June 22, 2022

SEC Enforcement: SCOTUS Denies Cert In Case Challenging SEC “Gag Orders”

In April, I blogged about a cert petition seeking SCOTUS review of the SEC’s use of “gag orders” in connection with the settlement of enforcement proceedings. Despite divergent approaches taken by lower courts on the validity of those orders, the Court declined to grant cert in Romeril v. SEC yesterday. This Bloomberg Law article on the Court’s decision notes that the cert petition had the support of two of the SEC’s most vocal foes:

The US Supreme Court Tuesday rejected a challenge—backed by Elon Musk and Mark Cuban—of the SEC’s power to “gag” parties who settle with the agency. The case stems from a challenge by former Xerox Corp. chief financial officer Barry Romeril, who sued for the ability to deny the Securities and Exchange Commission’s fraud allegations after he signed a 2003 settlement with the agency.

Romeril asked the high court to weigh in on whether his SEC deal, including a “no-deny” provision he referred to as a “gag order,” violated First Amendment free speech protections or constitutional guarantees of due process.

Musk, who last week appealed a ruling upholding his own settlement with the agency, joined an April amicus brief in support of Romeril’s petition. Musk’s “Twitter sitter” SEC deal calls for a Tesla Inc. attorney to screen all of his tweets related to the automaker after his 2018 missive indicating he had secured funding to take the company private.

The SCOTUS may have taken a pass on this issue for now, but with lower courts taking different positions on the issue and the willingness of folks like Cuban & Musk to back a fight over it, I doubt we’ve heard the last on the enforceability of SEC gag orders.

John Jenkins