' lawyers will try to exploit any inconsistency between a company's public denial and the factual findings embedded in the 📖consent decree.

Investors and analysts who rely on SEC enforcement records to evaluate corporate governance now face a more complicated landscape. When a company settles and then publicly denies the allegations, retail investors must weigh competing accounts — the SEC's formal findings in the 📖consent decree against the company's public statement — without the benefit of a full trial.

The rescission came during a broader reorientation of the SEC under Chair Atkins and the Trump administration. Atkins was confirmed in April 2025 after serving as an SEC Commissioner under President George W. Bush from 2002 to 2008. His Patomak Global Partners consulting firm had represented financial industry clients before regulators. Under Atkins, the Commission has also pulled back on cryptocurrency enforcement, scaled back ESG disclosure rules, and reduced the frequency of required public company disclosures.

The no-deny rescission is one of the few recent SEC actions that drew support from both libertarian organizations (NCLA, citing free speech) and financial industry groups (citing settlement flexibility), while drawing criticism from investor-protection advocates who argue the change weakens the accountability signal that enforcement actions send to markets.