The U.S. Supreme Court rejected, without giving reasons, a First Amendment-based petition challenging the Securities and Exchange Commission’s long-enforced gag rule. The decision did not definitively settle that constitutional debate, although the SEC withdrew the policy in May.
50 years of rules and litigation
Under rule 202.5(e), adopted in 1972, the SEC prevented parties who settled sanctions investigations from later publicly denying the allegations. This regulation remained in effect for approximately 50 years. The New Civil Liberties Alliance called this provision open censorship.
The lawsuit was filed by the New Civil Liberties Alliance on behalf of Thomas Powell. In 2021, Powell reached a settlement within the scope of SEC charges related to unregistered oil and natural gas securities offerings and agreed to pay a $75,000 penalty. Among the terms of the settlement was that he could not publicly deny the allegations against him.
In its response submitted in early June, the New Civil Liberties Alliance argued that rules that could be lifted overnight could be reinstated overnight, so the government did not guarantee that the gag rule would not be reimposed.
The SEC argued that the Powell case was irrelevant because it repealed the rule in May. However, the plaintiff argued that the Supreme Court should still take up the case and make clear that federal agencies cannot force Americans to give up their First Amendment rights to free speech.
Possible impacts for crypto companies
The importance of the decision for the crypto industry stems from the fact that many companies have reached settlements with the SEC in recent years. Some of these companies could not publicly respond in detail to the allegations in their files due to past settlements. The SEC also announced in May that it would not reopen past settlements for this reason.
The Commodity Futures Trading Commission also abolished a similar practice in June. While the CFTC canceled its own regulation, which had been in effect since 1998, it also announced that it would not apply the non-repudiation provisions in the old settlements. CFTC is known as the federal agency that oversees derivatives markets in the USA.
| Organisation | Edit status | History |
|---|---|---|
| SEC | Removed the muting rule | May |
| CFTC | Removed similar rule | June |
The SEC also acknowledged some shortcomings in its previous crypto enforcement approach and dropped seven lawsuits against companies including Coinbase, Binance, and Kraken. Despite this, the Supreme Court’s latest decision did not completely legally block the reinstatement of the silence rule by another administration in the future.
In withdrawing the policy, the SEC announced that it would not reopen past settlements and that parties can now speak publicly about their cases if they wish.
Therefore, it will become clear in the coming period whether defendants who have settled under the old rules in the past will now openly challenge the SEC’s accusations. The essence of the constitutional question remains unclear, as the Supreme Court has not made a precedent decision.
