Supreme Court Rejects Bid to Review SEC’s Rescinded ‘Gag Rule’

The US Supreme Court refused to review the constitutionality of a now-rescinded Securities and Exchange Commission policy that forced people and companies settling enforcement cases to never publicly criticize or contest the Wall Street watchdog’s claims.

The justices without comment on Monday turned away a constitutional challenge over whether the SEC’s so-called gag rule violated individuals’ rights.

The justices declined to hear arguments from Thomas Powell, who was accused by the SEC in 2021 of making misrepresentations and omissions in connection with more than a dozen unregistered oil and gas securities offerings. Powell agreed to pay a penalty of $75,000 to end the case. His firm agreed to a separate penalty.

The settlement included a provision that he neither admitted to nor denied the SEC’s allegations. As part of the deal, he could never publicly deny wrongdoing. The provision amounted to “rank censorship,” his attorneys from the New Civil Liberties Alliance said.

The SEC enacted the so-called “gag rule” in 1972. It had drawn criticism — including from Elon Musk and Mark Cuban — that the policy takes away defendants’ First Amendment rights. The SEC in 2024 rejected a petition to change its policy.

The SEC in May reversed course, rescinding the half-century old policy, with Chairman Paul Atkins saying the gag rule squashed the ability to criticize the government, a fundamental American right.

The Commodity Futures Trading Commission, a fellow Wall Street regulator, followed suit the following month, rescinding its own policy that had been in place since 1998.

The SEC argued that its revocation of the policy made Powell’s arguments moot.

But that didn’t quell the fears of its critics, who said a future administration could easily revive it. Undermining its constitutionality was the only way to quash it for good, they said.

“Agency rules that can be rescinded overnight can be reinstated overnight.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,” Powell’s attorneys wrote.

The case is Powell v. Securities and Exchange Commission, 25-1100.

Photograph: The US Securities and Exchange Commission headquarters in Washington; photo credit: Matt McClain/Bloomberg

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