SEC rescinds – A long-running fight over an SEC settlement condition that barred defendants from publicly denying the agency’s allegations has reached the Supreme Court—while the SEC rescinded the challenged policy in May, setting up a new fight over whether the case is moot
By the time the justices meet privately this week, the dispute at the center of a First Amendment challenge could look radically different than it did just months ago.
For decades. beginning in 1972. Securities and Exchange Commission settlement agreements included a condition unique enough to become the focus of litigation: defendants had to agree not to publicly deny the SEC’s allegations. If a defendant broke that “no-deny provision. ” as the SEC called it. the commission could return to the court overseeing the settlement and reopen the case. Critics often called it a “gag rule.”.
In 2018, the New Civil Liberties Alliance—describing itself as “a nonpartisan, nonprofit civil rights group founded … to protect constitutional freedoms from violations by the Administrative State”—petitioned the SEC to amend the provision. The group argued the condition violated the First Amendment’s guarantee of free speech. Five years later, without any response from the commission, the NCLA renewed its petition, this time with several additional challengers.
The SEC answered in January 2024, denying the petition to amend the rule. Although one commissioner dissented, the commission majority concluded the no-deny provision was both necessary and constitutional. In its reasoning. the SEC said “a large body of precedent” supports the idea that a defendant can waive constitutional rights as part of a civil settlement—“just as a criminal defendant can waive constitutional rights as part of a plea bargain.”.
The challengers took their fight to the U.S. Court of Appeals for the 9th Circuit, arguing the no-deny rule was unconstitutional on its face. They also said the SEC violated the law governing administrative procedure when it put the condition in place.
In August 2025, the 9th Circuit denied their petition for review. The court echoed the SEC’s view. holding that “[t]he law has long regarded the voluntary relinquishment of constitutional rights as permissible. so long as appropriate safeguards are attached.” But the appellate court also suggested the First Amendment concerns might be addressed through narrower “as-applied challenges. ” adding that it did not seek to “minimize petitioners’ concerns. ” and that their constitutional questions would be “properly addressed” in specific circumstances rather than through a facial challenge.
Then came the Supreme Court filing. In March. the challengers petitioned for review. asking the justices to take up the case and hold that the provision violates the First Amendment. In their brief. they wrote that the ban forces Americans to take “unspoken grievances” against the agency “to their graves. ” and that the First Amendment prohibits what they called “that most un-American result.”.
They described the policy as “virtually unprecedented,” and they linked it to the real-world pressure of SEC enforcement. The challengers said the SEC’s actions can drag on for years and that the settlement process extracts a personal. financial. and reputational toll. They pointed to what they described as the scale of the problem. saying “[t]he SEC’s enforcement actions often drag on for years” and that “Running this gauntlet inflicts an enormous personal. financial. and reputational toll on the SEC’s targets.” They also argued the burdens are so great that “98% of those charged by the SEC—often despite vigorously asserting their innocence and objecting to the agency’s actions—are ultimately forced to capitulate through settlement.”.
The timing of the next move turned the case into something else. In May—two months after the petition for review was filed—the SEC rescinded the challenged rule. The commission acknowledged that the policy “may have created an incorrect impression that the Commission is trying to shield itself from criticism.”.
That development fed directly into the government’s argument that the case should be dismissed. In a brief responding to the petition, U.S. Solicitor General D. John Sauer argued the rescission makes the dispute moot. He acknowledged that “a party cannot ‘automatically moot a case’” just by changing a policy. but wrote that a case becomes moot when the relevant practice “cannot reasonably be expected to recur. ” which he said is true of the SEC’s decision.
Sauer also argued that even before the rescission. the case was not the kind of dispute the Supreme Court should prioritize. He said it does not meet the court’s usual criteria. including because the 9th Circuit’s decision “does not conflict with any decision of this Court or another court of appeals.”.
The challengers responded sharply. In their reply brief. they argued the rescission “tells the Court everything it needs to know about the certworthiness of the question presented.” They said agencies do not vacate longstanding rules the moment litigation reaches the Supreme Court unless they are “gravely concerned” about the justices’ likelihood of review and their ability to defend the rules “on the merits.”.
They also maintained the case is not moot because the government offered no meaningful assurance that a future SEC will not revive the “Gag Rule.”
One practical shift has already occurred: if the SEC is no longer using the rule. the fight over the policy’s constitutionality may seem. at least on the surface. like a question about the past. But the challengers’ demand is that the law must be tested now—before the condition can return quietly behind new wording.
Powell v. Securities and Exchange Commission is expected to be considered by the justices for the first time at their private conference on Thursday.
SEC gag rule no-deny provision First Amendment Supreme Court 9th Circuit civil settlement mootness