Supreme Court declines to hear First Amendment challenge to the SEC's Gag Rule

The U.S. Supreme Court has turned away a First Amendment challenge to the SEC’s Gag Rule without comment. 

The SEC’s Gag Rule is a 50-year-old policy that stops defendants from publicly denying allegations after settling enforcement cases. 

The SEC had already rescinded the policy in May, and the CFTC followed suit in June. The constitutional question remains unsettled, meaning a future administration could revive the restriction without a Supreme Court precedent blocking it.

US Supreme Court backs up SEC 

Today, the U.S. Supreme Court decided to turn away a case regarding the SEC’s Gag Rule and whether or not it poses a challenge to the First Amendment. 

The SEC adopted Rule 202.5(e) in 1972. It restricts defendants from publicly denying allegations after settling enforcement cases. 

The NCLA referred to the provision as “rank censorship.”

The court’s decision hands a procedural win to the SEC under Chairman Paul Atkins, as the agency already rescinded the rule in May. The case, Powell v. Securities and Exchange Commission, had been brought by the New Civil Liberties Alliance (NCLA) on behalf of Thomas Powell, who settled SEC charges in 2021 related to unregistered oil and gas securities offerings. 

Powell had faced accusations of misrepresentations tied to more than a dozen unregistered securities offerings and agreed to pay a $75,000 penalty. His settlement barred him from publicly denying wrongdoing. 

Critics of the rule included Elon Musk and Mark Cuban, both of whom argued it violated defendants’ speech rights. In May, the agency said it would not seek to reopen past settlements even if defendants now choose to speak publicly about their cases.

The SEC argued that rescinding the rule made the Powell case moot, but his lawyers pushed back hard.

The NCLA wrote in a reply brief filed early in June, stating that rules that can be “rescinded overnight, can also be reinstated overnight.” It added that the government has failed to provide the reassurance that the Gag Rule will not be enforced again later. 

Former U.S. Solicitor General Greg Garre argued the court should have taken the case to formally establish that agencies cannot force Americans to abandon their First Amendment right. 

What happens to crypto firms that have settled with the SEC?

Cryptopolitan previously reported that the Commodity Futures Trading Commission (CFTC) scrapped its own version of the rule, which had been in place since 1998, in June. The CFTC also confirmed it would not enforce existing no-deny clauses in past settlements. 

The Gag Rule’s demise matters to the crypto industry because dozens of firms settled SEC enforcement cases in recent years and were forced to stay silent about the details. 

The SEC has separately acknowledged what it called “flaws” in its prior crypto enforcement approach, dismissing seven cases against firms including Coinbase (NASDAQ: COIN), Binance, and Kraken.

It’s left to be seen if any defendants who settled under the old rule begin publicly contesting the SEC’s allegations now that the agency has updated its rules. 

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