On Sept. 27, 2021, the U.S. Court of Appeals for the Second Circuit rejected the most recent legal challenge to the Securities and Exchange Commission's (SEC) practice of using "no-deny" consent agreements to resolve civil enforcement actions.1 This practice allows alleged violators of federal securities laws to settle civil actions with the SEC without admitting or denying wrongdoing but requires that the persons agree not to publicly deny the SEC's allegations against them. Corporate executives, constitutional scholars, activists and even members of the judiciary have raised First Amendment concerns, but so far, no challenge has been successful.
In 2003, Barry Romeril, the former chief financial officer of Xerox Corp., settled a civil enforcement action with the SEC. The SEC had alleged that he was responsible for filing materially false and misleading public financial statements. Romeril entered into a consent agreement with the SEC, neither admitting nor denying the SEC's allegations, and agreed to pay over $5 million to settle the claims against him. The district court issued a final judgment effectuating Romeril's agreement with the SEC.
Importantly, the consent agreement contained a no-deny provision, in which Romeril agreed "not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis." If Romeril violated this provision, the agreement allowed the SEC to "petition the Court to vacate the Final Judgment and restore this action to its active docket." The court's final judgment required Romeril to comply with this and every other provision in the consent agreement.
The SEC has incorporated these no-deny provisions into its consent agreements for nearly 50 years. SEC policy, announced in 1972, does not "permit a defendant or respondent to consent to a judgment...
