News

WMHW Alert: SEC Rescinds No-Deny Policy

By Barry W. Rashkover and Amanda Senske

On May 18, 2026, the Securities and Exchange Commission (“SEC” or “Commission”) rescinded an enforcement policy that had been in effect for over fifty years: the policy prohibiting it from settling an enforcement action where the defendant or respondent could deny the findings and allegations.[1] In the policy in question, adopted in 1972 and codified in 17 CFR § 202.5(e), the SEC did not “permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations” in the complaint or administrative order. The Commission’s action rescinds Rule 202.5(e) as well as the requirement in an SEC settlement – sometimes referred to as the “gag rule” – that the settling party not make “any public statement denying, directly or indirectly, any allegation” in the complaint or administrative order, or “creating the impression that the complaint [or order] is without factual basis.”

The repeal of Rule 202.5(e) is straightforward in that it surgically deletes one of the SEC’s informal procedures. Its impact, however, is less certain.

1.Settlement Structure. Most coverage of this policy change has focused on the public statements settling parties now can make about their settlements. Under now-rescinded Rule 202.5(e), settling parties previously could not, for example, issue press releases stating that they denied the SEC’s charges or were settling them simply to conserve resources and avoid the uncertainty of litigation. Although multiple circuit courts upheld the “gag rule” on the ground that the Constitution does not forbid parties from forfeiting constitutional rights, critics claimed that the gag rule nonetheless violated the First Amendment. With the gag rule lifted, Commissioner Hester Peirce, in an accompanying May 18 statement, predicts “what free speech often produces: somewhere between cacophony and euphony–neither terribly pleasing to the ear, not entirely unpleasant to hear.”[2]

But the fundamental structure of SEC settlements likely will change too. Most SEC settlements are on a “neither admit nor deny” basis, meaning that the settlement order or consent specifically provides that the respondent or defendant neither admits nor denies the allegations and findings. Now, it may well be that most settlement orders still contain the “no admit” part, but not the “nor deny” part. As the Rescinding Release says:

[R]escinding Rule 202.5(e) gives the Commission more flexibility in settling enforcement actions, which conserves resources, provides certainty, and may speed the return of money to injured investors (when feasible). The rule precludes the Commission from accepting settlements that lack a no-deny provision, and thus necessarily precludes settlements with defendants who do not wish to waive their rights by signing a no-deny provision that imposes a contractual obligation regarding denials that continues into the future beyond the time of settlement. The rescission of the rule will eliminate this restriction, allowing the Commission to better structure settlements resulting in collectible sanctions that can be returned (where feasible) to injured investors with fewer resources expended.[3]

The SEC explicitly preserves its right to require admissions in some settlements.[4] Will it do so now more frequently? On the other hand, will the SEC include a party’s specific denial of the findings or violations in settlement orders or consents, as some other administrative agencies do? Will the absence of “no deny” language complicate the construction of SEC settlements in other contexts given that the settling parties will still be consenting to the issuance of orders and complaints containing allegations, violations and findings?

2.Settlement Negotiations. Negotiating the language of the charging instrument – usually the order instituting proceedings – is a significant aspect of settling an SEC enforcement action. Parties often go through multiple rounds of negotiations with the SEC Staff attempting to, among other things, (i) soften the harsh edges of the SEC’s findings, (ii) eliminate facts they consider unsupported and unfair, or (iii) delete prejudicial characterizations. Now that settling parties can issue their own separate statements denying the SEC’s charges and disagreeing with the findings, how will that affect the SEC Staff’s willingness to accept parties’ edits to settled charging instruments? Will the SEC Staff dig in and insist on harsh language during negotiations, arguing that the party can say what it wants publicly once the settlement is announced? Aware that the settling party will disagree with the charges publicly, will the SEC Staff bolster their charging instruments with additional facts, details, and even additional charges to bullet-proof their findings against expected public disagreement or to compensate for their lack of control and oversight over post-settlement statements?

3.Prior Settlements. In rescinding Rule 202.5(e), the Commission specifically relieves parties to prior settlements from adhering to their no-deny conditions. “To the extent a settling defendant has previously agreed to a no-deny provision as part of a consent judgment entered in Federal court or administrative adjudicative order before the Commission, and the defendant then breaches the terms of that no-deny provision, the Commission will not seek or attempt to reopen an otherwise settled case.”[5] Whether settling parties will issue statements or otherwise publicly state their views on now-concluded settlements will be a judgment call. It may well be that businesses elect to avoid doing so, preferring not to renew public attention on prior SEC actions against them especially if those enforcement actions occurred long ago. On the other hand, for individuals who settled SEC charges that harmed their reputations and careers, it might make sense to issue statements, including on social media, providing their perspectives on why they settled and how they disagreed with the SEC. In either case, settling parties should carefully evaluate any potential public statements and whether they may have other unintended collateral consequences.

* This Client Alert is provided for informational purposes only and does not constitute legal advice. It should not be construed or relied on as legal advice, or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers.

 

[1] See Press Release, SEC Rescinds Policy Regarding Denials of Settlements in Enforcement Actions, No. 2026-45 (May 18, 2026); https://www.sec.gov/newsroom/press-releases/2026-45-sec-rescinds-policy-regarding-denials-settlements-enforcement-actions, and Final Rule, Rescission of Policy Regarding Denials in Settlements of Enforcement Actions, Rel. Nos. 33-11417; 34-105504; IC-6965; IA-36158 (May 18, 2026), https://www.sec.gov/files/rules/final/2026/33-11417.pdf (“Rescinding Release”).

[2] Statement of Commissioner Hester M. Peirce, Somewhere Between Cacophony and Euphony (May 18, 2026), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-settlements-enforcement-actions-051826 (“Peirce Statement”).

[3] Rescinding Release at 9 (internal footnotes omitted).

[4] Rescinding Release at 9 n.31.

[5] Rescinding Release at 10.