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SEC faces lawsuit over ‘gag orders’ in enforcement settlements

Joe Mont | January 16, 2019

The Cato Institute, a libertarian think tank, is suing the Securities and Exchange Commission in federal court to challenge its decades-old policy of imposing “gag orders” on settling defendants in civil enforcement actions.

As a routine condition of settling civil or administrative actions, defendants agree to a promise that they will never publicly contest, challenge, or deny any of the allegations the SEC has made against them—even after the case has been settled and the underlying lawsuit or administrative proceeding dismissed.

The reason, according to the Commission, is to “avoid creating, or permitting to be created, an impression that a decree is being entered or a sanction imposed, when the conduct alleged did not, in fact, occur.”

“The sole purpose of the gag regulation is to affect public perception of the SEC and the SEC’s enforcement activities,” the Cato lawsuit says. “It accomplishes its purpose by restricting constitutionally protected speech—...

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