Since 1972, the Securities and Exchange Commission has generally allowed companies and individuals to settle civil enforcement investigations without admitting to the SEC’s allegations, provided that the settling party also does not deny them. See 17 CFR 202.5(e) . “[I]t is 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, occur.”
In 2025, U.S. Court of Appeals for the Ninth Circuit rejected a challenge to the SEC’s practice of settling cases only if the defendant agrees not to deny the SEC’s allegations against them. There have been First Amendment claims, but they haven’t stood up.
That looks likely to change. The SEC filed with Office of Information and Regulatory Affairs for review of final rule titled “Rescission of Policy Regarding Denials in Settlements of Enforcement Actions.” I think we can read the tea leaves on what the rule is likely to do even though we haven’t seen a copy of it.
The question is what will the SEC do going forward to enforcement. Maybe it will force admission of guilt and the facts stated in the enforcement action. It would seem silly to settle an enforcement action, get the money and allow the defendant to then deny any guilt. We don’t get to hear the defendants side of the story. Maybe now we will.
Sources:
- The SEC’s New Approach to Neither-Admit-Nor-Deny Policy May Not Be So New After All December 2021
- Appeals Court Denies Challenge to SEC Rule Requiring Settling Parties not to Deny Liability
- SEC Moves Toward Rescinding “No-Deny” Settlement Policy
- SEC Enforcement: “Gag Rule” Looks to be On the Way Out
- Rescission of Policy Regarding Denials in Settlements of Enforcement Actions filed with OIRA