Let’s begin with basics: Gag orders are, save for exceptional circumstances, an affront to the First Amendment. And why? Again, basics: They run counter to the principle of no prior restraints, and they can be content-based, which violates another free speech canon.

Hence, for a gag order to be permissible it must satisfy a strict scrutiny standard of review. As Chief Justice Burger put it in Nebraska Press Association v. Stuart, “[P]rior restraints are the least tolerable and most serious infringements on First Amendment rights.”

Okay. So what are we to make of a federal agency that gags the parties with which it enters into a settlement agreement? Can an agency demand that anyone who seeks a government-approved settlement must relinquish their First Amendment and due process rights?

Can the government impose gag orders by way of a mandatory consent rule even without any express and nuanced authorization from Congress? Can an agency like the Securities and Exchange Commission issue gag orders when it uses them to settle 98% of the cases before it? Can it compel those whose rights it “settles” and silence them from speaking once they “agree” to settle the charges the SEC has leveled against them?

Margaret A. Little, counsel of record for the petitioners in Powell v. United States Securities and Exchange Commission, thinks not — categorically not! Here’s how Little, who is currently the senior litigation counsel for the New Civil Liberties Alliance, put it in her Ninth Circuit brief on behalf of targeted affected individuals, a free speech organization (the Reason Foundation), and a local newspaper (Cape Gazette):

The founders, who enshrined the right of free speech, a free press, and rights of petition in the First Amendment, would never in their wildest imaginations have envisioned that a mere government agency could silence speech, dictate the content of speech, and compel corrective speech by those who would criticize that agency’s actions.

Congress itself could not enact a law extracting silence as a condition of settlement with the government; a mere administrative agency perforce lacks any such authority.

Believe it or not, in settlement cases the SEC enforces a gag rule (adopted in 1972) through a mandatory, nonnegotiable term in its settlement agreements, 17 CFR § 202.5 (e) — also known as the “no-admit and no-deny settlement policy.”

Once one “agrees” to the settlement, they cannot say anything about the SEC’s actions — the validity of its charges, the lawfulness of its conduct, or anything related to their case. This heavy-handed approach may be efficient (i.e., 98% of cases settled) but such “efficiency” comes at the cost of sacrificing one’s rights on the altar of unauthorized governmental officialdom.

Breaching textual commands

For all the contemporary talk about textualism, seldom is the text of the First Amendment given much attention when it comes to the speech and press clauses. “Congress shall make no law” is how the constitutional command begins. Notice that it is the making of a law that abridges the Madisonian dictate. Notice also that the command is directed solely to one branch of government — the only branch that can “make” laws. Hence, at the very outset the working premise speaks to the sole body duly authorized to make laws: namely, Congress. But in the Powell case, Congress did not act. It made no law. If it did — if it followed the SEC’s example — it would be abridging expression.

Now, the limits on the SEC’s powers must, as an Article I, Section 8 necessity, be read in tandem with the command of the First Amendment. Absent such authorization, there is an unconstitutional usurpation of power. (See Thomas Cooley, “A Treatise on the Constitutional Limitations,” 71 (1st ed. 1868)). In this case, however, there was no such constitutional delegation. Thus, the SEC acted without Article I authority, which if given would have violated the “make no law” command of the First Amendment.

“Or of the press”

At a time when textualists and others discount the independent significance of the press clause of the First Amendment, it is noteworthy how the Madisonian command affects this case.

In Lewes (a small town in Delaware), the local newspaper called the Cape Gazette seeks to cover a story of local importance. But it cannot because of the SEC’s gag rule. Here is how Margaret Little explains the matter in her brief to the Ninth Circuit:

Marguerite Cassandra Toroian, is a former registered investment advisor and owner of Bell Rock Financial, as well as a former contributor to CNBC and Fox Business. After a prolonged investigation followed by a federal court action that imposed daunting reputational, occupational, relational and financial costs, she settled with SEC in 2023. She also unsuccessfully tried to negotiate for no gag. Ms. Toroian wishes to speak freely to co-Petitioner Cape Gazette about her case, as she did when SEC first filed its complaint, but she cannot because of her gag. She also wishes to publicly discuss her experience as an SEC enforcement target, including with Congress, the Commission, and on her podcast.

Given that, Little argues that the “SEC’s Gag Rule prevents Cape Gazette from receiving Toroian’s and other SEC enforcement targets’ speech, thus abridging Cape Gazette’s speech and press rights.”

The First Amendment was born in an era of local newspapers; they were the soil in which it took root. It is in that spirit that a small Delaware paper (still very much in demand) decided to get involved in this case. Here is how Chris Rausch, its publisher put it:

Individuals coerced into signing away their rights leave the press with no ability to gather further information which would be beneficial to the public. The gag rule, as it currently stands, severely limits the ability of individuals and the press to provide any oversight or offer any criticism of a government agency that has granted itself the power to be judge, jury and executioner. For the Cape Gazette, this unique local story provided the opportunity for us to help shine light on this glaring violation of the First Amendment and the right to petition the government for a redress of grievances.

All of this makes for a wonderful lesson in American constitutionalism — a lesson first grounded in questions of authorization and thereafter guided by the “make no law” command of the First Amendment. As Little quite ably puts it:

The Gag Rule was an affront to the Constitution the day it was deceitfully promulgated and remains so today. The Commission’s refusal to amend the Rule multiplies the constitutional harms the agency has inflicted or will inflict on countless individuals and businesses, including several Petitioners. And it does so while distorting the public record by sending pleadings down the memory hole, evading any criticism of SEC by those most knowledgeable about agency enforcement.

In sum, the SEC practice is a constitutional wrong in violation of constitutional rights, and thus in need of judicial slapdown. The Ninth Circuit judges should take heed!