The U.S. Securities and Exchange Commission rescinded Rule 202.5(e), which embodied its decades old policy of conditioning settlements on the respondent’s agreement to not publicly deny the settled allegations. This measure gained traction after discussions in federal circuit court decisions and even more recent comments from SEC leadership focused on the effect of the policy on the speech critical of the government. In addition, the SEC specified that recission was appropriate because the no-deny policy had limited practical benefit, it was out of step with most other federal agencies, and the policy reduced the Commission’s flexibility to settle cases efficiently.
The recission of the “Gag Rule” is obviously relevant to ongoing and future matters. This policy change should eliminate one of the hurdles for individuals settling with the Commission who want to preserve the ability to deny parts of the Commission’s claims, without jeopardizing an overall settlement, or violating a settlement agreement. This policy change should lead to a more nuanced approach to resolving claims with the Commission.
However, the SEC went further and confirmed that it will not enforce no-deny provisions in existing settlements. In other words, parties that were previously compelled to agree they would not deny the allegations are now free – presumably for at least the next two years – to break their agreements and openly deny the settled allegations.
The rule recission will become effective immediately upon publication in the Federal Register because the SEC determined that delaying effectiveness for 30 days after publication “is unnecessary and would be contrary to the public interest.”