SEC's "Gag Rule" Under Fire: Commissioner Hester Pierce Speaks Out

Date: 2024-01-31 Author: Dima Zakharov Categories: IN WORLD
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Challenging SEC's "Gag Rule"

Commissioner Hester Pierce, a member of the U.S. Securities and Exchange Commission (SEC), has raised concerns about the agency's refusal to amend the 1972 "gag rule." This rule prevents defendants from denying or refusing to acknowledge SEC's allegations after resolving disputes. According to Pierce, this policy is unnecessary and compromises regulatory integrity, as well as raising First Amendment concerns.

The Controversial "Gag Rule"

The "gag rule" requires defendants to agree not to make any public statements that directly or indirectly contradict the complaint or create the impression that the complaint lacks factual basis. Pierce argues that this wording effectively shields SEC's allegations from criticism and lacks clarity.

Implications for Cryptocurrency Firms

In 2023, regulatory actions against cryptocurrency-related companies reached a ten-year high, resulting in 46 lawsuits and fines totaling $281 million. Pierce's criticism of the "gag rule" highlights its significance in the cryptocurrency industry, where regulatory actions have become more prevalent.

A History of Regulatory Practices

Pierce disputed SEC's claim that the "gag rule" was introduced to prevent the misperception of sanctions where no wrongdoing occurred. She pointed out that SEC had decades of experience regulating cases that allowed defendants to deny violations without undermining the commission's enforcement program.

Comparisons with Other Federal Agencies

Pierce noted that other federal agencies, like the Federal Trade Commission, explicitly permit defendants to deny allegations of wrongdoing. This highlights the uniqueness of SEC's approach.

Financial Implications and Settlements

Pierce emphasized that settling regulatory actions is often the most cost-effective option for even well-funded corporate defendants. The investigations and legal proceedings involved in responding to SEC actions consume significant financial resources.

The Power of Silence

While defendants may find settling with SEC cost-effective, Pierce argued that the agency benefits from the "gag rule" by securing the defendant's silence, which it wouldn't necessarily obtain through litigation. She suggests that if the commission is confident in its investigations, it should not require defendants to remain silent during settlement.

Commissioner Hester Pierce's outspoken criticism of the "gag rule" highlights the ongoing debate about the role of free speech and transparency in SEC's regulatory actions, particularly in the rapidly evolving world of cryptocurrency.
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