On May 18, 2026, the Securities and Exchange Commission (the “SEC” or “Commission”) announced that it had rescinded its long-standing “no-deny” policy, codified in Rule 202.5(e) of its informal rules of procedures, requiring defendants settling enforcement actions where a sanction is to be imposed to agree not to publicly deny the SEC’s allegations against them.[1] The SEC decided to rescind Rule 202.5(e) while it was awaiting determination on whether the U.S. Supreme Court would review a challenge to this very rule.
Background
Since 1972, the SEC conditioned settlements involving sanctions on a defendant’s or respondent’s agreement not to publicly deny the allegations set forth in the relevant complaint or administrative order.[2] This policy had operated as part of a broader “no-admit/no-deny” historical framework at the SEC; specifically, while defendants were generally not required to admit liability, they were previously prohibited from publicly contesting the SEC’s allegations as a condition of settlement.[3]
Implications of Rescission of Rule 202.5(e)
The Commission’s final rule rescinds Rule 202.5(e) in its entirety, thereby eliminating the requirement that a settling defendant refrain from publicly denying the Commission’s allegations.[4] The Commission also stated that it will not seek to enforce existing “no-deny” provisions in previously executed settlement agreements.[5] In addition, the Commission indicated that it will not seek to reopen proceedings or vacate settlements based on alleged violations of existing “no-deny” provisions.[6]
The Commission further clarified that the rescission does not affect its “practice related to admissions in settlements.”[7] The Commission thus retains discretion to “settle with defendants who decline to admit facts or liability” and “to negotiate for admissions as part of a settlement.”[8]
SEC’s Rationale for the Rescission of Rule 202.5(e)
The Commission noted that rescinding Rule 202.5(e) “aligns the Commission with the overwhelming majority of federal agencies that do not have a similar rule” and provides the Commission with greater flexibility in settling enforcement actions, “which conserves resources, provides certainty, and potentially expedites the return of money to injured investors.”[9] The SEC also noted that the recent “rescission recognizes that the effect on the public interest from such denials may be minimal and that the policy itself may have created an incorrect impression that the Commission is trying to shield itself from criticism.”[10]
Recent Legal Challenges to Rule 202.5(e)
In recent years, the “no-deny” policy has been criticized and challenged by settling parties as an unconstitutional restriction on free speech rights. The Second and Ninth Circuits have held that the rule is constitutional,[11] while other courts, including the Fifth Circuit, have questioned whether the rule amounts to an unconstitutional prior restraint.[12]
The most significant challenge to SEC Rule 202.5(e) came in Powell v. SEC, where the Ninth Circuit upheld the rule against a facial vagueness challenge under the First Amendment in 2025.[13] The Ninth Circuit observed that “Rule 202.5(e) cannot be abstracted from the circumstances that bring the Rule into effect, namely, a defendant’s voluntary decision to settle with the SEC and his voluntary agreement to abide by the Rule’s requirements.”[14] The court further noted that “Rule 202.5(e) is not simply a speech-restricting rule, but a rule that defendants voluntarily accede to in return for substantial benefits.”[15] Thus, the Ninth Circuit held that the rule was not facially vague in violation of the First Amendment because it involves a knowing and voluntary waiver of rights, because the rule is also sufficiently narrow, as it only precludes the settling defendant from publicly denying the SEC’s allegations against them, rather than suppressing speech outright, and because the rule is closely tied to the SEC’s enforcement interests.[16]
The Ninth Circuit cautioned that, while Rule 202.5(e) on its face is not per se unconstitutional, the policy, as applied, “could impermissibly intrude on First Amendment rights, especially if it prevents civil enforcement defendants from criticizing the SEC.”[17] The petitioners in Powell v. SEC filed a petition for a writ of certiorari before the U.S. Supreme Court in March, shortly before the SEC announced its recent rescission of Rule 202.5(e).[18]
Practical Implications
In summary, the SEC’s rescission of Rule 202.5(e) eliminates the long-standing “no-deny” condition in settlements, providing defendants or respondents greater flexibility in post-resolution communications while preserving the Commission’s discretion over admissions and broader enforcement strategy.
[1] Press Release, U.S. Sec. & Exch. Comm’n, No. 2026-45, SEC Rescinds Policy Regarding Denials of Settlements in Enforcement Actions (May 18, 2026), https://www.sec.gov/newsroom/press-releases/2026-45-sec-rescinds-policy-regarding-denials-settlements-enforcement-actions.
[2] Rescission of Policy Regarding Denials in Settlements of Enforcement Actions, Securities Act Release No. 33-11417, Exchange Act Release No. 34-105504, Investment Company Act Release No. IC-6965, Investment Advisers Act Release No. IA-36158 (May 18, 2026), https://www.sec.gov/files/rules/final/2026/33-11417.pdf.
[3] Id. at 2-4.
[4] Id. at 9.
[5] Id. at 10.
[6] Id.
[7] SEC Rescinds Policy Regarding Denials of Settlements in Enforcement Actions, supra note 1.
[8] Id.
[9] Id.
[10] Id.
[11] See SEC v. Romeril, 15 F.4th 166, 172 (2d Cir. 2021) (affirming judgment with underlying no-deny provision, observing that “parties can waive their First Amendment rights in consent decrees and other settlements of judicial proceedings” and that such agreements do not render judgments void); see also Powell v. SEC, 149 F.4th 1029, 1038 (9th Cir. 2025) (holding that Rule 202.5(e) is not per se unconstitutional because defendants voluntarily waive their rights when agreeing to settlements).
[12] See SEC v. Novinger, 40 F.4th 297, 308 (5th Cir. 2022) (Jones, J., joined by Duncan, J., concurring) (“I write to note that nothing in the opinion (or in the district court opinion, for that matter) approves of or acquiesces in the SEC’s longstanding policy that conditions settlement of any enforcement action on parties’ giving up First Amendment rights. 17 C.F.R. § 202.5(e). If you want to settle, SEC’s policy says, ‘Hold your tongue, and don’t say anything truthful—ever’—or get bankrupted by having to continue litigating with the SEC. A more effective prior restraint is hard to imagine.”); see also SEC v. Moraes, No. 22-CV-8343 (RA), 2022 WL 15774011, at *5 (S.D.N.Y. Oct. 28, 2022) (approving consent agreement at the request of the parties while noting its reluctance to do so because of the SEC’s “continued and misguided practice of restraining speech.”).
[13] Powell, 149 F.4th at 1038.
[14] Id.
[15] Id.
[16] Id. at 1042.
[17] Id. at 1034.
[18] See Petition for Writ of Certiorari, Powell v. SEC, No. 25-1100 (U.S. Mar. 19, 2026), https://www.supremecourt.gov/DocketPDF/25/25-1100/401007/20260316161817049_2026-03-16%20Powell%20et%20al.%20-%20Cert%20Petition%20with%20appendix.pdf.
