The Liberty Justice Center is taking aim at the Securities and Exchange Commission’s (SEC) controversial “gag rule” in a recent amicus brief filed with the U.S. Court of Appeals for the Ninth Circuit.
The rule, implemented in 1972, compels individuals who settle enforcement cases with the SEC to remain silent about the case publicly. This means they cannot deny the allegations or even suggest the SEC’s claims lacked merit. Violation can lead to the case being reopened.
Critics, including the Liberty Justice Center, argue this rule blatantly violates First Amendment free speech rights. The brief contends the SEC has been silencing individuals “whether rightly or wrongly” for decades, simply to avoid public scrutiny of its actions.
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“The SEC effectively demands people give up their First Amendment rights to avoid lengthy and expensive legal battles,” says Reilly Stephens, Counsel at the Liberty Justice Center. “A free society requires open discourse, and that includes the ability to criticize the government.”
This challenge comes after the New Civil Liberties Alliance (NCLA) initially petitioned the SEC in 2018 to review and amend the rule, citing First Amendment concerns and a lack of transparency in its creation. The SEC ignored the petition until a December 2023 renewal, ultimately denying the request. Notably, one commissioner dissented, urging the SEC to either revise or abandon the rule entirely.
The NCLA then petitioned the Ninth Circuit Court in March 2024 to strike down the gag rule. The Liberty Justice Center’s amicus brief amplifies the NCLA’s arguments, urging the court to recognize the rule’s unconstitutionality.
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“The SEC demands that anyone who doesn’t want to spend years of their life and millions of dollars disputing accusations must agree to hand over their constitutional rights and censor themselves. That is a basic violation of the First Amendment,” said Reilly Stephens, Counsel at the Liberty Justice Center. “In a free society, the state must always be subject to potential criticism. The Court should apply that principle to find that the SEC’s attempt to insulate itself from criticism cannot survive First Amendment scrutiny.”
This case has the potential to significantly impact the relationship between the SEC and the public it regulates. A successful challenge could force the SEC to be more transparent and accountable, while ensuring individuals retain their right to speak out against government actions.
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