Elon Musk, Sen. Tom Cotton (R-Ark.) and my employer, Freedom of the Press Foundation, don’t have much in common. We recently called Musk “the world’s biggest hypocrite on free speech” and Cotton “a man with so much irrational hatred for the free press that he must have something awful to hide from it.”
We stand by both assessments, yet we all agree that the Securities Exchange Commission’s “gag rule” is an egregious violation of the First Amendment.
You might ask, how can a relatively obscure 1972 rule from a financial regulator be awful enough to bring together such strange bedfellows? Let me explain.
The "gag rule" requires defendants who settle enforcement actions brought by the SEC to give up their right to publicly maintain their innocence or contradict the SEC’s allegations against them, including to the press.
The Commodity Futures Trading Commission, the SEC’s counterpart in regulating the commodities industry, enforces its own version of the rule. That means the press has to cover financial regulators — whose missteps have been known to occasionally crash the global economy — with a hand tied behind its back.
The gag rule is what the courts call a "prior restraint" — the “most serious” First Amendment violation. It expressly targets viewpoints the government dislikes — those of its critics. The SEC’s own justification is that “it is important to avoid creating, or permitting to be created, an impression that a decree is being entered or a sanction imposed, when the conduct alleged did not, in fact, occur.”
It’s rare for the government to be so open about its intent to stifle dissent. It usually at least attempts to muster up some kind of pretext. The First Amendment rejects the notion that the government can protect its own reputation by silencing critics, as opposed to, say, doing a good job governing. The SEC's excuse could be used to rationalize any form of censorship by any agency, since there’s nothing unique about this agency's reputational interests.
Tellingly, the SEC is agnostic on whether a defendant’s criticisms may in fact be true. It is only concerned that they may create “an impression” that the agency may not be infallible. Unless SEC officials can claim with a straight face that they’ve never settled with anyone innocent and every allegation in every complaint they file is entirely accurate, the gag rule functions as deliberate censorship of the truth.
That’s directly at odds with the well-established constitutional principle that “truth may not be the subject of either civil or criminal sanctions where discussion of public affairs is concerned.”
And it squarely affects the press as well. Censorial officials (most of them, at least) know they cannot directly restrain the press. But they also know that, as one federal appellate court put it, they “need not ban a protected activity...if [they] can simply proceed upstream and dam the source.”
The Fourth Estate cannot do its job if sources are barred from talking. Especially in 1972, there weren’t many other avenues for bringing gripes with the SEC to the public. Nowadays defendants could also speak through social media if they weren’t gagged — but they are, depriving the press of access to that newsworthy would-be commentary as well.
Thankfully, journalists are finally speaking out about the gag rule. Two news outlets — the Cape Gazette and Reason Magazine — joined a recent petition to the U.S. Court of Appeals for the Ninth Circuit seeking to force the SEC to change the rule and stop censoring financial journalists’ sources. FPF also joined a legal brief in the case.
It’s a welcome development. Until recently, opposition to the gag rule has been framed as part of a broader attack on the “administrative state,” driven by right-wing activists. Maybe so, but it’s not their fault they’ve been fighting this battle alone. Opposing censorship shouldn’t hinge on one’s feelings about federal agencies.
This is a constitutional issue, not a political one. The Gazette’s publisher, Chris Rausch, explained that his newspaper intervened in the litigation because “we certainly don’t believe this is in the spirit of the First Amendment, and we don’t believe this is what the American people expect in open government.”
In the Cape Gazette’s case, a potential source told reporters she couldn’t talk because she was gagged. But there are likely plenty more would-be newsmakers that we’ll never know about because gagged defendants did not come forward at all, even to merely voice their displeasure about being gagged. For most people, saying their piece to journalists is just not worth reopening a case they settled in order to move on with their lives.
And 98 percent of defendants that find themselves in legal wars of attrition with the SEC eventually settle. That means the SEC’s notoriously self-serving press releases go uncontested. With the SEC filing several hundred enforcement actions per year, that’s a lot of censored defendants.
The agency even requires settling parties to withdraw past court filings wherein they dared question the agency’s infinite wisdom — a clear violation of the constitutional prohibition on government-compelled speech that undermines journalists’ ability to report public records in addition to their ability to interview sources.
So how can the SEC defend something so egregiously unconstitutional? It can’t, but its go-to argument is that settling parties waive their right to contradict the SEC voluntarily. If they have something to say to the press, then they shouldn’t settle.
But that reasoning is dangerous. The government has immense leverage to coerce settling parties to agree to censorship. Financial firms and professionals who find themselves in the SEC’s crosshairs are usually relatively well off, yet they’d rather surrender their voices than spend years embroiled in litigation with federal regulators.
Imagine if the SEC’s practices spread to government agencies that deal primarily with poor people. “Want to get out of that traffic ticket without taking off work to go to court? You’ll need to keep quiet about those racial profiling claims.”
Or how about this one: “Want to be bailed out of jail after we arrested you for reporting the news? You’ll need to sign here and agree to stop doing that.” That’s not a hypothetical — it’s exactly what happened in Atmore, Ala. last year when authorities barred journalists Don Fletcher and Sheri Digmon from reporting on local crime as a condition of their bail.
That since-dismissed case was alarming in part because courts have long prohibited officials from forcing people to surrender constitutional rights to earn the government’s mercy. One appellate court rejected Baltimore’s demand that plaintiffs waive First Amendment rights as a condition of police brutality settlements. Another invalidated a plea deal forbidding a defendant from criticizing a county commissioner.
The gag rule is every bit as unconstitutional and completely unnecessary. Plenty of agencies settle cases without silencing anyone. Their public images are no less important than that of financial regulators. But the public’s right to know trumps the government’s desire to not be embarrassed, every time.
SEC Commissioner Hester Peirce, a dissenting critic of the gag rule, put it best: “A government regulator that is confident in its investigative work, procedural practices, and legal analysis does not need to demand silence on the part of settling defendants.”
It’s time for the appellate court to right this wrong and let the press subject financial regulators to the scrutiny they clearly fear.
Seth Stern is director of Advocacy for Freedom of the Press Foundation
