The U.S. Supreme Court on Monday declined to review a constitutional challenge to a former Securities and Exchange Commission policy that barred defendants who settled enforcement matters from publicly contesting or criticizing the agency's claims. The justices issued the order without comment, leaving in place the lower-court rulings that had considered the question of whether the SEC's so-called gag rule infringed defendants' First Amendment rights.
The legal dispute traced back to enforcement actions against Thomas Powell. According to the filings, the SEC accused Powell in 2021 of making misrepresentations and omissions tied to more than a dozen unregistered oil and gas securities offerings. To resolve the matter, Powell agreed to a settlement that required him to pay a $75,000 civil penalty; his affiliated firm separately paid a penalty as part of the same resolution.
As part of that settlement, Powell consented neither to admit nor to deny the SEC's allegations. The agreement also contained a provision that prohibited him from publicly denying wrongdoing. Attorneys representing Powell from the New Civil Liberties Alliance described that restriction as "rank censorship."
The SEC's contested policy had been on the books since 1972. Over the years, public critics argued that the rule curtailed defendants' free-speech rights. High-profile voices had questioned the practice, and the issue drew renewed attention when the SEC declined a petition seeking to modify the policy in 2024.
In a significant policy shift in May, the SEC rescinded the gag rule. Chairman Paul Atkins commented that the policy had suppressed the ability to criticize the government, calling that ability a fundamental American right. The Commodity Futures Trading Commission moved to rescind its analogous policy the following month; that rule had been in effect since 1998.
In court papers, the SEC told judges that its decision to revoke the policy rendered Powell's constitutional challenge moot. Powell's attorneys responded that administrative revocation provided no reliable safeguard against future reinstatement. As they argued in filings, "Agency rules that can be rescinded overnight can be reinstated overnight. The government provides no meaningful assurance that a future SEC will not revive the Gag Rule."
Context and implications
With the Supreme Court declining review, the immediate legal challenge will not proceed at the high court level. The SEC's rescission removed the specific policy at issue, but the dispute highlighted tensions between regulatory settlement practices and free-speech claims brought by defendants in enforcement matters.