Hester Peirce, a commissioner with the Securities and Exchange Commission, asserted that settlements represent the most common way for the SEC to resolve enforcement actions, but they silence defendants.

In a Jan. 30 statement, Commissioner Peirce opposed the SEC’s rejection of a petition to amend its 1972 rule, which prohibits defendants from denying or acknowledging the agency’s accusations in settlements.

“The policy of denying defendants the right to criticize publicly a settlement after it is signed is unnecessary, undermines regulatory integrity, and raises First Amendment concerns,” Peirce wrote.

Peirce argued that a clause in the rule, requiring defendants not to “permit” denials, might be seen as a violation of the First Amendment.

She claimed that the SEC’s no-deny policy is a mandatory term in settlements, the prevailing resolution for SEC enforcement actions.

Enforcement actions related to crypto by the SEC reached a decade-high in 2022, with 46 actions and $281 million in penalties collected from settlements

Peirce contended that the SEC’s goal in 1972 was to avoid giving the impression of guilt without evidence, but defendants could deny wrongdoing in settlements before the policy.

She highlighted the policy’s uniqueness compared to other agencies like the FTC, which allows settling parties to deny allegations.

Addressing SEC enforcement actions by settling tends to be the most cost-effective route due to the challenges and legal costs associated with litigation.

Before entering settlement negotiations, SEC investigations and legal representation to address requests demand substantial financial resources, Peirce emphasized.

“It is unremarkable that nearly all defendants in Commission actions settle.”

However, upon settling, Peirce noted that the SEC gains a unique advantage—permanent silence from the defendant—unattainable through litigation. She stressed that if confident in its investigative work, the SEC shouldn’t demand silence from settling defendants.

She wrote that if the SEC is “confident in its investigative work” and analysis, it doesn’t need to “demand silence on the part of settling defendants.”

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