US SEC Scraps Longstanding ‘No-Deny’ Settlement Policy
The Securities and Exchange Commission has ended a 50-year practice requiring defendants to refrain from publicly denying allegations, a move Chairman Paul S. Atkins says conserves resources and upholds free speech traditions.
The US Securities and Exchange Commission has officially rescinded Rule 202.5(e), terminating a longstanding policy that required defendants in enforcement actions to agree not to publicly deny allegations as a condition of settlement. The rule, codified in the Commission’s informal rules of procedure, had conditioned settlements on a defendant’s promise not to challenge the facts or liability outlined in complaints or administrative orders.
SEC Chairman Paul S. Atkins announced the change, stating that the rescission aligns the Commission with the overwhelming majority of other federal agencies that do not maintain similar prohibitions. Atkins noted that the previous policy may have created an incorrect impression that the regulator was attempting to shield itself from criticism, asserting that speech critical of the government is an important part of the American tradition.
The Commission indicated that ending the rule provides greater flexibility in settling enforcement actions, which it argues will conserve resources, provide legal certainty, and potentially expedite the return of money to injured investors. Atkins highlighted that for more than 50 years, the Commission had conditioned settlements on these non-denial agreements, but the modern regulatory landscape no longer necessitates such restrictions.
In a significant clarification for market participants, the Commission confirmed it will not enforce existing no-deny provisions that have already been entered into. The regulator stated there is no known instance of seeking to reopen an administrative or civil proceeding due to a breach of such a provision. Consequently, the Commission will not ask district courts to vacate settlements or reopen adjudicatory proceedings in connection with breaches of these terms.
The rescission does not alter the Commission’s general practice of not requiring settling defendants to admit to allegations or liability. The Commission retains its discretion to negotiate for admissions as part of a settlement, but the removal of Rule 202.5(e) ensures that the inability to deny allegations is no longer a mandatory barrier to resolving enforcement actions.
