Alison Frankel reports:
Adding to mounting conservative criticism of a Securities and Exchange Commission rule that prohibits people who settle with the commission from thereafter denying the government’s allegations, the libertarian Cato Institute sued the SEC Wednesday in federal court in Washington, D.C., alleging that the SEC’s "gag rule" is unconstitutional.
“The government uses its extraordinary leverage in civil litigation to extract from settling defendants a promise to never tell their side of the story, no matter how outrageous the government’s conduct may have been and no matter how strong the public’s interest may be in knowing how the government conducts itself in high-stakes civil litigation,” the Cato suit said. “This civil-rights lawsuit seeks to end the federal government’s decades-long use of gag orders in violation of the First Amendment to the United States Constitution.”
Back in November, the WSJ opined that:
One of the strongest rules in free-speech law is that the government may not engage in “prior restraint” of speech except in extreme circumstances. Yet the Securities and Exchange Commission does so routinely. Under a rule adopted in 1972, the SEC demands that parties entering into settlements with the commission be silenced about the prosecution forever. If they question the merits of the case against them, the SEC reserves the authority to reopen it. ...
The SEC’s gag rule is a symptom of a broader problem: Administrative agency power tends to expand beyond its lawful scope. This is why the Founders were so obsessively concerned that the three branches of government operate publicly subject to carefully constructed checks and balances.
In October, the New Civil Liberties Alliance filed a petition asking the SEC "to amend its rule restricting speech that is set forth in 17 C.F.R. § 202.5(e) (“The Gag Rule”). ... The Rule is unconstitutional, without legal authority, and further is ill-conceived policy."
Scott Shackford has a blog post at Reason discussing the issue.
