INTRODUCTION

Pursuant to the Administrative Procedure Act, 5 U.S.C. § 553(e), and Rule 192(a) of the U. S. Securities and Exchange Commission (“SEC” or “Commission”), 17 C.F.R. § 201.192(a), the Petitioner New Civil Liberties Alliance (“NCLA”) hereby petitions the Commission to amend its rule restricting speech that is set forth in 17 C.F.R. § 202.5(e) (“The Gag Rule”). See Exhibit A. The Rule is unconstitutional, without legal authority, and further is ill-conceived policy.

The SEC Rule adopts “the policy that in any civil lawsuit brought by it or in any administrative proceeding of an accusatory nature pending before it, 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 did not, in fact, occur.” Accordingly, SEC will “not … permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings”—although at the same time the SEC provides that the defendant or respondent may state “that he neither admits nor denies the allegations.” 17 C.F.R. § 202.5(e).

Pursuant to this policy and Rule, the Commission has required persons or entities charged in judicial or administrative proceedings of an accusatory nature who enter into consents to agree in perpetuity not to take any action or to make or cause 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. The SEC in practice thus goes further than the rule and binds defendants to silence permanently under threat of a reopened prosecution, a penalty and enforcement power neither mentioned in nor authorized by the rule—or by any law.

The Gag Rule on its face and as applied in perpetuity in Consent Orders fails to pass constitutional or legal muster under many doctrines:

It is a forbidden prior restraint.

It is a content-based restriction on speech.

The Gag Rule prohibits truthful speech.

The Gag Rule silences defendants in perpetuity.

The Rule as applied in consent orders unconstitutionally compels speech.

It is an unconstitutional condition.

It not only serves no compelling public interest, it disserves the public interest.

It violates due process in that it is unconstitutionally vague and is against public policy.

It violates the First Amendment’s right to petition.

The SEC lacked authority to issue the Gag Rule.

The Rule directly infringes upon the First Amendment rights of Americans and works to conceal the operations of agency enforcement from the American people. Congress could not lawfully pass a statute that silenced defendants about their prosecutions—such a statute would be held unconstitutional in short order. The SEC cannot accomplish through rule-making what the Constitution forbids to Congress.

“The loss of First Amendment freedoms, for even minimal periods of time, unquestionably constitutes irreparable injury.” Elrod v. Burns, 427 U.S. 347, 373 (1976). Given this ongoing irreparable injury, Petitioner requests that the Commission review this petition to amend on an expedited basis.

The proposed amended rule, removing the offending language, appears alongside the original rule at Exhibit A to this Petition.

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