The White House is reviewing a plan for the SEC to end its decades-old policy that lets companies and people settle enforcement actions without admitting wrongdoing if they also promise not to dispute the allegations.
The White House Office of Management and Budget received the regulator's measure to end the policy — known among critics as the "gag rule" — on May 8, according to a post on a government website.
The Securities and Exchange Commission for more than 50 years has allowed parties to settle without admitting wrongdoing, but they risked voiding the deal if they publicly pushed back on the findings.
The policy, known more formally as the no admit/no deny rule, has prompted criticism that the SEC silences defendants and takes away their First Amendment rights. SEC targets like Elon Musk and Mark Cuban have spoken out against the policy and have supported attempts to end the rule. The SEC in 2024 rejected a petition to change its policy.
"We're glad SEC is finally admitting after eight years of NCLA fighting them at every turn that the gag rule is indefensible," said Mark Chenoweth, the president of the New Civil Liberties Alliance, a legal group that has fought the SEC policy and has a petition pending at the Supreme Court to review the legality of the rule.
He cautioned, however, that the public doesn't know what the SEC's rescission plan entails as the federal website notice included no details. "There are ways in which they could take half measures that wouldn't really resolve the problem," Chenoweth said.
The effects of the revision
Eliminating the rule would align the SEC with the majority of federal agencies that don't have a policy requiring defendants to sign no-deny provisions "and give the commission more flexibility in settling enforcement actions — conserving resources, providing certainty and potentially expediting the return of money to injured investors," an SEC spokesperson said in a statement.
The rule has also been criticized for being too lenient, allowing companies and people to end enforcement actions without taking responsibility for misconduct. In 2013 the agency said it would seek such admissions in some cases. Rescinding the rule isn't expected to affect the SEC's ability to negotiate for admissions as part of a settlement.
Musk earlier this month agreed to pay $1.5 million to settle SEC allegations that he cheated Twitter shareholders in 2022 by failing to properly disclose his growing stake in the social media company. Musk didn't admit or deny the regulator's allegations.
