The US Supreme Court has declined, without issuing an opinion, to hear a First Amendment-based challenge to the Securities and Exchange Commission’s longstanding gag rule—an action that leaves the future of this controversial policy unresolved. Although the SEC formally repealed the rule in May, the Court’s decision does not fully settle the constitutional debate surrounding the Commission’s historical efforts to bar settlement participants from publicly denying allegations.
The 50 year policy and the legal battle
Since 1972, rule 202.5(e) prohibited those settling SEC enforcement actions from publicly denying the Commission’s allegations. This policy remained in place for nearly five decades. The New Civil Liberties Alliance described the rule as a form of unconstitutional censorship.
The legal battle was led by the New Civil Liberties Alliance on behalf of Thomas Powell, who entered a settlement with the SEC in 2021 regarding unregistered oil and gas securities offerings. As part of the agreement, Powell paid a $75,000 penalty and accepted a clause preventing him from publicly refuting the charges against him.
The New Civil Liberties Alliance commented in its response in early June that rules which can be removed overnight can also be reinstated just as quickly, arguing the government failed to guarantee the gag order would never return.
In reply, the SEC asserted that because it withdrew the gag rule in May, Powell’s legal challenge was now moot. Nevertheless, the plaintiffs urged the Supreme Court to address the case and make it clear federal agencies—and the SEC in particular—cannot force Americans to waive their First Amendment rights to free expression as a prerequisite to settlement.
Possible impact for crypto companies
This dispute holds particular relevance for the cryptocurrency industry, where numerous companies in recent years have settled with the SEC under similar conditions. Many such firms have been unable to publicly respond in detail to allegations due to the former gag clauses. The SEC announced in May that it would not reopen past settlements for this reason.
In June, the Commodity Futures Trading Commission (CFTC) also repealed its version of the rule—first implemented in 1998—and stated that it would not enforce non-denial clauses from previous settlements. The CFTC is recognized as the federal regulator overseeing US derivatives markets.
| Agency | Regulation status | Date |
|---|---|---|
| SEC | Repealed gag rule | May |
| CFTC | Repealed similar rule | June |
The SEC has also acknowledged shortcomings in its previous cryptocurrency enforcement approach, dropping seven lawsuits including cases against Coinbase, Binance, and Kraken. However, as the Supreme Court declined to make a binding decision, there remains a legal path for future administrations to potentially reinstate the gag rule.
When withdrawing its policy, the SEC indicated it would not revisit previous settlements and stated that parties are now free to publicly comment on their cases if they wish.
As a result, whether individuals who settled with the SEC under prior rules will openly contest those historical allegations remains uncertain. The underlying constitutional issue continues to lack a definitive Supreme Court precedent, leaving the legal status of such settlement conditions unresolved.
