The SEC has ended one of its most controversial enforcement policies. On May 18, 2026, the Commission officially rescinded Rule 202.5(e), the agency's longstanding "no-admit, no-deny" settlement policy—commonly referred to as the "Gag Rule." Under the informal rule of practice, which had been in effect since 1972, the SEC required defendants settling enforcement actions to refrain from publicly denying the agency's allegations, effectively barring defendants from disputing the allegations. SEC Chairman Paul S. Atkins framed the move as a First Amendment issue, stating: "For more than 50 years, the Commission has conditioned settlement on a defendant's promise not to publicly deny the Commission's allegations. I am pleased that we are rescinding the no-deny policy today. Speech critical of the government is an important part of the American tradition. This recission ends the policy prohibiting such criticism by settling defendants".

Background

The Gag Rule was introduced in 1972 as an SEC policy statement adopted without notice-and-comment rulemaking. Under Rule 202.5(e), the SEC would not permit a defendant or respondent to consent to a judgment or order imposing a sanction while denying the allegations in the complaint. A refusal to admit was treated as equivalent to a denial unless the defendant explicitly stated that it "neither admits nor denies" the allegations. Most SEC enforcement actions over the past five decades were settled on a “no-admit, no-deny” basis.

The policy came under increasing constitutional scrutiny. Critics characterized it as a content-based prior restraint on speech, permanently barring defendants from publicly criticizing the SEC's allegations under threat of reopening the case. In August 2025, the Ninth Circuit upheld the Gag Rule in Powell v. SEC, reasoning that defendants could voluntarily waive constitutional rights as part of a settlement, though the court acknowledged the rule raises "legitimate First Amendment concerns." A petition for certiorari was filed with the U.S. Supreme Court in March 2026, with the SEC's response due May 20—just two days after the rescission. 

Key Features of the Rescission

The rescission reshapes both existing and future SEC settlements. Three key changes stand out:

1. The SEC will not enforce existing “no-deny” provisions or reopen cases based on alleged violations.
2. The SEC still retains discretion to demand admissions on a case-by-case basis. Settlements without admissions remain available, but the SEC may still demand admissions in select cases.
3. The SEC said the rescission aligns the agency with most federal regulators, which do not impose similar restrictions.

What This Means Going Forward

The policy change carries several practical implications.

• Greater flexibility in post-settlement communications. Settling parties will no longer face the risk that routine public statements could be viewed as implicit denials, potentially jeopardizing the settlement. Companies, executives, and financial institutions will have far more latitude to communicate with investors, clients, auditors, business partners, insurance carriers, and other regulators about the nature and circumstances of SEC settlements.
• Shifting settlement dynamics. Some parties that would have litigated may now settle, knowing they can publicly deny the allegations afterward. At the same time, settlement negotiations may become more complex, as parties may negotiate more heavily over post-settlement statements. The SEC may also respond by seeking admissions more frequently in select high-profile cases or by approaching settlement negotiations with different terms, such as higher penalties or stronger undertakings, to compensate for relinquishing control over post-settlement communications.
• Reputational considerations. Companies and individuals may now choose to settle for business or financial reasons while continuing to publicly contest the SEC's narrative in press statements, investor communications, or parallel proceedings. However, greater freedom to deny also creates greater risk. Even if public denials are permissible, stakeholders may demand answers about why money was paid, what facts are accepted or disputed, and whether the SEC's findings should still carry weight. An SEC order could become the beginning of a protracted public battle rather than the final word it has traditionally represented.
• Collateral consequences in parallel proceedings. The ability to deny SEC allegations may introduce new dynamics in related civil securities lawsuits and parallel criminal actions. Parties should carefully evaluate how public denials of SEC allegations could affect their exposure in other forums.

Bottom Line

The timing of this rescission, coming just days before the SEC's response was due in the Powell v. SEC certiorari petition, raises questions about whether the Supreme Court will view the case as moot or still address the broader constitutional issues. In the meantime, market participants should reassess enforcement, communications, and settlement strategies in light of the change. The Reed Smith team will continue to monitor developments as the SEC's new framework takes shape and as the Supreme Court considers the pending petition.