SEC rescinds decades-old “no-deny” settlement policy: Practical implications

The United States Securities and Exchange Commission (SEC) issued a new final rule on May 18, 2026, formally rescinding Rule 202.5(e) of its rules of informal procedure.

In place for more than 50 years, Rule 202.5(e) required defendants settling enforcement actions to agree not to publicly deny the SEC’s allegations. The “no-deny” policy – sometimes called a public “gag order” – had the potential to hamstring defendants who, following an SEC settlement, faced public relations issues or questions from stakeholders about the same “facts” but could not deny them, even if they weren’t true.

The rescission is one of the most significant changes to SEC enforcement settlement practice in decades. In this alert, we discuss key elements of this development and practical implications for market participants.

Background

Since 1972, the SEC conditioned the settlement of enforcement actions on a defendant’s agreement not to publicly deny the allegations, regardless of whether the SEC had proven (or even could prove) those allegations in court.

The new final rule recognizes the practical realities involved when an individual or company chooses to settle a matter with the SEC, including that 1) the choice to settle often involves cost or other business concerns and 2) settlement should not be taken in every case as an implicit agreement with the allegations in the SEC’s complaint or administrative order.

The rescission comes amid increasing legal challenges to the policy, including arguments that the SEC conditioned settlement on waiving core First Amendment rights. Nevertheless, in recent years, the US Courts of Appeals for the Second and Ninth Circuits upheld the policy, finding that parties may voluntarily waive constitutional rights in settlements.

Key elements of the rescission

The rescission has two critical components:

• First, the SEC will no longer condition prospective settlement agreements on a promise not to deny the SEC’s allegations.
  
  
• Second, with respect to settlements already entered, the SEC will not enforce existing no-deny provisions. Specifically, in the event of a breach of an existing no-deny provision, the SEC “will take no action to ask a district court to vacate the settlement (or to reopen an adjudicatory proceeding).”

The SEC’s rationale

The SEC identified several reasons for the rescission:

• Free speech: In announcing the rescission, SEC Chairman Paul S. Atkins framed the decision in constitutional terms, stating: “Speech critical of the government is an important part of the American tradition. This rescission ends the policy prohibiting such criticism by settling defendants.”
  
  
• Minimal public interest impact: The SEC determined that post-settlement denials have only a minimal negative impact on the public interest. It also recognized that the policy may have created the incorrect impression that the agency was trying to shield itself from criticism.
  
  
• Limited benefits and practical use: The SEC noted that it is not aware of any instance in which it sought to reopen a case because of a no-deny provision violation. The rescission also aligns the agency with the overwhelming majority of federal agencies that do not impose a comparable no-deny policy in negotiated resolutions.
  
  
• Broader policy context: The SEC under Chairman Atkins has prioritized clarifying the enforcement process. The rescission of the no-deny policy reflects the latest in a series of recent announcements addressing revised SEC enforcement policies and priorities, including the recent overhaul of the SEC Enforcement Manual.

Practical implications

The rescission creates potential new risks for market participants and provides new opportunities to consider during the settlement process. Parties weighing settlement with the SEC – and previously settled defendants who may now wish to speak publicly about the allegations against them – may carefully consider the following implications.

• Settlement dynamics: The removal eliminates what certain defendants may have viewed as a meaningful barrier to settlement. Parties who may have been reluctant to enter settlement discussions because of the no-deny requirement can now reconsider whether settlement offers a more favorable outcome than litigation. The rescission also opens a new strategic avenue: the bifurcation of liability and remedies is now potentially a more attractive option. Specifically, should the respondent choose to settle the underlying allegations, there should now be the ability to make denials about those same allegations when litigating the remedies. The SEC reaffirmed its general practice of not seeking admissions from settling defendants, and the rescission does not alter the agency’s discretion regarding admissions; it may continue to settle on a no-admit basis, and may still negotiate for admissions where it deems appropriate, particularly in matters involving a parallel criminal proceeding. Nevertheless, how the rescission will affect the SEC’s settlement negotiation strategies going forward remains an open question.
  
  
• Post-settlement communications: Going forward, defendants who settle or have previously settled enforcement actions will not be restricted from publicly denying the allegations against them. However, those involved with settlements without no-deny provisions are encouraged to still carefully consider the risks posed by providing public denials or making public statements concerning the underlying investigation. If a public company or regulated entity speaks on its enforcement history, it can’t mislead or speak in half-truths. Attempting to characterize an investigation led by SEC staff – either in process or substance – may unexpectedly cross a line into whose truth the company is, in good faith, trying to explain. Making materially false or misleading statements regarding the settled action could lead to renewed scrutiny. For publicly traded companies, this may affect how they communicate with investors, analysts, and the public about settled regulatory matters. Accordingly, public relations strategy may become more central to securities defense practice.
  
  
• Parallel litigation considerations: Companies and individuals settling with the SEC should remain mindful that public statements may have implications in parallel private litigation, regulatory proceedings by other agencies, and other contexts. Defendants may consider framing settlements as pragmatic business resolutions rather than indicators of liability.
  
  
• Existing settlements: Those with existing settlements containing no-deny provisions are encouraged to consult with counsel before making public comment on prior matters. Entities should consider related obligations arising from their settlement agreements – such as cooperation requirements, representations made to the SEC, and ongoing disclosure duties – as well as the possibility of future SEC policy reversion before taking such a step.

Defendants may now publicly challenge SEC allegations. However, any public statements should be carefully reviewed for accuracy and for any unintended consequences they may create.

Conclusion

The SEC’s rescission of its no-deny settlement policy fundamentally changes the enforcement settlement landscape and reflects the latest in a series of policy shifts under the current leadership.

Parties currently in or contemplating settlement discussions with the SEC's Division of Enforcement may want to reassess their negotiating posture in light of this development and consider new strategic options, including the bifurcation of liability and remedies.

Companies and individuals who previously settled enforcement actions under the prior regime should carefully consider the implications – including related obligations arising from their settlement agreements and the possibility of policy reversion – before making public statements about underlying allegations.

For more information, please contact the authors.