Sunshine on Settlements: The SEC Rescinds Its Decades-Old "No-Deny" Settlement Policy

Holland & Knight continues its SECond Opinions Blog Summer Series featuring posts written and researched by the associates from our Securities Enforcement Defense Team. This blog comes from Houston Associate Katia Leiva, who focuses her practice on complex litigation, including breach of contract, medical negligence, consumer disputes, employment, wrongful death, shareholder disputes, and oil and gas/maritime litigation.

Defendants settling SEC enforcement actions have long been bound by a significant restriction: a promise not to publicly deny the SEC's allegations. On May 18, 2026, that changed when the SEC officially rescinded Rule 202.5(e), the regulation that codified this "no-deny" policy, marking a fundamental shift in how the SEC approaches settlements. This blog post examines the history of the no-deny policy, reasons behind its rescission and what this change means for SEC enforcement practices going forward.

Background and History

Since 1972, the SEC has required defendants who settle enforcement actions to refrain from publicly denying the agency's allegations. This policy was codified in Rule 202.5(e) of the SEC's rules of informal procedure. The rule reflected the SEC's view that "it [was] important to avoid creating, or permitting to be created, an impression that a decree [was] being entered or a sanction imposed, when the conduct alleged did not, in fact, occur."

The purpose was straightforward: A settlement foreclosed the SEC's ability to obtain findings of fact and conclusions of law through litigation. A defendant who later denied the SEC's allegations could therefore create the "incorrect impression" that there was no basis for the enforcement action. But by that point, the SEC would no longer have an opportunity to prove its allegations in court. Thus, the policy was largely in place to ensure that by settling, the SEC did not give up its ability to prove its allegations. As the U.S. Court of Appeals for the Ninth Circuit later described it, the SEC's valid interest in the rule was "more mechanical" than simply silencing critics: "if a defendant want[ed] to deny the allegations, the SEC want[ed] to be able to prove those allegations."¹ Perhaps more broadly, the SEC no doubt wanted to prevent defendants from publicly challenging unproven allegations against them and countering with their own explanations and evidence, thereby calling the very basis of the SEC's actions into question.

In practice, no-deny provisions were typically paired with a statement that the defendant was also not admitting the SEC's allegations or liability – the familiar "no-admit/no-deny" framework. More specifically, defendants agreed not to make "any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint [was] without factual basis." This often proved challenging in practical application and, nonetheless, the provisions did not prevent defendants from taking inconsistent legal or factual positions in litigation to which the SEC was not a party, such as parallel civil actions. The provisions further did not apply to testimonial obligations.

In terms of enforcement, the SEC's only recourse for a violation of the former no-deny prohibition was to request that a court vacate the settlement agreement so that the SEC could prove its allegations. However, the SEC confirmed in its statement announcing the seismic policy shift that, in fact, "there is no known instance of the [SEC] seeking to reopen an administrative or civil proceeding as a consequence of a defendant or respondent violating a no-deny provision to which they have consented."

Even without prior effort to enforce it, the no-deny policy faced mounting legal challenges in recent years. Defendants and nonparties alike challenged the provisions as violating First Amendment free speech rights. Defendants further argued the SEC failed to comply with the Administrative Procedure Act in adopting the policy. In 2018 and again in 2023, a petitioner submitted a petition for rulemaking asking the SEC to amend Rule 202.5(e) to allow defendants to admit, deny, or neither admit nor deny allegations. Though the SEC denied the petition, Commissioner Hester M. Peirce issued a dissent at that time, reasoning that the policy was unnecessary, undermined the SEC's integrity and raised First Amendment concerns. Meanwhile, circuit courts weighed in with differing perspectives: The U.S. Courts of Appeal for the Second and Ninth Circuits upheld the policy's constitutionality, while two judges in the U.S. Court of Appeals for the Fifth Circuit questioned whether it passed constitutional muster.²

The Policy Change

On May 18, 2026, the SEC officially rescinded Rule 202.5(e), effective May 21, 2026. SEC Chairman Paul S. Atkins announced: "For more than 50 years, the Commission has conditioned settlement on a defendant's promise not to publicly deny the Commission's allegations." Chairman Atkins went on to note that "[s]peech critical of the government is an important part of the American tradition" and that the rescission functioned to end the policy prohibiting such criticism by settling defendants.

The SEC articulated several reasons supporting the rescission.

First, the benefits and only available remedy under the policy proved over time to be limited at best, with no known instances of the SEC ever actually seeking to reopen a case following a violation of the provision. Along those lines, the nature of passing time made it less likely that the SEC would seek to invoke its limited remedy or that a court would be receptive to reopening such a case. Second, changes in technology, and particularly the increasing use of social media, made the policy more difficult to implement, as the line between public and private statements has become increasingly blurred (not to mention what might actually qualify as a "denial" versus a distinction, characterization or explanation – an issue individuals and companies have long grappled with). Third, the elimination of the rule positions the SEC more closely with most federal agencies, including the U.S. Department of Justice, that do not have a comparable policy. Fourth, with the rescission of the rule, the SEC now has more flexibility to settle enforcement actions, allowing it to conserve resources, provide certainty and potentially expedite the return of money to damaged investors.

Additionally, the SEC acknowledged that the negative effect on the public interest from public denials "may be minimal and that the policy itself may have created the incorrect impression that the Commission was trying to shield itself from criticism." For her part, Commissioner Peirce – who has announced she will depart the SEC – praised the end of what had come to be seen as a policy tantamount to an unfair gag order, stating: "This result is good and brings the Commission into alignment with nearly every other part of the federal government. Settlements shrouded in forced silence by the non-governmental party do not serve either the markets or the Commission's investor-protection mission. To the contrary, people's freedom to speak against the government contributes to its ability to govern well."

The rescission is both prospective and retroactive: The SEC announced that it will not enforce existing no-deny provisions or take action to seek reopening of proceedings in the event of a breach.

Importantly, the rescission does not affect the SEC's practice related to requiring outright admissions in certain settlements, meaning the SEC maintains its discretion to negotiate for admissions as part of a settlement agreement, likely in cases presenting egregious allegations of fraud.

Why It Matters

The rescission marks a significant philosophical shift in how the SEC approaches enforcement resolutions. Through the elimination of the gag order effect of the no-deny policy, settling defendants may now publicly contest the SEC's version of events – something that was previously off-limits for those who wished to resolve their cases without a full trial.

The rescission also eliminates what many perceived as a First Amendment concern, aligning the SEC's approach with core American traditions of permitting criticism of the government.

Questions of how the revised policy will play out in practice, of course, remain. For instance, will the SEC seek tougher charges or admissions in settlements going forward knowing that the settling parties are likely to speak publicly about the settlement? Will settling parties feel compelled to issue statements against the settlement or Commission? For public companies, how will shareholders expect issuers to message the settlement, and how might the market interpret silence?

Potential Impact on Bifurcated Settlements

One particularly intriguing question raised by the policy shift to now allow defendants to publicly deny allegations leveled against them after settling with the SEC involves how the agency's enforcement staff and defense bar will approach bifurcated settlements – arrangements in which a defendant agrees to resolve the issue of liability but leaves the determination of whether and to what extent to order remedies to the court (such as the dollar amount of disgorgement or civil penalties). In a bifurcated settlement, the defendant does not admit wrongdoing but agrees that the court will treat the SEC's allegations as true for purposes of the briefing on what the appropriate remedies should be.

But the end of the no-deny policy raises a fundamental question in this context: If defendants are no longer contractually barred from publicly denying the SEC's allegations, should they equally be permitted to deny or challenge those allegations before a court – a public forum – as it considers whether and to what extent to impose remedies on a defendant who has agreed to resolve the issue of liability without admissions? Under the old framework, the no-deny provision would have prevented a defendant from publicly contesting the factual basis of the SEC's complaint. With that restriction removed, defendants in bifurcated settlements should push for equal latitude to argue to the court that the SEC's alleged facts are wrong, overstated or incomplete – thereby seeking to avoid or mitigate an order imposing remedies on the basis of unadmitted, unproven allegations.

This could reshape how courts approach the remedies phase in bifurcated settlements. If a defendant can now publicly challenge the SEC's factual allegations before the court, it may complicate what has traditionally been a more streamlined remedies determination. A defendant who is free to dispute the SEC's facts during the remedies phase could introduce additional contested issues that were previously foreclosed, potentially leading to longer proceedings, greater evidentiary disputes and less predictability in outcomes.

The SECond Opinions Blog will continue to monitor developments related to SEC settlement practices and cases involving bifurcated settlements in light of this policy change and provide updates. If you need additional information on this topic – or any topic related to securities enforcement or investigations – please contact the authors or other members of Holland & Knight's Securities Enforcement Defense Team.

Notes

¹ Powell v. SEC, 149 F.4th 1029, 1044 (9th Cir. 2025).

² Compare Powell v. SEC, 149 F.4th 1029 (9th Cir. 2025), and SEC v. Romeril, 15 F.4th 166 (2d Cir. 2021), with SEC v. Novinger, 40 F.4th 297, 308 (5th Cir. 2022) (Jones, J., joined by Duncan, J., concurring) ("If you want to settle, SEC's policy says, 'Hold your tongue, and don't say anything truthful – ever' – or get bankrupted by having to continue litigating with the SEC. A more effective prior restraint is hard to imagine.").