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On January 30, SEC Commissioner Hester Peirce criticized the Securities and Exchange Commission’s (SEC) long-standing “gag rule,” a rule that prohibits defendants from criticizing the agency’s claims during settlements. This rule, adopted in 1972, has faced opposition from Peirce. She thinks the rule is unnecessary and undermines the integrity of regulations, raising concerns about the First Amendment.
My thoughts on the SEC's unusual practice of telling defendants who settle with us that they can't ever say anything bad about the settlement: What is the ‘gag’ rule? 
The gag rule says that when people settle with the SEC, they can’t say the SEC’s allegations are wrong. They also cannot say that the complaint has no factual basis. Commissioner Peirce thinks this rule is too strict because it stops those who settle from criticizing the SEC publicly. She says this rule protects the SEC from any criticism. The way it’s written makes it unclear for those settling where the limits are.
Peirce also has a problem with another part of the rule. It says that people settling can’t let others say things that question the SEC’s judgment. She thinks this part is also a problem because it restricts free speech and stops those settling from expressing their opinions indirectly.
Commissioner Peirce emphasizes that this no-deny policy is a mandatory and non-negotiable term in SEC settlements. They are the most common resolution of enforcement actions. Violating this policy could lead to defendants being dragged back into court by the SEC. The SEC’s enforcement actions related to crypto hit a ten-year high in 2023. There were 46 actions against <a href="https://news.todayq.com/around-1000-crypto-firms-enroll-in-europe-as-us-struggles-with-unclear-rules/" target="_blank" rel="noopener noreferrer nofollow">crypto firms</a> and $281 million in penalties collected from settlements.&nbsp; Why is Commissioner Peirce against it? 
When adopting the no-deny policy in 1972, the SEC aimed to prevent creating an impression that a decree or sanction was imposed when the alleged conduct did not occur. Commissioner Peirce challenges this rationale, pointing out that the SEC successfully settled cases for decades before the policy change. That allowed defendants to deny wrongdoing without undermining the Commission’s enforcement program.
Peirce argues that unlike the SEC, some other government groups, like the <a href="https://news.todayq.com/cftc-chair-flags-issues-over-bitcoin-etf-approval/" target="_blank" rel="noopener noreferrer nofollow">Federal Trade Commission</a>, let people who settle cases say they didn’t do anything wrong. She thinks the SEC should think about changing its rule and let those who settle openly talk if they believe in the SEC’s investigation.
Settling a lawsuit often appears to be the most cost-effective option for defendants facing SEC enforcement actions. The complexities, time, and legal costs associated with battling the government agency in court make settlement an attractive choice, even for well-resourced corporate defendants. However, Peirce notes that settling means the SEC no longer needs to prove its claims in court, gaining a benefit it couldn’t obtain through litigation – the permanent silence of the defendant.
Commissioner Peirce concludes that if the SEC is genuinely confident in its investigative work, it should not demand silence from settling defendants. Instead, allowing defendants to speak out would contribute to a more transparent and accountable regulatory process.&nbsp;
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SEC Commissioner Peirce slams watchdog over crypto Gag rules

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