NCLA Asks Ninth Circuit to End SEC’s Illegal Gag Rule Against Targets of Settled Enforcement Cases
June 18 2024 - 10:20AM
Last night, the New Civil Liberties Alliance filed an opening brief
in Powell, et al. v. SEC, asking the U.S. Court of Appeals for the
Ninth Circuit to vacate SEC’s refusal to amend its “Gag Rule.” NCLA
represents SEC enforcement targets silenced by the Gag Rule and
media organizations eager to hear their stories. In place for over
five decades, this rule forbids every American who settles a
regulatory enforcement case with SEC from even truthfully
criticizing their cases in public for the rest of their lives. SEC
ignored NCLA’s initial petition challenging the Gag Rule for more
than five years, only issuing a denial after NCLA filed
a renewed petition in December. NCLA is challenging that
denial to halt SEC’s trampling of First Amendment rights.
SEC enacted the 1972 Gag Rule without notice and
comment after falsely framing it as an internal “housekeeping”
measure that would not affect third parties. The agency never had
statutory authority to implement such a substantive rule, and it
bypassed Administrative Procedure Act requirements to publish,
provide notice and allow comment before promulgating a rule binding
on third parties. Congress is forbidden to infringe the speech of
Americans. It did not and could not give SEC power to gag anyone.
To pass constitutional muster, speech bans must be narrowly
tailored, serve a compelling government interest, and adopt the
least restrictive means to protect that interest. The Gag Rule
fails all those tests. The rule is accordingly an impermissible
prior restraint, restricting speech based on content and viewpoint,
the most blatant First Amendment violations.
SEC has unconstitutionally compelled speech in
recent mandatory settlement conditions banning settling parties
from publicly stating that they did not admit to its findings
“without also stating that the Respondent does not deny” them. The
Gag Rule denies legal due process, barring even speech that
“indirectly creates the impression” that any allegation of SEC’s
complaint is factually baseless. Once SEC charges you, the
settlement price is a permanent record that you are guilty of all
charges. This unconstitutional condition defies Supreme Court and
Ninth Circuit precedents, and it gives government sole control of
the narrative and the last public word on the cases of all who
cannot outlast and outspend the powerful agency and settle—as 98%
of its targets do. This tactic incentivizes overreach and
enforcement abuses, since most SEC enforcement practices happen in
the dark.
The Gag Rule silences NCLA clients Thomas
Powell, Cassandra Toroian, Gary Pryor, Joseph Collins, Michelle
Silverstein, Rex Scates, and returning clients Ray Lucia and Barry
Romeril. NCLA has also represented Petitioner Christopher Novinger
previously in appealing the gag provisions of his SEC enforcement
settlement. The petitioning Reason Foundation and Cape Gazette
recognize the Gag Rule infringes their First Amendment rights to
Freedom of the Press to hear and report the views of SEC
enforcement targets who wish to tell their side of the story about
SEC’s case against them. The rule thus denies the public’s First
Amendment right to receive ideas and information crucial to
self-government and understanding of how agency officials wield
power.
SEC Commissioner Hester Peirce dissented from
the denial of NCLA’s petition, agreeing it is time to amend or drop
SEC’s “unceremoniously” adopted rule. SEC did not offer any
rational explanation for refusing to amend the Gag Rule, so the
Ninth Circuit should vacate the denial and order rulemaking that
conforms SEC to the law.
NCLA released the following
statements:
“The SEC’s Gag Rule violates every doctrine of
First Amendment law you can think of. The Ninth Circuit should
discard this unconstitutional arrogation of power by bureaucrats
operating in secrecy. Congress itself could not pass such a law. A
mere administrative agency thinking it can do so requires a prompt
and forceful smackdown by application of controlling Supreme Court
and Ninth Circuit law.”— Peggy Little, Senior Litigation
Counsel, NCLA
“For over 50 years, the SEC has systematically
silenced individuals and businesses, causing its preferred
narrative to be the first and final word about its enforcement
activities. This rule has no doubt robbed the markets, investors,
Congress, and the public of crucial and critical information about
how the SEC conducts itself. A half century of half-truths is long
enough. It’s time for SEC’s gag to go.”— Kara Rollins,
Litigation Counsel, NCLA
For more information visit the case page
here.
ABOUT NCLA
NCLA is a nonpartisan, nonprofit civil rights
group founded by prominent legal scholar Philip Hamburger to
protect constitutional freedoms from violations by the
Administrative State. NCLA’s public-interest litigation and other
pro bono advocacy strive to tame the unlawful power of state and
federal agencies and to foster a new civil liberties movement that
will help restore Americans’ fundamental rights.
Ruslan Moldovanov
New Civil Liberties Alliance
202-869-5237
ruslan.moldovanov@ncla.legal