SEC Ends “Gag Rule” For Settlements

On May 18, the United States Securities and Exchange Commission (SEC) announced that it was rescinding its so-called “gag rule,” which has for several decades prohibited parties who settled with SEC from denying the agency’s allegations against them. This significant change will undoubtedly impact how various individuals and entities—e.g., corporations, officers and directors—assess the costs and benefits of settling with SEC as well as the public framing of such resolutions. Additionally, the change may affect how SEC generally, and the Division of Enforcement in particular, makes decisions concerning the initiation and resolution of SEC enforcement actions. 

The Gag Rule

For more than 50 years, SEC’s Rule of Procedure 202.5(e) expressed a policy that, in the agency’s lawsuits and administrative proceedings, it was “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,