The SEC’s long-running settlement gag rule is being challenged in a case that could soon reach the Supreme Court. (AP Photo/Andrew Harnik)
Associated Press
Thomas J. Powell, 59, built Resolute Capital Partners, a firm that helped companies raise money privately. Often that meant using Regulation D, a rule that lets businesses sell securities without going through a full public offering. At its peak, the firm handled more than $2 billion in assets and worked across offices in Texas, California and Nevada. In 2021, after a yearslong investigation, the U.S. Securities and Exchange Commission accused Powell of misleading investors in connection with how those offerings were marketed and disclosed. He settled and paid a $75,000 fine. The case was resolved without him admitting or denying the claims.
Powell would like to explain what happened. When asked, he starts to answer. Then he stops. His lawyer, Peggy Little, 71, a senior litigation counsel at the New Civil Liberties Alliance, a Washington, D.C.-based nonprofit that challenges government overreach, cuts in. He can’t discuss the allegations, she says. Not in detail. Not even to correct what he believes is wrong.
That silence isn’t a choice. The SEC requires defendants who settle to agree to what’s known as a gag rule which bars them from publicly denying the agency’s allegations or suggesting the charges were unfounded. They can’t even say anything that creates the impression of a denial. The agreement requires them to say they don’t deny the claims. That, Little argues, means the government isn’t just stopping speech, but forcing people to repeat its version of events. This is known as “compelled speech” and it is a violation of the First Amendment.
That’s the position Powell is in now. And it’s why the New Civil Liberties Alliance took up his case and is now asking the Supreme Court of the United States to weigh in. The group argues the rule doesn’t just settle disputes. It leaves the SEC with a monopoly on the only public version of events, while the people on the other side are barred from telling theirs.
They’re not alone. A growing list of outside groups has filed friend-of-the-court briefs urging the justices to take the case, including the American Securities Association (a financial lobbying group for brokerage and wealth management firms), free speech advocates and, notably, former SEC officials who once worked inside the agency itself. Their argument is that when nearly every case ends in settlement, and those who settle are barred from speaking, the public loses access to how enforcement actually works.
The overwhelming majority of SEC cases end this way. About 98% of SEC enforcement actions end with a deal rather than a trial. Fighting can take years and cost millions. Legal bills in SEC investigations often run into the millions and can climb higher in complex cases.
No wonder Powell gave in. By the time he settled, he says he had already spent more than $4 million on legal fees. The fine, on the other hand, was just $75,000. Settling stops the bleeding. It also comes with a cost. It closes the door on speaking about it.
The consequences can linger. Powell says the SEC issued a public notice about his case that went further than he expected and read more like a finding of guilt than a settlement. He couldn’t push back. When reporters called, he couldn’t respond in any meaningful way. He says the reputational damage spread. Banks cut ties. Clients left. Resolute wound down. What began as a regulatory dispute ended with a business largely disappearing.
Powell’s 2021 gag order settlement is in good company. In 2022, the British bank Barclays agreed to pay $361 million after the SEC alleged it had over-issued securities and failed to maintain basic internal controls. In 2023, BlackRock agreed to pay $2.5 million after the SEC alleged it failed to accurately describe investments held by a fund it advised. And in 2025, the quantitative hedge fund Two Sigma agreed to pay $90 million after the agency said it failed to address known vulnerabilities in its investment models. In the Two Sigma case, Sanjay Wadhwa, the acting director of SEC enforcement at the time, chastised the firm saying “doing nothing for years” to fix the problem “is not the answer.” Two Sigma, like the others, settled on a no-admit, no-deny basis, which presumably came with an agreement to keep silent when asked about the details of the case.
None of this is to say any of these companies were blameless. They may well have done exactly what the SEC alleged. But when defendants are muzzled post settlement, there’s really no way to tell if the misconduct was as serious as advertised.
The rule at the center of this dates back to 1972, when the SEC added it without a formal notice-and-comment process. The agency has said little publicly about why it adopted the rule in the first place. Its logic, as it’s been applied over time, is easier to see. If defendants could settle and then go out and deny wrongdoing, it could weaken enforcement and muddy the message to investors. These money settlements, coupled with undisputed disparaging statements by the SEC, also create the appearance of a win for the bureaucrats and political appointees running the agency.
That arrangement is now being tested. Powell is the lead plaintiff in a case backed by the New Civil Liberties Alliance, which argues the gag rule violates the First Amendment. Little, who’s practiced law for more than four decades, calls it “a prior restraint.” She says it doesn’t just limit speech. It forces a version of events. In some cases, it bars even the suggestion that the government might be wrong.
The group also says the SEC is an outlier. Other major regulators don’t impose a similar lifetime restriction as a condition of settlement. The concern isn’t just this rule, but what could come next. If it holds up, it could become a template. Other agencies could follow, tying settlement to silence across a wider swath of government.
There is a tension here that’s hard to ignore. The SEC has a difficult job. It polices markets that move fast and often break rules in subtle ways. Settlements are a practical tool. They conserve resources and bring cases to a close.
But people settle for reasons that have nothing to do with guilt. They settle because fighting the government can cost millions and take years. They settle because the process itself can become the punishment. They also settle because the settlement amounts pale in comparison to the amounts they have profited, effectively relegating the SEC payment as a worthwhile cost of doing business.
Asked about the case, an SEC spokesperson declined to comment.
The next step will come soon. The plaintiffs have asked the Supreme Court of the United States to take up the issue. The Court is expected to decide in the coming weeks whether it will hear the case. If it does, arguments could be scheduled for the fall.
For now, Powell is still bound by the agreement he signed. He can’t deny the allegations. He can’t explain his side. The question before the Court is whether that silence is a fair price for settlement, or a line the government isn’t allowed to cross.
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