SEC Sidesteps "Gag Order" Constitutional Challenge ' For Now

• Published date: 24 June 2022
• Subject Matter: Corporate/Commercial Law, Government, Public Sector, Corporate and Company Law, Constitutional & Administrative Law, Securities
• Law Firm: Holland & Knight
• Author: Scott Mascianica and Danny Athenour

Earlier this month, a Holland & Knight alert discussed several constitutional challenges facing the SEC, including a petition for certiorari filed with the U.S. Supreme Court seeking review of the SEC's longstanding "no admit, no deny" requirement for settling with the agency in Romeril v. SEC¹ (see previous Holland & Knight alert, "SEC in Constitutional Danger Zone Following Several Recent Decisions," June 3, 2022). This week, the Supreme Court denied that petition without comment, leaving intact the Second Circuit's holding that parties can waive First Amendment rights in resolving legal proceedings.² But an analogous challenge before the Fifth Circuit may ultimately raise the issue to the high court once more.

Barry Romeril petitioned the Supreme Court to review the constitutionality of his two-decades-old settlement with the SEC. Romeril argued the "no deny" policy violates the First Amendment because it places unconstitutional prior restraints on defendants' right to speak candidly about their experience with the SEC and is an unconstitutional content- and viewpoint-based restriction on free speech. Romeril also advanced due-process arguments as to the adequacy and fairness of the process surrounding the consent agreement.³ The Supreme Court denied the petition without comment.

But constitutional challenges on the SEC's "gag order" policy are far from over. Indeed, an analogous challenge is under consideration in the circuit where the SEC has faced its most recent significant constitutional issues. In June 2016, a district court in the Northern District of Texas entered final judgment against Christopher Novinger and ICAN Investment Group on the basis of a settlement agreement that included a "no admit, no deny" provision. Similar to Romeril, Novinger later petitioned the district court for relief from the judgment under Federal Rule of Civil Procedure 60(b), claiming he wanted to "engage in truthful public statements concerning the SEC's case against him and ICAN." The district court denied the motion,⁴ and Novinger appealed to the Fifth Circuit late last year.

Earlier this month, the Fifth Circuit heard oral argument in the case. Judge Edith Jones pressed SEC counsel on the provision that "that...