A commissioner at the U.S. Securities and Exchange Commission (SEC), Hester Peirce, criticized a rule that prevents defendants from criticizing the agency's claims after settling enforcement actions, stating that it "undermines regulatory integrity" and infringes on free speech. In a statement on January 30, Peirce expressed disagreement with the SEC's refusal to amend the 1972 "gag rule," which mandates that defendants refrain from denying or refusing to admit SEC allegations following a settlement. The rule specifically requires defendants to agree not to make any public statements that deny SEC allegations or create the impression that the complaint is unfounded.
Peirce argued that policies preventing defendants from publicly criticizing settlements are unnecessary, raise concerns about regulatory integrity, and may violate the First Amendment. She highlighted the provision requiring defendants not to "permit" denials as problematic, suggesting that defendants must prevent others from casting doubt on the SEC's judgment. This provision is a common and mandatory element in SEC settlement agreements, often used as a resolution in enforcement actions.
The SEC adopted the non-repudiation policy in 1972 to avoid creating the impression that sanctions were imposed when alleged conduct had not occurred. Peirce countered this justification, stating that the SEC had decades of experience resolving cases before the policy, allowing defendants to deny wrongdoing. She argued that defendants' denial did not appear to undermine the SEC's enforcement goals and emphasized that settling lawsuits is often the most cost-effective option due to the challenges, time, and legal costs associated with litigation.
Peirce raised questions about the SEC's confidence in its investigative work and analysis, suggesting that requiring perpetual silence from settling defendants may indicate a lack of assurance in the agency's claims. The commissioner urged a reconsideration of the policy, emphasizing the importance of free speech and the potential chilling effect of restricting defendants' ability to publicly discuss and criticize settlements reached with the SEC.
