Ninth Circuit Upholds SEC’s Longstanding “No-Deny” Settlement Policy—But Leaves Door Open to Future Constitutional Challenges

On August 6, 2025, the U.S. Court of Appeals for the Ninth Circuit denied—“on narrow grounds”—a facial First Amendment challenge to SEC Rule 202.5(e), which prohibits settling defendants from publicly denying the SEC’s allegations or findings.¹ But the Ninth Circuit left room for future litigants to challenge the Rule as applied to them.

Voluntary Agreements to Waive Speech Are Not Per Se Unconstitutional

Petitioners in the case asked the Ninth Circuit to review the SEC’s denial of a request to amend Rule 202.5(e) to eliminate the provision prohibiting a defendant from denying the SEC’s allegation in a settlement. Because the petitioners were not challenging the application of the Rule to any specific factual scenario, the Court framed the challenge as a facial one. The Court, therefore, could only rule in favor of the petitioners if Rule 202.5(e) would be unconstitutional in all or most of its applications.

Applying the Supreme Court’s framework from Town of Newton v. Rumery, 480 U.S. 386 (1987), the panel concluded that the SEC’s policy is not facially invalid, principally because settling parties may voluntarily waive certain constitutional rights, including their First Amendment rights. The Court pointed out that Rule 202.5(e) applies only when a party agrees—voluntarily—not to deny the SEC’s allegations as a condition of settlement. It also relied on the limited scope of the SEC’s potential remedy for a breach, which is to return to court to ask that the court reopen the case, as providing an additional safeguard against misuse of the Rule. The Ninth Circuit’s holding aligns with the Second Circuit, which has also held that Rule 202.5(e) does not violate the Constitution. See SEC v. Romeril, 15 F.4th 166, 172 (2d Cir. 2021) (holding that the SEC’s no-denial provision was constitutional and, thus, did not void the consent judgment).

The Rule May Be Vulnerable in Future As-Applied Challenges

Although the Court rejected the facial challenge, it pointedly declined to immunize the Rule against future attacks. It noted that First Amendment concerns “could well arise in a more particularized, as-applied type of challenge.”2 For instance, if the SEC were to enforce the Rule in a way that chilled general criticism of the agency, courts may find such applications unconstitutional. In fact, the Court stated that one of the rationales put forth by the SEC in support of the Rule—that “it is necessary to silence defendants in order to promote public confidence in the SEC’s work”—would be an improper rationale in light of the “robust First Amendment protections for speech critical of the government.”³

The panel also noted troubling language in some SEC settlement agreements that potentially extend beyond the Rule—for example, prohibiting defendants from making statements that merely “create the impression” that the SEC’s allegations or findings lack a factual basis or from “permitting” others to speak on their behalf. The Court explicitly left open the possibility that these broader restrictions could fail under future legal scrutiny. Additionally, the Court left open the possibility of challenges to the Rule’s unrestricted time period: “[n]or do we decide if it would be constitutional for the facial restrictions in Rule 202.5(e) to apply in perpetuity.”⁴

Key Takeaways

• Rule 202.5(e) Survives—For Now. The Ninth Circuit found it permissible for defendants to waive voluntarily speech rights. At the same time, the Ninth Circuit noted Republican Commissioner Hester Peirce’s dissent from the SEC’s refusal to consider amending the Rule to eliminate the policy prohibiting settlements in which defendants deny the SEC’s allegations. With a solid Republican majority, the vote may be different if the issue is again brought before the current Commission.
  
  
• As-Applied Challenges Remain Open. The Court made clear that the policy could still be unconstitutional in specific applications, especially if it chills criticism of the SEC.
  
  
• Courts May Scrutinize Broad Settlement Language. The Court distinguished between Rule 202.5(e) itself and more expansive contractual language found in SEC settlements, which may impose vague, sweeping speech restrictions in violation of the First Amendment.

Although the Ninth Circuit upheld Rule 202.5(e) on narrow grounds, the panel indicated some discomfort with aspects of the policy, which will likely result in future as-applied challenges.

¹ Powell v. SEC, Case No. 24-1899, 2025 WL 2233792 (9th Cir. Aug. 6, 2025).

² Id. at *5.

³ Id. at *10.

⁴ Id. at *11.

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