SEC Transforms Settlements by Allowing Defendants to Make Their Case to the Public

By Timothy Belevetz (timothy.belevetz@icemiller.com), Partner; Matthew Fornshell (matthew.fornshell@icemiller.com), Partner; and Adam Davis (adam.davis@icemiller.com), Associate, with Ice Miller, LLP.

Timothy Belevetz

After nearly 55 years of consistent practice, the United States Securities and Exchange Commission (SEC) has rescinded its no-deny settlement policy. SEC Rule 202.5(e) has long made the Commission an outlier among federal agencies: defendants who settle enforcement actions are not permitted to make “any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis.”¹ This so-called gag rule, which has created controversy for years, will no longer force defendants to choose between avoiding litigation risk and defending their reputation.     

Matthew Fornshell

Going forward, defendants may settle SEC enforcement actions while maintaining that the allegations are false. In certain cases, the Commission may continue to require a defendant to concede liability as part of a resolution. In addition, the new policy applies retroactively. Any no-deny provisions in existing SEC settlements will not be enforced.  

The SEC, however, is not changing its general policy or practice regarding admissions in settlements. Defendants may still decline to admit allegations or liability in negotiated resolutions with the Commission. And the SEC may also negotiate for admissions to be included in settlement.    

Adam Davis

The SEC’s policy of permitting no-admit/no-deny resolutions has long faced criticism from a broad range of parties, practitioners, and observers. Some, particularly after the 2008 global financial crisis, have complained the practice lets bad actors off the hook by not requiring an acknowledgment of wrongdoing. Others have claimed the no-admit/no-deny policy abridges parties’ First Amendment right to free speech. It also led to uncertainty about what a resolving party could tell constituents— employees, business partners, and investors—as well as other regulators. The SEC provided no guidance, while a defendant faced the risk the Commission would construe a denial of liability or even an explanation to be a violation of the settlement terms and move to vacate the agreement. Removing the restriction on denying liability will placate the latter camp and exacerbate the concerns of the former.    

This change will bring a new set of considerations for defendants seeking settlement of SEC enforcement actions. On the one hand, defendants will no doubt be glad that they can make the case to the public that the allegations were false even though settlement remained the rational decision for business or other reasons. In addition, settlements may happen faster, thereby saving both defendants and the SEC valuable resources. On the other hand, those defendants may find that with the ability to explain away the allegations comes the SEC’s insistence on settlement language that includes a more detailed set of facts and the public’s expectation of a convincing justification. Defendants who previously relied on the no-deny aspect of the SEC’s no-admit/no-deny settlement policy as a shield from scrutiny will now need to look elsewhere for public relations armor.

---

^{[1] Powell v. SEC, 149 F.4th 1029, 1045 (9th Cir. 2025).}

This article is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.