WASHINGTON (LN) — The SEC on Monday rescinded Rule 202.5(e), a provision in its informal procedures that barred settling defendants from publicly denying allegations in exchange for a settlement. The agency stated the change would conserve resources, provide certainty, and potentially expedite the return of money to injured investors.
The rescission aligns the SEC with the "overwhelming majority of federal agencies that do not have a similar rule," according to the commission's press release.
The agency noted that the effect on the public interest from such denials may be minimal and that the policy itself may have created an incorrect impression that the SEC is trying to shield itself from criticism.
"For more than 50 years, the Commission has conditioned settlement on a defendant’s promise not to publicly deny the Commission’s allegations," SEC Chairman Paul S. Atkins said in a statement. "I am pleased that we are rescinding the no-deny policy today. Speech critical of the government is an important part of the American tradition. This rescission ends the policy prohibiting such criticism by settling defendants."
The commission noted there is no known instance of it seeking to reopen an administrative or civil proceeding as a consequence of a defendant violating a no-deny provision.
In light of the rescission, the SEC will not enforce existing no-deny provisions that have already been entered. The agency said it will take no action to ask a district court to vacate a settlement or reopen an adjudicatory proceeding in connection with the terms of a settlement agreement if a defendant breaches an existing no-deny provision.
The commission clarified that the rescission does not affect its practice related to admissions in settlements or its discretion to settle with defendants who decline to admit facts or liability.