SEC Moves Toward Rescinding “No-Deny” Settlement Policy

The SEC appears poised to take one of the most consequential steps in years for enforcement settlements: rescinding the policy that bars settling defendants and respondents from denying the Commission’s allegations.

On May 8, 2026, the Office of Information and Regulatory Affairs received SEC RIN 3235-AN77, titled “Rescission of Policy Regarding Denials in Settlements of Enforcement Actions.” The rule is listed at the Final Rule stage, with no legal deadline, no designation as economically significant, and no Dodd-Frank designation.

That sparse entry matters. It indicates that the SEC has sent a final deregulatory or policy-rescission action to OIRA for review under Executive Order 12866. If finalized, the action would likely dismantle, or materially alter, the SEC’s long-standing “no admit, no deny” settlement framework.

The Policy at Issue

The current policy is codified in 17 C.F.R. § 202.5(e). It provides that the Commission will not permit a defendant or respondent to settle an enforcement action while denying the allegations in the complaint or order. The rule also states that a refusal to admit the allegations is treated as the equivalent of a denial unless the settling party states that it “neither admits nor denies” the allegations.

For more than fifty years, that formulation has shaped SEC enforcement practice. A settling party typically resolves the case without admitting wrongdoing, but must also refrain from denying the allegations. In practice, the policy has allowed the Commission to obtain injunctions, undertakings, penalties, disgorgement, bars, and other remedies without litigating liability, while preserving the public narrative that the Commission’s allegations had a factual basis.

The pending rule suggests the SEC may now reverse course.

Why This Is Significant

A rescission of the no-deny policy would change the settlement calculus for nearly every SEC enforcement matter.

For respondents and defendants, the change would create room to settle without surrendering the ability to speak publicly about the case. That matters most in cases where reputational consequences are as important as monetary penalties. Individuals, investment advisers, broker-dealers, public companies, crypto firms, and executives often settle because litigation is costly, distracting, and risky. But under the current framework, settlement comes with a speech restriction that can leave the SEC’s version of events as the only permissible public account.

Commissioner Hester Peirce made that point in her January 2024 dissent from the Commission’s denial of a rulemaking petition seeking to amend Rule 202.5(e). She criticized the policy as a “so-called gag rule” and explained that the settlement language requires defendants not only to refrain from denying the allegations, but also to withdraw papers that deny them and risk reopening the case if they later breach the settlement condition.

The opposing view, reflected in then-Chair Gary Gensler’s January 2024 statement supporting the denial of that petition, is that the policy protects the integrity of SEC settlements. Gensler argued that allowing defendants to settle while publicly denying wrongdoing would undermine the value of the factual recitation in settled orders and reduce the deterrent message to the market.

The pending final rule appears to put that debate back on the table, this time with the Commission moving toward rescission rather than mere reconsideration.

The Constitutional Pressure Was Already Building

The no-deny policy has also been under sustained First Amendment pressure.

In 2025, the Ninth Circuit rejected a facial constitutional challenge to Rule 202.5(e), but did so in a narrow way. The court upheld the policy against a facial challenge while leaving open the possibility of future as-applied challenges, particularly where the rule might be used to prevent settling defendants from criticizing the SEC.

That matters because the SEC does not need to lose a constitutional challenge before changing policy. Agencies often adjust rules when litigation risk, judicial skepticism, and policy reconsideration converge. The Ninth Circuit’s decision gave the Commission a litigation win, but not an unqualified endorsement. It preserved the possibility that the policy could fail in a future case with a more developed record or more aggressive enforcement of the speech restriction.

The pending rescission may therefore be understood as both a policy shift and a litigation-risk decision.

Practical Consequences for Enforcement Practice

If the final rule rescinds the current policy, several practical consequences are likely.

First, settlement language would need to change. Standard SEC consent provisions may no longer require settling parties to say they neither admit nor deny the allegations, or may no longer prohibit post-settlement denials. The Commission could still require admissions in certain cases, particularly where it believes admissions are necessary for deterrence, collateral consequences, or parallel proceedings. But the default settlement architecture would change.

Second, public communications strategy would become more important. Settling parties may gain greater flexibility to explain why they settled, contest the SEC’s characterization of the facts, or state that they resolved the matter for business reasons. That flexibility would be valuable, but not unlimited. False or misleading statements, obstruction concerns, undertakings, cooperation provisions, and other settlement terms would still matter.

Third, the SEC may need to rethink how it drafts settled orders. If defendants can publicly deny the allegations, the Commission may place greater emphasis on detailed factual findings, admissions in selected cases, or negotiated statements that preserve deterrence without relying on a blanket no-denial condition.

Fourth, collateral litigation could become more complicated. Private plaintiffs, insurers, counterparties, employers, and other regulators often look to SEC settlements as markers of misconduct. If settling parties can deny the allegations after settlement, the downstream significance of a settled SEC order may become more contested.

Finally, the change could affect settlement leverage. The existing rule gives the SEC narrative control as part of the price of settlement. Rescission would return some of that leverage to defendants, especially in cases where the factual theory is contested but the cost of trial is prohibitive.

The Bigger Point

The SEC’s enforcement program depends heavily on settlements. Very few cases are tried to judgment. That reality has always made settlement policy more than a procedural footnote. It determines how the Commission converts allegations into public outcomes.

The pending rescission of the no-deny policy would not eliminate SEC enforcement settlements. It would not prevent the Commission from demanding admissions in appropriate cases. It would not stop the SEC from publishing detailed orders, imposing penalties, or seeking industry bars.

But it would change the bargain.

For decades, the bargain has been simple: resolve the case, avoid an admission, pay the price, and do not deny the allegations. The SEC’s pending final rule suggests that bargain may soon be rewritten. If so, the change will mark a meaningful shift in the relationship between enforcement efficiency, public accountability, and the right of settling parties to tell their side of the story.