In honor of Free Speech Week, end all regulatory gag orders
Free Speech Week is an annual, nonpartisan celebration of the indispensable right to speak one’s mind. While every level of government is expected to uphold the free speech rights of individuals, that is not always the case.
For many years we’ve seen a vicious assault on freedom of speech by financial regulators like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) through their gag orders on private litigants that are pressured into settling their legal disputes with the agencies.
The gag orders are a muzzle that individuals must adopt upon reaching settlements with the agencies. Both agencies settle the large majority of their cases (98 percent for the SEC) prior to either side entering formal adjudication within an administrative law court (ALC).
This is largely because most people don’t feel it’s worth their time and money to challenge the agency inside of its own court, using its own rules, and before judges that are beholden to the agency’s interests. This poses a conflict of justice which must be stopped.
Gag orders let the SEC and CFTC prevent the public from learning about the unfairness of their enforcement proceedings. People that are gagged by the order are prohibited from speaking about any aspect of their case before the press or any public setting for the rest of their lives. They are also unable to respond to demoralizing press releases from the agency about the charges levied against them. This fosters a skewed narrative on the dispute that is orchestrated entirely by the government.
Among the 40+ agencies with ALCs and 50+ adjudicating bodies in the federal government, the SEC and CFTC are the only two known entities that can gag its opponents. The SEC’s tendency to issue gag orders is so unpopular that even prominent billionaires like Elon Musk and Mark Cuban have denounced them as unfair violations of the First Amendment. A federal judge even called the CFTC’s gag order process “egregious.”
Margaret Little, Senior Litigator at the New Civil Liberties Alliance (NCLA), called the gag order a “an occupational death sentence” for victims who are incapable of voicing their concerns about the unfairness of agency enforcement and adjudication.
The contrary argument that SEC veterans and skeptics have advanced is that, if you don’t want to lose your free speech rights, don’t settle with the agency. This argument belittles why most litigants choose to settle in the first place.
Agency adjudication is a high stakes game that most people are unable to pursue and are thus pressured into settling. It takes large sums of money, heartache, and time to pursue a losing battle against the SEC in-house. We’ve seen how unfair the SEC’s adjudication process is from the uphill struggles of Michelle Cochran, Ray Lucia, and most recently George Jarkesy, all of whom were only successful when they appealed their cases to a proper federal court and ultimately the Supreme Court.
Despite this, relief may finally be in sight. The NCLA is currently suing the SEC in the Ninth Circuit over its restrictive gag order process. This challenge comes after Cuban and Musk urged the Supreme Court to review and overturn the SEC’s gag policy during a recent lawsuit by a former Xerox executive.
One of the chief criticisms that Musk and Cuban advanced is that agencies like the SEC and CFTC are playing a double game of transparency. While SEC officials pass regulations to ensure public companies are transparent about their stock offerings to investors, they simultaneously are opaque in concealing their own legal disputes against private actors.
“Preventing these settling defendants from speaking freely deprives the securities markets of potentially material information and so may harm the very market participants for whose benefit the SEC pursues transparency and disclosure,” the NCLA argues in their brief.
Financial regulators should not deprive litigants of their ability to speak freely about their legal battles. If the SEC is authorized to crack down on financial fraud based on the concealment of material information, the agency can’t itself conceal material information about its internal legal disputes.
And, as a First Amendment argument, the SEC and CFTC cannot deny Americans the constitutional right to speak freely, whether or not the matter pertains to an administrative conflict.
As we celebrate Free Speech Week, we should be grateful for the ability to speak freely about the issues that matter most to us. Free speech does not begin nor end with terms set by financial regulators. The SEC and CFTC should rescind their restrictive gag orders before more reputations are destroyed. The preservation of free speech rights depends on it.