SEC Rescinds “No-Deny” Settlement Rule: What the Retroactive Change Means for SEC Enforcement Actions and Settlements
May 28, 2026
On May 18, 2026, the SEC rescinded its decades old administrative rule that generally prohibited settling parties from denying the SEC’s allegations. And the rescission applies retroactively to settlements that already have been entered. This is a welcome development, particularly for companies and individuals facing settlement terms that are less onerous than the anticipated costs and distractions of litigation with the SEC.
Key Takeaways:
- End of the “no-deny” rule: The SEC rescinded Rule 202.5(e), which generally prohibited settling parties from publicly denying SEC allegations.
- Retroactive application: The SEC stated it will not enforce existing no-deny provisions in previously executed settlements.
- Alignment with other agencies’ practice: The SEC stated the change aligns its approach with most federal agencies and provides greater settlement flexibility.
- Strategic considerations remain: Companies and individuals facing potential SEC settlements should consult with counsel on (i) how the no-deny rule recission may affect settlement negotiations and (ii) potential collateral consequences of publicly denying SEC findings or allegations.
Background: The Rule 202.5(e) “Gag Rule”
Parties settling SEC enforcement actions typically consent on a without-admitting-or-denying basis. In a small minority of cases, the SEC has required the settling party to admit to the violations. Citing SEC Rule 202.5(e), commonly referred to as the “gag rule,” which was adopted in 1972,1 the SEC required settling defendants or respondents to give up their right to deny the SEC’s allegations or findings—or suggest that they lacked a factual basis—regardless of the merits.2
Critics of the “gag rule” have long argued that it functioned as a content-based speech restriction in violation of the First Amendment because it barred parties indefinitely from publicly disputing the government’s account of their actions.3
The Rescission of Rule 202.5(e)
The SEC explained that “[r]escinding Rule 202.5(e) aligns the Commission with the overwhelming majority of federal agencies that do not have a similar rule and gives the Commission more flexibility in settling enforcement actions, which conserves resources, provides certainty, and potentially expedites the return of money to injured investors.”4 Chairman Paul S. Atkins addressed the criticism of the “gag rule” stating, “‘[s]peech critical of the government is an important part of the American tradition. This rescission ends the policy prohibiting such criticism by settling defendants.’”5 Commissioner Hester M. Peirce issued a statement likewise commenting that “[s]ettlements 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.”6
The SEC’s rescission applies retroactively: the SEC “will not enforce existing no-deny provisions that have already been entered,” and, if parties breach those provisions, the SEC “will take no action to ask a district court to vacate a settlement (or to reopen an adjudicatory proceeding) in connection with the terms of the settlement agreement.”7
In announcing the rule rescission, the SEC reserved the right to negotiate for admissions as part of settlement.8
Practical Implications of the Rescission
The SEC’s rescission may reshape how companies and individuals evaluate, negotiate, and resolve SEC enforcement matters. Parties that previously viewed the no-deny obligation as an unacceptable reputational cost may now find settlement more attractive than protracted litigation. At the same time, when settling parties would be bound by the no-deny policy, they often had additional leverage to negotiate more favorable (or less damaging) language in the SEC charging documents. Although no-denials are off the table, parties should work with counsel to continue to try to negotiate the best language and terms that they can consistent with the evidence. And even though settling parties will now have the flexibility to deny allegations and findings, parties should consult with counsel regarding potential collateral consequences in doing so—e.g., potential risks in private litigation or parallel or other regulatory or governmental investigations.
The retroactive component of the rescission is also significant. Because the Commission has announced it will not enforce existing no-deny provisions or seek to vacate settlements based on a breach of such provisions, parties subject to prior SEC settlements now have greater latitude to comment publicly on the allegations they previously resolved. For all of the reasons discussed above, parties contemplating such statements should consult with counsel before making public statements about either prior settlements or settlements entered into going forward.
1 Consent Decrees in Judicial or Administrative Proceedings, 37 Fed. Reg. 25224 (Nov. 29, 1972).
2 SEC settlement agreements typically include a carve-out that permitted settling parties to testify truthfully and—in litigation and legal proceedings with parties other than the SEC—to take legal or factual positions that are contrary to the SEC’s allegations or findings.
3 See, e.g., Commissioner Hester M. Peirce, Unsettling Silence: Dissent from Denial of Request for Rulemaking to Amend 17 C.F.R. § 202.5(e) (Jan. 30, 2024), https://www.sec.gov/newsroom/speeches-statements/peirce-nand-013024.
4 See Press Release, U.S. Sec. & Exch. Comm’n, SEC Rescinds Policy Regarding Denials of Settlements in Enforcement Actions (May 18, 2026), https://www.sec.gov/newsroom/press-releases/2026-45-sec-rescinds-policy-regarding-denials-settlements-enforcement-actions (“Press Release”).
5 Id.
6 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.
7 Press Release.
8 Id.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Jim Bowman, an O’Melveny partner licensed to practice law in California; Mark A. Racanelli, an O’Melveny partner licensed to practice law in New York; Andrew J. Geist, an O’Melveny partner licensed to practice law in New York; Mia N. Gonzalez, an O’Melveny partner licensed to practice law in New York; Michele W. Layne, an O’Melveny of counsel licensed to practice law in California; Kathleen Gould, an O’Melveny counsel licensed to practice law in New York; and Faustino S. Galante, an O'Melveny associate licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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