Silence No More, But Speak with Care: SEC Rescinds the “No-Deny” Settlement Policy

On May 18, 2026, the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) announced that it had rescinded Rule 202.5(e) of the Commission’s rules of informal procedure, often referred to by critics as the “gag rule.”  This action ended the agency’s long-standing practice of prohibiting settling parties from publicly denying the SEC’s allegations.  This policy, commonly known as the “no-deny” element of the SEC’s “no-admit, no-deny” settlement framework, had been in place since 1972 and was incorporated into thousands of settlement agreements.  The rescission marks one of the most significant shifts in SEC enforcement settlement practice in decades, granting settling parties significantly greater freedom to communicate publicly about resolved regulatory matters while also introducing new considerations for companies, financial institutions, and individuals involved in SEC investigations and enforcement proceedings.  For additional discussion of other recent SEC developments under Chairman Paul S. Atkins, see V&E Client Alert: “Too Good to Be True?  The SEC Proposes Optional Semiannual Reporting.”

What the Rescission Does

The SEC’s rescission of Rule 202.5(e) includes several core components that fundamentally reshape the settlement landscape:

Repeal of the No-Deny Requirement.  The Commission will no longer condition settlement on a defendant’s agreement to refrain from publicly denying the allegations in the complaint or administrative order.  Settling parties will be free to publicly comment on or contest the allegations following resolution.

Non-Enforcement of Existing No-Deny Provisions.  The Commission will not enforce existing no-deny provisions in previously entered settlements, effectively releasing settled defendants from these speech restrictions.  This means that the Commission will not seek to vacate a settlement or reopen an adjudicatory proceeding based on a breach of an existing no-deny provision.

Admissions Practice Unchanged.  The rescission does not affect the Commission’s existing approach to admissions in settlements.  The Commission may continue to resolve matters without requiring defendants to admit facts or liability, while retaining the ability to seek admissions where appropriate.  This includes cases involving parallel criminal proceedings in which a defendant has pleaded guilty, is expected to do so, or has been convicted, in order to maintain alignment between the Commission’s resolution and the outcome of the related matter.

The Commission identified five rationales for the rescission, as set forth in its Final Rule: (1) the policy’s limited practical impact on the public interest; (2) its limited benefits and the lack of any known instance of enforcement; (3) technological developments, particularly social media, that have complicated the distinction between public and private statements; (4) alignment with the overwhelming majority of federal agencies that do not maintain a comparable no-deny policy; and (5) increased settlement flexibility, which conserves resources, provides certainty, and may expedite the return of money to injured investors.

Why Now

The rescission did not arise in a vacuum.  Since 2021, the SEC’s no-deny policy had been the subject of multiple legal challenges, producing varying outcomes across the federal circuits.  The Second Circuit, in SEC v. Romeril, 15 F.4th 166 (2d Cir. 2021), upheld the policy’s constitutionality, and the Ninth Circuit reached the same conclusion in Powell v. SEC, 149 F.4th 1029 (9th Cir. 2025).  In both cases, the courts emphasized that constitutional rights—including First Amendment rights—may be knowingly and voluntarily waived as part of a negotiated settlement.

At the same time, the Ninth Circuit’s decision in Powell left an important door open.  The court noted that, while a facial challenge failed, the policy as applied to a specific settlement agreement could “present different issues” if the facts and circumstances of the particular settlement “sweep more broadly than Rule 202.5(e) itself,” potentially implicating “important values associated with permitting criticism of the government.”

That opening soon became relevant.  In March 2026, a petition for a writ of certiorari was filed in Powell with the U.S. Supreme Court, and the SEC’s response was due May 20, 2026—just two days after the rescission was announced.  The timing suggests that the Commission may have acted, at least in part, to moot a pending constitutional challenge that could have reshaped the doctrine on less favorable terms.

Ultimately, the Commission accomplished through policy change what litigants had thus far failed to achieve in the courts.  SEC Chairman Atkins framed the rescission in explicitly constitutional terms, 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 rescission ends the policy prohibiting such criticism by settling defendants.”

Key Takeaways

For companies, executives, investment advisers, and other market participants navigating SEC enforcement actions:

Settlement may become more attractive in reputationally sensitive cases.  Parties who would otherwise have litigated rather than accept a speech restriction they viewed as unjust or commercially damaging can now reconsider whether settlement offers a more favorable risk-adjusted outcome.  The ability to publicly challenge the SEC’s narrative following a resolution removes what had been, for many defendants, a meaningful barrier to settlement.  Companies and individuals negotiating resolutions should work with counsel from the outset to develop coordinated post-settlement communication strategies.

Post-settlement statements must be carefully calibrated.  Even in the absence of Rule 202.5(e), public statements remain subject to the federal securities laws.  A carefully crafted statement can preserve a party’s position while avoiding unnecessary admissions, whereas a poorly drafted statement—or one that is inconsistent with the settlement order or other public disclosures—may create additional liability exposure.  Companies should approach post-settlement communications with the same rigor applied to SEC filings.

The SEC staff may respond with more detailed charging documents and less willingness to negotiate language.  When settling parties were prohibited from denying allegations, the staff sometimes omitted certain claims as unnecessary to the resolution.  In this new environment, staff may include more detailed factual allegations or be less inclined to negotiate each aspect of the order, recognizing that defendants may publicly contest the allegations.  Companies and individuals should anticipate more detailed settlement orders and plan accordingly.

Previously settled parties are now free to speak—but should proceed with caution.  The Commission’s announcement applies retroactively to prior settlement agreements.  Before publicly disputing allegations from an earlier SEC settlement, however, companies and individuals should carefully consider the potential implications for parallel or prospective civil litigation, regulatory proceedings involving other agencies, and broader reputational considerations.  Statements that contradict prior representations to courts, regulators, or counterparties may carry independent legal risk.

Disclosure controls and procedures should be revisited.  Companies should evaluate how the rescission affects Form 8-K disclosures, risk factors, investor communications, board reporting, and interactions with counterparties or regulators following SEC enforcement resolutions.  Counsel should place heightened emphasis on consistency across the settlement order, public disclosures, press statements, and any parallel litigation strategy.

The SEC’s rescission of its “no-deny” settlement policy represents a notable evolution in its enforcement approach. By permitting settling parties to publicly dispute the Commission’s allegations, the SEC has introduced greater flexibility while also adding complexity to the enforcement landscape.  Companies and individuals involved in SEC investigations should reassess their settlement, disclosure, and communications strategies in light of this development, with particular attention to managing reputational considerations and mitigating collateral litigation risks.

Please contact your Vinson & Elkins team to discuss these developments and their potential effects on your business.