That was fast! After a quick turn with OIRA that John blogged about last week, the SEC announced yesterday that it had issued a final rule to rescind its “neither admit nor deny” policy – and repeal Rule 202.5(e) of the SEC’s informal rules of procedures, which codified the policy.

Since 1972, the so-called “gag rule” said that the Commission wouldn’t settle enforcement actions involving sanctions unless the defendant or respondent agreed not to publicly deny the allegations in the complaint or administrative order. Here’s an excerpt from the rescission announcement:

Rescinding Rule 202.5(e) aligns the Commission with the overwhelming majority of federal agencies that do not have a similar rule and gives the Commission more flexibility in settling enforcement actions, which conserves resources, provides certainty, and potentially expedites the return of money to injured investors. The recission recognizes that the effect on the public interest from such denials may be minimal and that the policy itself may have created an incorrect impression that the Commission is trying to shield itself from criticism.

The announcement continues:

There is no known instance of the Commission seeking to reopen an administrative or civil proceeding as a consequence of a defendant or respondent violating a no-deny provision to which they have consented.

In light of the recission of Rule 202.5(e), the Commission will not enforce existing no-deny provisions that have already been entered. In the event of a breach of an existing no-deny provision, the Commission will take no action to ask a district court to vacate a settlement (or to reopen an adjudicatory proceeding) in connection with the terms of the settlement agreement.
The Commission generally does not require settling defendants to admit to allegations. Today’s recission does not affect the Commission’s practice related to admissions in settlements and does not affect the Commission’s discretion to settle with defendants who decline to admit facts or liability or its discretion to negotiate for admissions as part of a settlement.

In this statement supporting the decision to rescind the policy, Commissioner Peirce reiterated that settlements won’t disappear – the messaging will just be less one-sided:

Ending this imprudent policy, of course, does not mean that the Commission will stop resolving cases through settlement. The excellent investigative work of our professional, dedicated staff stands on its own ground, notwithstanding a defendant’s protestations of innocence. The public now will be able to assess the Commission’s case in light of a defendant’s denials. The result, I expect, will be what free speech often produces: somewhere between cacophony and euphony—neither terribly pleasing to the ear, not entirely unpleasant to hear. That the noise happens at all, however, is a substantial step forward for both the Commission and the right of a free people to speak their mind.

– Liz Dunshee