(Reuters) -A federal appeals court on Wednesday rejected a challenge a U.S. Securities and Exchange Commission “gag rule” that prevents defendants who settle civil enforcement actions from publicly denying the regulator’s allegations.
The 9th U.S. Circuit Court of Appeals said the rule, reflecting SEC policy dating to 1972, was not unconstitutional on its face, but could violate the First Amendment if applied in a manner that prevented defendants from criticizing the agency.
Circuit Judge Daniel Bress said challenges to how the rule is applied could be brought before the SEC brings enforcement cases, while judges consider settlements, or when the SEC seeks to reopen settled cases because of alleged breaches.
To enforce the rule, the SEC often requires settling defendants to say at least that they neither admit nor deny the regulator’s allegations.
Twelve petitioners, including eight people whose SEC settlements contained the rule’s obligations, had sought to declare the rule unconstitutional.
Lawyers for the petitioners did not immediately respond to requests for comment. The SEC did not immediately respond to a similar request.
The 9th Circuit heard the appeal in Honolulu, Hawaii.
(Reporting by Jonathan Stempel in New York, Editing by Franklin Paul and Nick Zieminski)
