You Can Now Deny Culpability After an SEC Settlement
For 54 years, the SEC has required defendants to agree to a “no-admit / no-deny” policy as a condition of settling an enforcement action prior to trial. Under that policy, while settling defendants were not required to admit guilt, they could not later publicly deny culpability. Were a defendant to do so, the SEC could rescind the settlement and again pursue the case; although the SEC had never done so, the threat was nevertheless a deterrent to post-settlement denials of wrongdoing. On May 18, 2026, the SEC rescinded this policy based on lack of use, potentially negative public perception, and Constitutional free speech considerations.
The SEC has limited resources with which to police broad swaths of the financial services industry and the securities markets. In pursuing enforcement, the agency must seek the greatest possible reimbursement of victims, impose appropriate punitive measures, and project power with maximum deterrent effect. It does not have the resources or staffing to take every action to trial and, as a result, pursues settlements in the vast majority of cases. It does not, however, want to offer favorable terms if a defendant then will publicly claim innocence, both undermining public confidence in the SEC’s enforcement role and diluting the deterrent effect of SEC actions. Of course, the SEC believes all of the cases it settles are settled appropriately based on the defendant’s misconduct and, thus, the agency views denials of culpability after settlement as inherently false and misleading.
In many cases, a company may have a valid defense to rebut the SEC’s claims, but simply cannot afford to engage in the process to reach a point where it can combat the allegations. A settlement becomes the more (or only) economically viable option. For a defendant, fighting an SEC action is extremely draining, and a company can be financially ruined simply by navigating an SEC investigation. While each case varies, the internal investigation prior to a formal case filing can cost between $250,000 and $500,000; adding in the SEC’s inspection and the company’s response to notice of an enforcement action (referred to as a Wells Notice), the legal bill can easily reach $1 million to $2 million before the case is filed. This does not include the time and resources expended in undergoing and cooperating in an investigation or the reputational damage, securities price decline, issues with lenders, potential employee, customer, or service provider loss, and less tangible damage and costs incurred in an investigation that culminates in an enforcement action.
Additionally, investigations and enforcement actions often beget new regulatory inquiries. A broker-dealer facing an SEC enforcement action may often face a contemporaneous FINRA or Department of Justice investigation or action based on the same or related facts or conduct. This can increase the legal costs many times over. Thus, settlement, without admitting or denying the alleged conduct, can be a means of narrowing the number and scope of actions one faces.
The overall effect this rescission will have is unclear. The SEC could continue on its current track of settlements, accepting the end of the “no deny” policy. Alternatively, the agency could begin requiring admissions of guilt or liability as a condition of settlement. Requiring such admissions from defendants would dramatically lower the number of settlements the SEC obtains. Such admissions can be used by plaintiffs in private lawsuits brought regarding the same actions or conduct, effectively proving the plaintiff’s case in many instances. Such admissions could also be used by other regulators, such as the IRS, the DOJ, or FINRA, in parallel cases. The regulators coordinate their actions and requests, and also share information in the course of investigations.
The ability to later deny wrongdoing after an SEC settlement will encourage settlements as companies weigh their options, as it lessens the less tangible costs of settlement in disclosure and reputational damage. More settlements mean broader enforcement of the securities laws and a greater deterrent effect, although the SEC under Chairman Atkins has eschewed a number of enforcement cases in favor of purportedly actions focused more narrowly on fiduciary violations and other instances involving investor harm. However, even an incremental change in the cost-benefit analysis of compliance could weaken the incentives to devote resources to compliance and disincentivize fostering a compliance culture and developing the “tone at the top” that the SEC encourages.
The removal of the policy also weakens the disciplinary disclosures that regulated entities are required to provide to the public, which were a key goal of the no-admit / no-deny policy. Companies are required to publicly disclose settled disciplinary actions. Previously, companies’ disclosures mirrored the language of the settlement order that the SEC used to articulate the company’s liability. Previously, the adviser could state that it neither admitted nor denied the facts presented and legal conclusions in the settlement, but could not caveat or contest the allegations in that disclosure. This clarity in public disclosures was viewed by the SEC as critical to investors and financial services clients’ informed decision making. With the policy rescinded, however, defendants can muddy the disclosures with myriad qualifications and denials. Such denials could be false or misleading and serve as the basis for a new case. However, the SEC is unlikely to bring a case on the basis of such statements, as this would require proving the underlying case to prove the false and misleading nature of the denials.
The SEC determined to remove the policy after having denied such a request in 2025. It based its decision on three primary bases. First, the policy has not been implemented. I would argue that this speaks to its deterrent effect. Second, the SEC felt the policy makes it look as though it feared scrutiny of its settled actions, which it assures the public is not the case. Lastly, the SEC acknowledges that the policy acts as a government restriction on speech that implicates Constitutional protections. Even if it could survive a Constitutional challenge, the lack of use and other policy considerations make it a largely superfluous restriction.
The true import of this policy change will come with time. It will either loosen and encourage settlements or represent a new and more draconian policy of demanding admissions in settlements.
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