The SEC’s Elimination of the “No Deny” Rule: The Good, The Bad, and The Ugly

The U.S. Securities and Exchange Commission (“SEC” or “Commission”) has formally rescinded one of the most controversial aspects of modern securities enforcement: its longstanding policy that prohibited settling defendants from publicly denying the SEC’s allegations.

For more than fifty years, the SEC required most settling parties to agree not to publicly deny the allegations underlying an enforcement action. Although defendants typically were not required to admit wrongdoing, they also could not publicly assert their innocence after settlement without risking consequences from the Commission.

The former rule was a product of compromise: companies and company officials could not afford to admit to securities law violations where such admissions could then be used to support liability in litigation with class action plaintiffs or others, and the SEC did not want to allow parties to settle and then publicly declare the factual findings in the settlement documents to have been false or overstated. Hence the compromise that, in a settled context, the settling party could “neither admit nor deny” the SEC’s factual findings.

Although the foregoing are the most-frequently cited reasons for the rule, its origins are a little more complex. Before 1972, the SEC had already begun entering into consent decrees in which defendants neither admitted nor denied allegations. This was tied to the fact that, at the time, the SEC’s enforcement powers were not as extensive as they are today (e.g., the SEC lacked the ability to impose financial penalties and had only recently persuaded courts to permit it to obtain the equitable relief of disgorgement in insider trading cases, in SEC v. Texas Gulf Sulphur Co., 312 F.Supp. 77 (S.D.N.Y. 1970)). Accordingly, the Commission’s enforcement actions focused on curbing future misconduct by obtaining access to the federal courts’ contempt powers. Once a federal court enjoins a defendant from future violations, if that defendant later engages in the same conduct, the SEC can move to have the Court hold the defendant in contempt through a summary action rather than going through an entire litigation, including potentially a jury trial.[1]

The “no denial” portion of the regulation stated that it was the SEC’s policy “not to permit a defendant to consent to a judgment or order that imposes a sanction while denying the allegations in the Complaint or order for proceedings ... [and] ... a refusal to admit the allegations is equivalent to a denial, unless the defendant or respondent states that he neither admits nor denies the allegations.” 17 C.F.R. § 202.5(e). In agreeing to such settlements, however, the SEC also acknowledged that this requirement did not affect a settling party’s “testimonial obligations” or “right to take legal or factual positions in litigation or other legal proceedings in which the Commission is not a party.” Accordingly, although the policy did not tie parties’ hands in litigation with non-SEC parties, it still represented a straightforward prior restraint on a party’s free speech rights under the Constitution’s First Amendment. The SEC’s free speech restriction was the subject of a Ninth Circuit case that has been pending review before the U.S. Supreme Court and had the potential to result in an SEC loss (although the SEC won at the Ninth Circuit). Powell v. SEC, 149 F.4th 1029 (9th Cir. 2025).[2] That case may now be moot. Under the SEC’s new approach, settling defendants may publicly criticize the SEC’s allegations, dispute the agency’s factual and legal assertions, and maintain their innocence even after paying penalties and resolving enforcement actions.

This represents a significant philosophical and strategic shift in securities enforcement.

Settling Companies May Be More Likely to Publicly Push Back Against the SEC

Historically, many SEC settlements concluded with carefully crafted press releases from both sides. The SEC would announce serious allegations, while the settling company would issue a neutral statement indicating it was “pleased to resolve the matter” without admitting or denying wrongdoing.

Now, settling companies may become far more vocal. Corporate executives and companies may publicly challenge the SEC’s legal theories and factual assertions, criticize the agency’s investigative methods, claim that the SEC overreached, assert that economic considerations rather than guilt drove settlements, and frame settlements as pragmatic business decisions rather than admissions of misconduct.

SEC Settlements May Become More Common

Paradoxically, allowing defendants to publicly deny allegations may increase the number of settlements. One of the major concerns for companies and executives has been reputational damage. Even without admitting liability, the inability to publicly defend their actions created significant pressure.

Companies may now feel more comfortable settling if they can preserve their reputations, reassure shareholders, maintain business relationships, and defend management publicly. This could allow the SEC to resolve cases more quickly and return funds to harmed investors sooner.

Companies May Find Themselves With Liability of a Different Kind

A company may settle with the SEC, pay millions in penalties, accept compliance reforms, and still publicly insist that the SEC’s allegations are incorrect. However, if it does so, such statements had better be defensible. While companies previously were standing on solid ground in issuing a “no admission, no denial” statement (because the SEC explicitly stated that they could do so), if they now say something that the SEC (or investors) can show to be materially misleading, this opens the company up to new investigations, litigation, and potential liability.

The SEC Is Trying to Address Criticism About Fairness and Free Speech and May Be Signaling a Broader Policy Shift

Chairman Paul S. Atkins framed the rescission as a free speech issue. Critics long argued that the old rule effectively forced defendants to surrender First Amendment rights as a condition of settlement. The SEC acknowledged that the policy may have created the appearance that the agency was attempting to shield itself from criticism.

This policy change likely also reflects a broader philosophical shift within the SEC under Chairman Atkins. The Commission appears to be emphasizing procedural fairness, reduced coercive settlement pressure, greater tolerance for criticism, and more flexible enforcement resolution mechanisms.

This may influence negotiation posture, Wells process dynamics, cooperation discussions, settlement timing, and litigation strategy. This development may turn out to be one of the most consequential settlement policy changes in decades.

The Result May Not Be Better for Settling Executives and Companies

The SEC was the only federal agency with a no denial policy. Thus, in rescinding this portion of its rules, the SEC conforms its approach to that followed by the rest of the federal government, whose other agencies do not appear to have ever felt the need to enact such a policy. Those agencies, however, are also far less willing than the SEC has historically been to present a negotiated or balanced statement of facts. Companies and executives may well find that future settlements will contain factual summaries that include the worst of the allegedly violative conduct, written with a much more negative slant and including a great deal of specific factual support, in order to insulate the settlements from later criticism.

Public Relations and Crisis Management Will Become More Important

Corporate communications strategy will now play a much larger role in SEC matters. After settlements, companies may issue detailed statements challenging the SEC’s narrative, explaining their defenses, minimizing alleged misconduct, or criticizing investigative tactics.

As a result, investor relations teams, crisis communications firms, boards, outside counsel, and D&O insurers will become more involved in post‑settlement messaging. The battle may increasingly shift from the courtroom to the court of public opinion.

Companies Must Be Careful Not to Overplay Their Hand

Although the SEC will no longer enter into or enforce no‑deny provisions, companies should not assume there is no risk in aggressively attacking the agency publicly. Potential risks include damaging long‑term relationships with regulators, inviting additional scrutiny, creating tensions during future examinations or investigations, and undermining credibility with investors or courts.

Sophisticated companies will likely adopt calibrated messaging that resolves the matter, explains their disagreement respectfully, and avoids unnecessarily inflammatory attacks on regulators.

Conclusion

The SEC’s policy revision is likely long overdue. Advocates appearing before the SEC, their clients at public companies and regulated firms, and even current and former SEC commissioners have noted the free speech implications of the prior rule, and clients have chafed at the prohibition on their ability to tell their side of the story. Even favorable resolutions could appear, from the outside, to have arisen from egregious conduct when a one-sided version of the facts persisted without rebuttal. Even with the caveats mentioned above, and even if not all settling parties choose to be vocal about their circumstances, the new policy is more in line with the American tradition of open discourse without fear of government reprisal.