Ninth Circuit Upholds SEC’s “No Admit, No Deny” Rule for Settlements

The U.S. Court of Appeals for the Ninth Circuit recently denied a petition challenging the SEC’s refusal to amend its rule that a defendant may not settle with the Commission while retaining the ability to deny the SEC’s allegations. The decision in Powell v. Securities and Exchange Commission (9th Cir. Aug. 6, 2025) involved a facial challenge to SEC Rule 202.5(e) on First Amendment grounds, meaning that petitioners contended the Rule could not be constitutional in almost any context. The Ninth Circuit disagreed, based on “longstanding precedent permitting the voluntary waiver of constitutional rights, including First Amendment rights.”

The Ninth Circuit recognized, however, that Rule 202.5(e) “could impermissibly intrude on First Amendment rights” in specific factual circumstances, “especially if it prevents civil enforcement defendants from criticizing the SEC.” But those particularized concerns would need to be addressed “in as-applied challenges, with defined records,” rather than through an omnibus facial attack on the Rule.

The Ninth Circuit’s ruling, which accords with a 2021 decision by the Second Circuit, leaves the SEC’s Rule intact, although it could provide some fodder for litigants who wish to criticize the SEC’s activities either before or after settling with the Commission. Such a strategy, however, could create the risk of preventing a settlement or of causing a court to reopen a settled matter at the SEC’s request.

Background
In 1972, the SEC adopted a policy that persons who settle with the Commission cannot later deny the allegations they agreed to settle. The policy sought to change the prior state of play, in which defendants could settle, agree to a sanction, and then deny that they had done what the Commission sanctioned them for doing.

The current version of the SEC’s policy, codified in 17 C.F.R. § 202.5(e), states that, in any civil enforcement or administrative proceeding brought by the Commission,

“It is important to avoid creating, or permitting to be created, an impression that a decree is being entered or a sanction imposed, when the conduct alleged did not, in fact, occur. Accordingly, [the Commission] hereby announces its policy not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings. In this regard, the Commission believes that a refusal to admit the allegations is equivalent to a denial, unless the defendant or respondent states that he neither admits nor denies the allegations.”

If a defendant who has agreed to abide by Rule 202.5(e) to obtain a settlement later decides to deny the settled allegations, the SEC can seek to reopen the settled proceedings. But the Rule does not prevent a settling defendant from denying the allegations in other legal proceedings, including separate civil litigation.

The SEC’s “no admit, no deny” policy, which some pejoratively call a “gag rule,” has received increasing attention in recent years, as some defendants who settled with the SEC later contended that the “gag” imposed an unconstitutional condition on their ability to settle and violated their First Amendment rights. The rule also has provoked the ire of groups such as the New Civil Liberties Alliance (the “Alliance”), an organization whose “focus” is “the unconstitutional Administrative State” and whose website asserts that, “[f]or over a century, unlawful administrative power has gradually displaced the Constitution’s avenues for lawmaking and justice.”

The Powell litigation began when the Alliance – on behalf of several people who allegedly had settled with the SEC only because of the financial cost of defending enforcement actions and who now want to deny the charges they settled – filed a petition to amend the SEC’s Rule. The petition contended that the Rule violates the First Amendment, constitutes a content-based infringement on free speech, deprives the public of knowledge about the SEC’s conduct of enforcement actions, and exceeds the SEC’s statutory authority. When the SEC denied the petition, the Alliance and other petitioners sought review in the Ninth Circuit.

The Ninth Circuit panel unanimously denied the petition for review.

Ninth Circuit’s Decision
The Ninth Circuit framed its analysis on “necessarily narrow grounds” because the court was confronting “a facial-type challenge” seeking a ruling that Rule 202.5(e) is “unconstitutional across the board.” The court acknowledged that, “[i]f the SEC utilized Rule 202.5(e) to prevent criticism of the agency, its officers, or its enforcement programs, the Rule would likely raise substantial First Amendment concerns in its application.” But, in the context of a facial rather than an as-applied challenge, “what we have before us is a more discrete and stylized challenge, namely, that it assertedly violates the First Amendment for civil enforcement defendants to agree on a voluntary basis not to deny the allegations against them in return for the SEC agreeing to settle its securities law charges, with the limited remedy that, if the defendant does later publicly deny the allegations, the SEC may return to court with no guarantee that a court will reopen the case.”

Within that narrow framework, the court concluded that the Rule “is not facially invalid under the First Amendment, even though legitimate First Amendment concerns could well arise in a more particularized type of challenge.” The court viewed the rule as “not simply a speech-restricting rule, but a rule that defendants voluntarily accede to in return for substantial benefits.” First Amendment rights, like other rights, can be waived, and a waiver commitment should not be unenforceable unless “the interest in its enforcement is outweighed in circumstances by a public policy harmed by enforcement of the agreement.”

The court articulated several considerations supporting its conclusion that Rule 202.5(e) does not facially violate the First Amendment.

First, the court saw “no basis to conclude that as to all or a substantial number of SEC defendants, their agreement to abide by Rule 202.5(e) is not voluntary, knowing[,] and intelligent.” But the court did not foreclose “an individual defendant in any particular case from later claiming that his agreement to the terms of Rule 202.5(e) was involuntary or unknowing.”

Second, the court saw “a close nexus between the specific interest the government seeks to advance in the [underlying] dispute – proving the allegations supporting its enforcement action – and the specific right waived – the defendant agreeing not to deny those same allegations.” Thus, the Rule does not on its face involve the SEC’s effort to impose a settlement condition unrelated to the matter that the defendant wants to settle. The Rule “gives the defendant a choice: agree to a full compromise of the dispute . . . by declining to deny the SEC’s version of what occurred, or speak out against the SEC’s allegations and permit the SEC to attempt to litigate the facts in the same (reopened) case.”

Third, the court could not say that the SEC’s interest in the Rule was “wholly illegitimate.” If the Commission gives up “the opportunity to present evidence in court, the agency should have the opportunity to pursue that path if a defendant later decides to deny the SEC’s allegations publicly.” Moreover, “[t]he absence of a policy like Rule 202.5(e) could lead the SEC to requiring more outright admissions or settling fewer cases, which may not necessarily be in the interest of civil enforcement defendants.”

Fourth, the court held that the First Amendment does not “foreclose[] the SEC from giving defendants the optionality reflected in Rule 202.5(e).” Although the Rule imposes “a limited speech restriction,” “the remedy for a violation of Rule 202.5(e) is also limited, requiring court sign-off that, if granted, merely puts the parties back in the position they were in before the settlement.” A defendant might therefore decide that accepting a Rule 202.5(e) settlement is better than other options, which could include “agreeing to the SEC’s allegations or litigating instead of settling.”

Implications
As the Ninth Circuit repeatedly emphasized, its ruling is narrow, limited by the nature of a facial challenge. The court could not conclude that Rule 202.5(e) “is per se unconstitutional” or that “a substantial number of [the Rule’s] applications are unconstitutional, judged in relation to the [Rule’s] plainly legitimate sweep.” The Rule thus could withstand a facial challenge.

The Powell decision raises a number of interesting issues that will likely play out in the future.

First, the court cautioned that restrictions on defendants’ speech could require a different analysis in an as-applied challenge based on a particular factual record. The court recognized the risk of chilling legitimate criticism of the SEC and noted the SEC’s assurances that “.[d]efendants who enter into settlements with the Commission remain free to speak about the Commission, enforcement actions, and a host of other topics so long as they do not publicly deny the Commission’s allegations’” against them. The court “question[ed] how easy the SEC’s line will be to police in practice,” but it did not attempt to address those types of fact-specific issues on a facial challenge to the Rule. The issue here was only “whether an agreement allowing the SEC to seek to reopen proceedings upon a defendant’s bare denial of allegations violates the First Amendment." 

If, however, a defendant wants to issue something other than a “bare denial” of the SEC’s allegations, the Ninth Circuit’s analysis in Powell will not necessarily dictate a ruling in favor of the SEC. For example, if a defendant who hopes to settle (or has already settled) with the SEC wants to challenge the SEC’s motive for initiating the proceedings, criticize the manner in which the SEC conducted the proceedings, attack the SEC’s enforcement priorities, complain about alleged political biases, or challenge the SEC’s use of administrative law judges, a court might conclude that such speech is more than a bare denial of the allegations against the defendant and therefore raises matters of greater public interest and greater First Amendment concern.

Second, the Ninth Circuit declined to decide whether “it would be constitutional for the facial restrictions in Rule 202.5(e) to apply in perpetuity.” The court noted that “the government’s interest may wane as time passes,” but it left that issue for “individual cases.” Defendants who agreed relatively long ago to comply with the Rule might therefore contend that the SEC no longer has an interest in enforcing its “no admit, no deny” policy. And, depending on the circumstances, the SEC might decide not to seek to enforce it.

Third, as noted above, the court observed that, without Rule 202.5(e), the SEC might require “more outright admissions” or settle “fewer cases, which may not necessarily be in the interest of civil enforcement defendants.” To the extent the Rule makes settlements easier, that outcome could be in defendants’ interest. Moreover, if the Rule were invalid, the SEC might be more likely to insist on admissions as a condition of settlement – an outcome that would not appear to favor defendants, especially those facing or threatened with parallel civil suits or other related proceedings.