A hedge fund, previously involved in a Securities and Exchange Commission (SEC) enforcement action, has publicly criticized its settlement terms, a move made possible by the recent rescission of the SEC's decades-old "gag rule." This policy had previously barred settling parties from publicly denying the agency's allegations. The criticism from the hedge fund marks one of the first public instances of a settling entity exercising its new freedom to speak out against the SEC's claims post-settlement. This action illustrates a significant shift in corporate accountability and the transparency of regulatory agreements.
The SEC officially ended its "gag rule," formalized by Rule 202.5(e), on May 18, 2026. This policy change, championed by SEC Chairman Paul S. Atkins, was intended to align the SEC with most other federal agencies that do not impose such speech restrictions on settling defendants. Previously, an estimated 2,700 individuals and businesses were silenced between 2017 and 2023 alone, according to the American Securities Association. The rescission means that while defendants can still settle without admitting wrongdoing, they are no longer prohibited from publicly disputing the allegations. The SEC also confirmed it would not enforce no-deny provisions in existing settlement agreements.
Legal experts suggest that this change could lead to harsher settlement terms in the future, as the SEC might include more specific details in settlement orders to preempt public disavowal. For instance, Coates Lear, a former senior enforcement attorney, suggested that the SEC might feel compelled to "quote the email, we have to quote the text messages" in legal documents. There is also a possibility that the SEC could explicitly require admissions in some settlements, particularly those with parallel criminal investigations. While the policy change was supported by figures like Mark Cuban and Elon Musk, some analysts, like Susan Light of Katten Muchin Rosenman LLP, believe it is unlikely to increase the overall number of settlements. The SEC has noted, however, that it hopes this flexibility could incentivize quicker resolutions and expedite the return of funds to harmed investors.
