Opinion: Judges Speak Out About SEC Gag Orders

What is the SEC so afraid of? This is a sentiment that may have been echoed in our series here, but it is also a direct quote taken from a recent ruling by U.S. District Judge Ronnie Abrams. “What is the SEC so afraid of? Any criticism apparently, or rather anything that may even ‘create the impression’ of criticism, of that governmental agency,” Judge Abrams wrote in response to the SEC’s decades-old “No-Admit-No-Deny” provision.

I have written previously in this series about the SEC’s use of gag orders. Since the 1970s, the SEC has regularly insisted that defendants who settle their cases promise to make no statement confirming nor denying any wrongdoing, which is harmful to the markets the SEC claims to protect, hypocritical by a group that demands so much transparency and un-American, as it is a direct violation of our First Amendment rights. Judge Abrams seems to agree.

Judge Abrams, in October of 2022, approved a settlement between the SEC and private equity fund executive Fernando Moraes, who was accused of insider trading, and, while she did approve the settlement, she did so “with reluctance in light of the SEC’s continued and misguided practice of restraining free speech.” Throughout her ruling, Judge Abrams continually calls into question the SEC’s use of these gag orders. She describes how “the government may not ‘condition’ the ‘conferral of a benefit…on the surrender of a constitutional right.’” Specifically, she highlights, among others, the case of Overbey v. Mayor of Baltimore, in which the city of Baltimore attempted to impose content-specific speech restrictions as part of Ashley Overbey’s settlement of a police brutality action. The Fourth Circuit ruled that the non-disparagement agreement was an unconstitutional waiver of Overbey’s First Amendment right to free speech.

Judge Abrams also acknowledges how the gag orders are “textbook content- or viewpoint-based prohibition on speech” which are “presumptively unconstitutional.” This means that so long as you say what the SEC wants to hear, you have not violated the No-Admit-No-Deny provision. Should you criticize the SEC, however, you will be in direct violation of the gag order. This is, again according to Judge Abrams, “quintessential viewpoint discrimination.”

While it may be rare to hear such a scathing review from a public official, Judge Abrams is not alone in her opinions. In the case of SEC v. Novinger, Christopher Novinger and his company, ICAN Investment Group, moved to have their gag order lifted, and while his appeal was also rejected, Judges Edith H. Jones and Kyle Duncan criticized the gag order policy as requiring defendants to “’[h]old your tongue and don’t say anything truthful –ever’—or get bankrupted by having to continue litigating with the SEC.”

Although it may have been established to protect investors, the SEC has continually let down the American people. The SEC consistently leans on enforcement, essentially destroying the livelihood of any individual or small business who comes into their sights. It is indeed these individuals and small businesses that help to prop up our American economy, and the SEC must work to empower these individuals and financial professionals and educate them when mistakes are made.

While it is unfortunate that these lawsuits against the government must continue to take place, they are an important step in reestablishing the liberty and pursuit of livelihood that the SEC must protect. The fact that public officials, such as Judge Abrams, are speaking out is another step in the right direction. What are your thoughts? Do you believe the gag orders are a violation of the First Amendment? Have you been affected by the SEC’s No-Admit-No-Deny provision? Please email me at Publius.Connect@gmail.com  and visit the website www.publiusconnect.com. Together, I truly believe that we can create a lasting positive change in our industry.

Editor’s note: The author of the preceding article is a chief executive officer in the financial services industry, who, for fairly obvious reasons, elects to share his thoughts on this subject anonymously. The DI Wire does not normally publish articles that do not disclose the author. In this instance, however, we have allowed it given the nature of the piece, the importance of open discussion and varying viewpoints, and the fact that we have personally confirmed Publius’ identity.

The views and opinions expressed in the article are those of the author and do not necessarily reflect the views of The DI Wire.

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