Why Does The SEC Insist That Some Defendants Lie?

In 1972, the Securities and Exchange Commission adopted what has become known as the "gag rule":

"The Commission has adopted the policy that in any civil lawsuit brought by it or in any administrative proceeding of an accusatory nature pending before it, it is important to avoid creating, or permitting to be created, an impression that a decree is being entered or a sanction imposed, when the conduct alleged did not, in fact, occur. Accordingly, it hereby announces its policy not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings. In this regard, the Commission believes that a refusal to admit the allegations is equivalent to a denial, unless the defendant or respondent states that he neither admits nor denies the allegations."

17 C.F.R. § 202.5(e). I think it is without peradventure that some defendants or respondents settle with the SEC even though they believe that the allegations against them are false. The gag rule therefore forces these respondents to misstate the truth.

Recently, the SEC's gag rule has come under attack. In October, the New Civil Liberties Alliance filed a petition with the SEC seeking to have the rule amended. The NCLA pointedly argues that the rule is "unconstitutional, without legal authority, and further is ill-conceived policy".

More recently, Senator Tom Cotton schooled Chairman Jay Clayton on the First Amendment problems with the rule. You can watch the video here.