Amicus Brief: Powell v. SEC

In 1972, the Securities and Exchange Commission, absent notice and comment, issued its “gag rule." The rule requires all defendants who settle an agency enforcement action to agree, in perpetuity, not to publicly contest any of SEC’s charges against them. Yet, just as there are many criminal defendants who take plea bargain offers despite claiming innocence, there are many who settle with the SEC for the same reasons. In effect, the gag rule forever silences all criticism of SEC enforcement actions by hundreds—if not thousands—of former SEC targets.

The gag rule has long been challenged and criticized. The New Civil Liberties Alliance brought a challenge on behalf of nine individuals and two media entities who either want to speak out against the government or to publish the stories of people who are subject to the gag rule. They lost in the Ninth Circuit, which strangely ruled that the supposedly "voluntary" nature of the settlement agreements means that the SEC can use them to block free speech.

Now on petition for Supreme Court review, the Manhattan Institute has joined the Hamilton Lincoln Law Institute on an amicus brief supporting the Court's review.  We argue that the rule serves no legitimate interest. The SEC can and does commit many injustices, as any agency does, and not allowing someone to talk about it is clearly a prior restraint on truthful speech. Restraining truthful speech is in no one's interest, except maybe an agency that doesn't want to be criticized. We also point out that the rule is essentially unprecedented in both public and private litigation. The SEC could easily operate without it, as almost every other agency does. The Court should take this case and finally stop this unique and blatant violation of the First Amendment.

Ilya Shapiro is a senior fellow and director of Constitutional Studies at the Manhattan Institute. Follow him on Twitter here.

James R. Copland is a senior fellow at the Manhattan Institute and director of Legal Policy.

Trevor Burrus is a legal policy fellow at the Manhattan Institute.