Balancing Free Speech and Market Integrity: The Constitutional Legitimacy of the SEC’s Gag Rule

Financial markets rely heavily on public trust and regulatory credibility. As these markets evolved, enforcement mechanisms once viewed as heavy handed came to be widely recognized as essential to preserving transparency and stability. One such mechanism is the Securities and Exchange Commission’s (SEC) long standing gag rule. The rule bars defendants who choose to settle an enforcement action from later publicly denying the allegations they resolved. [1] The provision has existed since the 1970s and gained renewed constitutional significance in Powell v. Securities and Exchange Commission (2025), where the Ninth Circuit upheld its legality. The court emphasized a foundational principle of constitutional law by noting that, in proper circumstances, constitutional rights may be knowingly and voluntarily waived. [2] This reaffirmed the constitutionality of limited and voluntary speech restrictions within settlement agreements. The ruling preserved the enforcement tool for the SEC and offered a broader point of reference for waiver doctrine across the administrative state.

The constitutional legitimacy of the SEC’s gag rule rests on three interrelated foundations. First, it fits comfortably within established waiver doctrine. Second, it promotes substantial governmental interests tied directly to market integrity and regulatory credibility. Third, it is narrowly tailored, as it restricts only public factual denials of settled allegations while allowing broader commentary, criticism of the agency, and personal narrative. Transparency advocates continue to raise objections to any restriction on post settlement speech. Still, appellate decisions such as Powell v. Securities and Exchange Commission (2025), Town of Newton v. Rumery (1987), and SEC v. Romeril (2021) reflect a consistent conclusion. Voluntary and limited waivers remain constitutionally sound when they advance important regulatory goals without suppressing dissent.

To understand why the gag rule developed, it is helpful to revisit its origins. During the 1970s, the SEC confronted a recurring enforcement problem. Parties would settle allegations of securities violations and accept the benefits of settlement, only to later publicly deny wrongdoing. These denials created confusion among investors who could not determine whether the agency’s allegations were credible. More broadly, they risked weakening confidence in the SEC’s enforcement regime by implying that settlements were ambiguous or unreliable. In response, the agency began including no deny provisions in settlement agreements to protect the integrity of resolved enforcement outcomes. [3] The rule was not intended to silence criticism of the SEC or prevent calls for reform. Instead, it was designed to prevent factual contradictions that could undermine public confidence in enforcement actions. The Ninth Circuit in Powell adopted this view and described the rule as a targeted limitation intended to preserve the reliability of the public enforcement record rather than suppress speech generally. [4]

Critics of the SEC’s gag rule contend that it violates the First Amendment in ways more serious than the agency admits. Rodney A. Smolla has argued that the rule operates as a classic prior restraint that limits speech before it occurs and therefore represents one of the most severe infringements on expressive freedom. [5] Others argue that the gag rule is not a neutral settlement term, but rather an example of compelled silence. In their view, the SEC’s leverage in enforcement proceedings effectively forces defendants to surrender constitutional rights they could not otherwise be compelled to relinquish. Because most enforcement actions resolve through settlement, critics argue that the rule deprives the public of speech that could enhance democratic debate about the conduct of regulators and the functioning of markets.

Despite these objections, the constitutional foundation of the gag rule rests most directly on waiver doctrine. A waiver involves the voluntary and intentional relinquishment of a known right. [6] Courts have repeatedly recognized that constitutional rights may be waived when doing so serves legitimate public interests and does not undermine public policy. The foundational case for this principle is Town of Newton v. Rumery (1987). In that case, the Supreme Court upheld an agreement in which a criminal defendant waived his right to bring a civil rights suit in exchange for dismissal of charges. The Court explained that such agreements are enforceable unless the interest in enforcement is outweighed by a countervailing public policy. As the Court stated, “The relevant principle is well established: a promise is unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.” [7] The Court further acknowledged that settlement pressure does not alone invalidate a waiver, noting that the “risk, publicity, and expense of a criminal trial may intimidate a defendant,” [8] but that this possibility does not justify invalidating negotiated agreements as a class. It must be emphasized that difficult chives do not equate to coercion. As long as the option to reject the settlement and proceed to trial is still on the table, the defendant is not forced to surrender their rights.

The Second Circuit applied this framework directly to the SEC’s no deny provision in SEC v. Romeril (2021). There, the SEC brought an enforcement action against former Xerox executive Barry Romeril for accounting fraud. As part of the settlement, Romeril agreed not to make “any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis.” [9] When Romeril later challenged the provision on First Amendment grounds, the court rejected his claim. The court emphasized that he had voluntarily chosen settlement and retained the alternative of litigating the charges if he wished to deny them publicly. The court also underscored the government’s interest in preserving trust in enforcement outcomes, explaining that “fostering public trust in the government’s enforcement actions is an important aim.” [10] This reasoning reflects a consistent doctrinal principle. The gag rule does not impose silence categorically. It conditions the benefits of settlement on a limited waiver, while preserving the defendant’s ability to contest allegations through litigation.

A broader constitutional principle also supports the SEC’s authority to manage speech that affects the integrity of its enforcement work. In Pickering v. Board of Education (1968), the Supreme Court recognized that when the government acts not as a sovereign regulator but as an institution managing its operations, it may impose certain limits on speech to prevent disruption. While the Court ruled in favor of a teacher who criticized school board policy, it acknowledged that “certain forms of public criticism of the superior by the subordinate would seriously undermine the effectiveness of the working relationship between them.” [11] The Court further noted that in some contexts, “the need for confidentiality is so great that even completely correct public statements might furnish a permissible ground for dismissal.” [12] Although Pickering involved public employee speech, its underlying logic applies more broadly to institutional governance. Administrative agencies must maintain consistent and reliable public messaging to function effectively. The SEC’s gag rule reflects this principle by limiting speech that could disrupt the agency’s ability to enforce securities laws coherently.

This reasoning is reinforced by Garcetti v. Ceballos (2006), where the Supreme Court held that government entities have broader authority to restrict speech when acting in their role as employer. This was a case where a DA agent in Los Angeles had negatively spoken publicly about a flawed search warrant, which was considered part of his job. The Court explained that “a government entity has broader discretion to restrict speech when it acts in its role as employer, but the restrictions it imposes must be directed at speech that has some potential to affect the entity’s operations.” [13] While Garcetti addressed employee speech, it illustrates a broader constitutional theme. Narrow speech restrictions tied to institutional functioning are not inherently suspect. The SEC’s gag rule operates within this tradition by preventing post settlement statements that could undercut enforcement credibility.

Importantly, the rule is narrowly tailored. Rule 202.5(e) does not prohibit all speech by settling defendants. Instead, it applies only when defendants publicly deny allegations they have settled. As the Ninth Circuit observed, the rule “is not simply a speech restricting rule, but a rule that defendants voluntarily accede to in return for substantial benefits.” [14] Moreover, “by its terms, Rule 202.5(e) creates consequences for defendants only when they publicly deny the SEC’s allegations.” [15] Even then, the consequence is not automatic punishment or suppression, but that “the SEC may seek to reopen proceedings.” [16] Defendants remain free to criticize the agency, discuss regulatory reform, or express personal views, so long as they do not create factual contradictions in the settled enforcement record.

The Ninth Circuit in Powell emphasized that the rule’s constitutionality depends on this narrow application. The court made clear that if the SEC were to use the gag rule to silence criticism, punish dissent, or restrict discussion unrelated to factual denials, an as applied First Amendment challenge might succeed. This limitation is crucial. It ensures that the rule preserves factual clarity without becoming a tool for suppressing public debate.

The implications of Powell extend beyond the SEC. Federal agencies such as the Federal Trade Commission, the Consumer Financial Protection Bureau, and the Department of Justice rely heavily on settlements to enforce statutory mandates. These agencies must ensure that enforcement outcomes remain intelligible and credible to the public. Powell suggests that voluntary and narrowly limited waivers tied to legitimate governmental interests can remain constitutionally valid tools within the administrative state. This reinforces a broader principle of administrative law. Settlement mechanisms that promote clarity and stability do not inherently conflict with constitutional rights when they are voluntary and carefully constrained.

Ultimately, Powell v. Securities and Exchange Commission (2025) strengthens the constitutional foundation of the SEC’s gag rule. The decision grounds the rule in longstanding waiver doctrine, recognizes substantial governmental interests in market integrity, and emphasizes narrow tailoring. It reaffirms the framework established in Rumery and applied in Romeril. While debates over transparency will continue, Powell demonstrates that limited and voluntary speech waivers can coexist with the First Amendment when they support the government’s responsibility to maintain orderly markets and reliable enforcement outcomes.

Edited by Brandon Sahly

[1] “A Look At Recent Challenges To SEC’s Settlement ‘Gag Rule’,” Winston and Strawn LLP, April 4, 2024, https://www.winston.com/en/insights-news/a-look-at-recent-challenges-to-secs-settlement-gag-rule

[2] Powell v. USSEC, No. 24-1899 (9th Cir. 2025).

[3] Tiffany Dang et al., “U.S. Judge Questions the Silencing Provisions of No-Admit-No-Deny Settlements with the SEC,” Osler, Hoskin & Harcourt LLP, February 23, 2023, https://www.osler.com/en/insights/blogs/risk/u-s-judge-questions-the-silencing-provisions-of-no-admit-no-deny-settlements-with-the-sec/.

[4] Powell v. USSEC, No. 24-1899 (9th Cir. 2025).

[5] “Archive,” Widener Law Review, September 17, 2014, https://widenerlawrev.org/archives/.

[6] “Law Dictionary,” Merriam-Webster, 2019, https://www.merriam-webster.com/legal.

[7] Newton v. Rumery, 480 U.S. 386 (1987).

[8] Newton v. Rumery, 480 U.S. 386 (1987).

[9] Romeril v. SEC, No. _____ (Writ of Cert. 2022).

[10] Romeril v. SEC, No. _____ (Writ of Cert. 2022).

[11] Pickering v. Board of Education, 391 U.S. 563 (1968).

[12] Pickering v. Board of Education, 391 U.S. 563 (1968).

[13] Garcetti v. Ceballos, 547 U.S. 410 (2006).

[14] Powell v. USSEC, No. 24-1899 (9th Cir. 2025).

[15] Powell v. USSEC, No. 24-1899 (9th Cir. 2025).

[16] Powell v. USSEC, No. 24-1899 (9th Cir. 2025).