SEC Commissioner Hester Peirce has publicly criticized the US Securities and Exchange Commission’s (SEC) enforcement of a gag rule that restricts defendants’ ability to speak out against allegations following settlements.
Peirce, known as “crypto mom” for her supportive stance on cryptocurrencies, expressed her concerns about the rule, which dates back to a 1972 policy, arguing that it unfairly disadvantages defendants, particularly smaller entities, in comparison to major players like Ripple and Grayscale Investments in legal disputes.
Under this rule, defendants are prohibited from publicly denying allegations post-settlement, with the requirement to either admit to the allegations or remain silent. Peirce highlighted the mandatory nature of this requirement, which compels defendants to retract any statements denying the allegations and imposes penalties for non-compliance.
The New Civil Liberties Alliance (NCLA) proposed a revision in 2018, advocating for defendants to have the option to admit, deny, or neither admit nor deny allegations in civil lawsuits or administrative proceedings.
Peirce emphasized the importance of safeguarding Americans’ right to criticize the government without fear of retaliation and questioned the rationale behind the historical basis of the policy, suggesting that it lacks a solid justification.
The Commissioner raised concerns about the policy’s potential infringement on First Amendment rights, describing it as a “content-specific and permanent restraint” on speech. She also questioned the SEC’s assertion that settling defendants make significant concessions, suggesting that silencing defendants could shield the Commission from scrutiny and accountability.
In her statement, Peirce urged the Commission to reconsider the no-deny rule, either by including it on the rulemaking agenda for review or by eliminating it entirely if deemed excessive.
“Perhaps we can just drop the no-deny rule in the same unceremonious way we adopted it,” she concluded.