The US Securities and Exchange Commission has rescinded a long-standing policy that barred defendants from publicly denying allegations while settling enforcement actions, a shift that marks a significant recalibration of the regulator’s approach to settlements.
Announcing the change on Monday, the SEC said it has withdrawn Rule 202.5(e) of its informal rules of procedure, which, for more than five decades, required settling defendants to agree not to deny the Commission’s allegations if a sanction was imposed.
The rollback brings the SEC in line with most federal agencies that do not impose similar restrictions and gives the watchdog greater flexibility to conclude enforcement actions.
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The regulator said the change would help conserve resources, provide greater certainty to parties, and potentially expedite the return of money to harmed investors. It also acknowledged that the earlier policy may have created a perception that the agency was seeking to insulate itself from criticism.
“For more than 50 years, the Commission has conditioned settlement on a defendant’s promise not to publicly deny the Commission’s allegations,” SEC Chairman Paul S. Atkins said. “Speech critical of the government is an important part of the American tradition. This rescission ends the policy prohibiting such criticism by settling defendants.”
Importantly, the SEC clarified that it will not enforce existing ‘no-deny’ provisions already embedded in past settlements. Even if a defendant breaches such a clause, the Commission said it will not seek to reopen proceedings or ask courts to vacate settlements on that basis.
The 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.
