Hester Peirce, a commissioner for the United States Securities and Exchange Commission (SEC), has expressed her disagreement with the agency’s denial of a petition to amend a rule that prevents defendants from denying any allegations in settlement enforcement actions.

According to an official statement from the commissioner, popularly known in the digital asset community as “Crypto Mom,” the prohibition of denials from defendants prohibits the American public from lodging criticisms against the government and assessing its credibility.

SEC Denies Petition to Amend Gag Rule

The gag rule is a part of the SEC’s policy adopted in 1972, which requires defendants to agree that they will not take any action or make public statements denying any allegations in the complaints brought against them.

In essence, the rule does not permit respondents to consent to a judgment or order that imposes a sanction while denying the complaint’s allegations; otherwise, the SEC can ask the court to vacate the settlement. This is to ensure that they do not create the impression that the complaints are without factual basis.

Peirce explained that the result of the rule is that the respondent agrees to rescind past in-court statements contesting the truth of the regulator’s allegations, promising never to do so or permit others to challenge the accusations for the case to remain settled.

The petition, brought by the New Civil Liberties Alliance (NCLA), asked the agency to amend the rule to allow a defendant to consent to a judgment in which they admit, deny, or neither admitted nor denied the allegations in the complaint.

However, the SEC denied the petition on the grounds that the NCLA’s arguments have no merit and that the gag rule is “a proper exercise of the Commission’s authority to decide how it will pursue its enforcement mission and settle cases.”

Undermining Regulatory Integrity

Despite the SEC’s claims, Crypto Mom believes otherwise.

“I agree with the petitioner that this issue warrants a spot on our rulemaking agenda. One thing I love about this country is that Americans can and often do criticize their government…This freedom to speak against the government and government officials is essential in a free society committed to the preeminence of the people,” she stated.

The commissioner insisted that the policy of denying defendants the right to criticize a settlement after it is signed publicly undermines regulatory integrity and raises First Amendment concerns.