Securities Regulation Daily Wrap Up, ENFORCEMENT—U.S.: Challengers take SEC’s ‘no-deny’ settlement policy to the Supreme Court, (Mar 23, 2026)

By Suzanne Cosgrove

The New Civil Liberties Alliance (NCLA) alleges that the SEC’s rule is a restraint on a constitutional right to free speech.

A group led by New Civil Liberties Alliance (NCLA) has filed a petition for a writ of certiorari to the United States Court of Appeals for the Ninth Circuit, arguing the case involves a “virtually unprecedented regulatory restriction on speech” (Petition for a writ of certiorari, Powell v. SEC, No. 25-1100 (U.S. Mar. 16, 2026)).

As noted in the filing, the petitioners claim the SEC’s “no-deny” rule has required defendants who settle enforcement actions to commit to a lifetime prohibition on denying or criticizing, “or even permitting others to criticize,” the agency’s allegations.

The question presented by the petitioners is whether Rule 202.5(e), adopted by the Commission in 1972, violates the First Amendment.

Ninth Circuit opinion. A Ninth Circuit panel upheld the SEC’s decision to maintain its policy of no-deny settlements last August (Powell v. SEC, No. 24-1899 (Aug. 6, 2025)). As reported at the time, the court appeared sympathetic to the petitioners’ concerns that the rule could have the effect of intruding on First Amendment rights but decided those concerns would be properly addressed in as-applied challenges with defined records.

Further, the Ninth Circuit applied the Supreme Court’s framework in Town of Newton v. Rumery, 480 U.S. 386 (1987), for evaluating a voluntary relinquishment of First Amendment rights. The panel concluded that Rule 202.5(e) is not facially invalid under the First Amendment, even though legitimate First Amendment concerns could arise in a more particularized, as-applied type of challenge.

The panel upheld the rule without prejudice to future challenges on more particularized records.

First petition. The NCLA had initially filed a petition with the SEC in January 2024, asking the Commission to amend Rule 202.5(e), 17 C.F.R. 202.5(e), which the agency denied. SEC Commissioner Hester Peirce dissented from that decision. “Because no-admit/no-deny settlements are the most common resolution of SEC enforcement actions, the rule at issue affects countless potential speakers,” Peirce said.

At the time, then-SEC Chairman Gary Gensler stated, “entering into a settlement is a consequential choice for both the SEC and the defendant.”

“The Commission, in agreeing to settle a case, is relinquishing the opportunity to present the case in court. The defendant, on the other hand, relinquishes the right to defend the case in court, in the press, and in the eyes of the public,” Gensler said.

Writ of certiorari. The latest petition filed by the NCLA, along with certain individuals who said they were directly impacted by what they labeled as “the Gag Rule,” cited Commissioner Peirce’s dissent and said the rule muzzles the individuals most familiar with -- and best positioned to criticize -- the SEC’s enforcement practices.

“The basic question in this case is whether an agency may leverage its enforcement authority to silence its critics upfront by conditioning an individual’s ability to settle an action (with) … a lifetime ban on denying the agency’s allegations,” the petitioners said.

Rumery called “shaky.” Further, the petitioners contended the Ninth Circuit’s contrary holding “misunderstood this Court’s First Amendment jurisprudence.” The Ninth Circuit reasoned that the supposedly voluntary nature of settlements permits the government to condition settlement on waiving First Amendment rights to criticize the agency’s case, they said.

“That holding badly misread Rumery’s already shaky foundation and overlooked Simon & Schuster, Inc. v. Members of the New York State Crime Victims Board, 502 U.S. 105 (1991), Vullo, and other more recent decisions by this Court recognizing that the government cannot suppress disfavored speech,” they said.

Attorneys: Gregory George Garre (Latham & Watkins) for Thomas J. Powell. D. John Sauer for the SEC.

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