A U.S. Securities and Exchange Commission (SEC) member has criticized the agency’s long-standing gag rule, which restricts defendants from publicly disputing allegations after a settlement. This rule has recently gained attention due to its application in crypto industry cases handled by the SEC.
SEC Commissioner Hester Peirce voiced her disapproval of the gag rule, arguing that it undermines regulatory integrity and violates First Amendment rights. She contends that the rule’s prohibition on denying SEC allegations post-settlement is unnecessary and creates a chilling effect on free speech.
The rule in question forbids defendants from making any public statements that deny or cast doubt on the SEC’s allegations, effectively preventing any criticism of the agency’s actions. Peirce highlights the problematic nature of this clause, noting that it also stops others from questioning the SEC’s judgment.
Peirce points out that this non-negotiable no-denial policy is a standard condition in SEC settlements, which are the most frequent outcome of enforcement actions. Violating this condition can lead to further legal consequences.
The SEC’s enforcement against the crypto market peaked in 2023, with a significant number of actions and fines. Peirce argues against the SEC’s rationale for the no-denial policy, citing that prior to its implementation, the SEC had a history of settlements allowing defendants to deny wrongdoing, a practice that did not undermine the agency’s enforcement efforts and is still permitted by other federal agencies.