SEC Rescinds 52-Year No-Deny Policy for Enforcement Settlements

TLDR

• The SEC rescinded its 52-year-old no-deny settlement policy.
• Rule 202.5(e) barred settling defendants from denying SEC allegations.
• The SEC will not enforce existing no-deny provisions in prior settlements.
• The rule change does not affect the SEC’s ability to seek admissions.
• SEC Chair Paul Atkins said the change protects speech critical of government.

The U.S. Securities and Exchange Commission has rescinded its long-standing no-deny policy, ending a rule that required defendants settling enforcement cases to agree not to publicly deny the agency’s allegations.

The policy, codified as Rule 202.5(e), had been in place for more than five decades. Under the rule, the SEC would not settle an enforcement action involving sanctions unless the defendant or respondent agreed not to publicly dispute the claims in the complaint or administrative order.

The SEC said the change gives the agency more flexibility in resolving enforcement actions and brings it in line with most other federal agencies, which do not use a similar settlement condition.

SEC Ends Rule 202.5(e)

SEC Chairman Paul S. Atkins said the rescission reflects the role of speech critical of the government in the American legal tradition. He said the agency had conditioned settlements for more than 50 years on defendants agreeing not to deny allegations and that the policy would now end.

The SEC also said the rule may have created the wrong impression that the agency was trying to protect itself from criticism. The commission noted that public denials after settlements may have limited effect on the public interest in many cases.

The agency said rescinding the policy could help conserve resources, create more certainty in settlements, and potentially speed up the return of funds to harmed investors.

Prior Settlement Restrictions Will Not Be Enforced

The SEC said it will not enforce existing no-deny provisions that were included in earlier settlement agreements. That means parties who previously settled SEC enforcement cases will not face action from the agency if they publicly deny allegations covered by those provisions.

The commission also said it will not ask a district court to vacate a settlement or reopen an administrative proceeding based on a breach of an existing no-deny clause.

According to the SEC, there is no known case in which the agency sought to reopen a civil or administrative matter because a defendant violated a no-deny provision.

The policy change comes while Powell v. SEC, a constitutional challenge to the no-deny rule, was pending before the U.S. Supreme Court. Critics of the old policy had argued that it restricted First Amendment rights by preventing settling defendants from publicly contesting government allegations.

Admissions Policy Remains Unchanged

The SEC said the rescission does not change its ability to negotiate admissions of fact or liability in settlements. The agency generally allows defendants to settle without admitting or denying allegations, but it may still seek admissions when it considers them appropriate.

The change only removes the requirement that settling parties remain silent about disputing the SEC’s allegations after a settlement is reached.

Civil liberties and defense groups welcomed the decision. Organizations including the New Civil Liberties Alliance and the American Securities Association had criticized the no-deny policy as a form of compelled silence for defendants who settle cases to avoid long and costly litigation.

Some investor protection groups raised concerns about the change. Better Markets, a financial policy organization, argued that removing the rule could favor defendants in enforcement cases and weaken protections for investors harmed by misconduct.

The SEC’s decision marks a major shift in enforcement settlement policy. Future SEC settlements may still include penalties, injunctions, industry bars, disgorgement, or other remedies, but defendants will no longer be required under Rule 202.5(e) to avoid public denials of the agency’s allegations.

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