U.S. Securities and Exchange Commission v. Christopher Novinger, et al. 

CASE SUMMARY

In June 2016, Christopher Novinger and the U.S Securities and Exchange Commission (SEC) reached a settlement of the agency’s claims that he and his company, ICAN Investment Group, LLC (ICAN), violated federal securities law. SEC required Mr. Novinger and ICAN to sign a consent order claiming that he had agreed to be bound forever by a “Gag Order”—an administrative tool meant to silence people with lifetime speech bans related to their prosecutions. For nearly 50 years, SEC has insisted that all people who settle their cases with the agency must agree to a gag that violates nearly every free speech doctrine.

NCLA filed a Motion for Relief from Judgment in the U.S. District Court for the Northern District of Texas on behalf of Mr. Novinger and ICAN, challenging the constitutionality of the SEC Gag Order that continues to hold them—and the truth—hostage. Mr. Novinger simply wants to speak candidly about SEC’s enforcement proceedings without facing the threat of a reopened prosecution.

Mr. Novinger’s Gag Order is broad, all-encompassing, and fails to provide clear notice of what speech it forbids. Worse, the Gag Order never expires. The ban is longer even than a criminal sentence would have been for the charged violation, which is especially relevant here as Mr. Novinger was never criminally charged. Perpetually mandating silence on such unclear terms that forbid him to do what even convicted people have every right to do (i.e., speak about their cases) violates Mr. Novinger’s due process rights.

The Gag Rule violates the First Amendment for a multitude of reasons: 1) it is a forbidden prior restraint on future speech; 2) it is a content-based restriction of speech; 3) it grants SEC unbridled enforcement discretion and silences Mr. Novinger in perpetuity; 4) it forbids truthful speech; 5) it unconstitutionally conditions settlement upon surrender of Americans’ inalienable rights of free speech; 6) it compels speech; and 7) it abridges Americans’ rights of petition long protected by the First Amendment. Any rule that racks up a list of constitutional violations this lengthy compels the conclusion that it could never have been a valid rule in the first place.

And, in fact, it was not. As NCLA points out, SEC created this Rule in 1972 without notice and comment, in violation of the Administrative Procedure Act. SEC dishonestly called it a “Housekeeping Rule.” Such rules cannot bind anyone outside the government, but SEC’s gag orders always bind outside parties. The Gag Rule was void from the day it was snuck into the Federal Register.

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CASE STATUS: Active

CASE START DATE: June 17, 2021

DECIDING COURT: U.S. Court of Appeals for the Fifth Circuit

ORIGINAL COURT: U.S. District Court Northern District of Texas, Fort Worth Division

CASE DOCUMENTS

August 23, 2022 | Brief in Support of Defendants’ Motion for Declaratory Relief
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July 12, 2022 | Opinion of the U.S. Court of Appeals for the Fifth Circuit
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June 7, 2022 | Oral Argument in the U.S. Court of Appeals for the Fifth Circuit
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December 22, 2021 | Brief of Amicus Curiae Americans for Prosperity Foundation in Support of Defendants-Appellants and Reversal
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December 15, 2021 | Appellants' Opening Brief and Special Appendix
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August 10, 2021 | Order Denying Defendants’ Combined Motion to Reopen and For Relief from Judgment Pursuant to Fed. R. Civ. P. 60(b)(4)
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July 12, 2021 | Reply Memorandum of Law in Support of Motion to Open and for Relief from Judgment Pursuant to Fed. R. Civ. P. 60(b)(4)
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June 17, 2021 | Memorandum of Law in Support of Motion to Reopen and for Relief from Judgment Pursuant to F. R. Civ. P. 60(b) and Subsect. (4) and (5)
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PRESS RELEASES

August 23, 2022 |NCLA Seeks Declaratory Relief to End Christopher Novinger’s SEC-Imposed Lifetime Speech Ban

Washington, DC (August 23, 2022) – Today, the New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed for declaratory relief in the U.S. District Court for the Northern District of Texas in the lawsuit aiming to restore Christopher Novinger’s First Amendment rights. For decades, the U.S. Securities and Exchange Commission (SEC) has silenced people with lifetime speech bans enforced through threat of reopened prosecutions. SEC self-conferred this unlawful power outside the normal administrative process and beyond any authority granted by Congress, suppressing speech critical of the agency and undermining the Constitution.

SEC’s “Gag Rule” is set out in a regulation that the agency published in 1972 without notice and comment under the false premise that it was an internal “housekeeping” rule. SEC lacked statutory authority to enact such a substantive rule and did not comply with the Administrative Procedure Act, which requires prior publication, notice, and comment before promulgating a rule that binds (or, in this case, gags) third parties. Moreover, the same instrument that imposes the gag on settling defendants requires SEC enforcement targets to surrender their access to the courts, thus immunizing the agency’s unlawful conduct from judicial review.

Mr. Novinger’s Gag Orders permanently forbid him and his company, ICAN Investment Group, LLC, from contesting allegations in SEC’s complaint, however inaccurate, and regardless of the truth of the forbidden speech, on pain of reopened and renewed prosecution. This is a textbook example of a prior restraint. Indeed, in the appeal in this case, two Fifth Circuit judges concurred that “[a] more effective prior restraint is hard to imagine.”

To pass constitutional muster, speech bans must be narrowly tailored, serve a compelling government interest, and regulate speech by the least restrictive means to protect that interest. SEC has provided no legitimate, let alone compelling, justification for extracting silence from all SEC targets. Other regulatory agencies and the Department of Justice routinely settle matters without demanding a defendant’s silence as a non-negotiable condition of settlement. By systematically demanding gag orders as a condition of settlements, SEC prevents the public, Congress, courts, and policymakers from overseeing how SEC conducts its enforcement actions. Shielding such an important exercise of government power from scrutiny is profoundly dangerous, because it prevents lawmakers from knowing when to rein in—or unleash—SEC authority and engage in course correction.

NCLA maintains that elevated judicial scrutiny is warranted in this case because speech gags place a content-and viewpoint-based burden on protected expression. If murderers are free to publish books about their crimes and their prosecutions—as they must be in a free society—SEC cannot silence SEC targets from speaking about their enforcement proceedings.

NCLA released the following statement:

“The Constitution forbids the government from passing laws and regulations that abridge Americans’ freedom of expression—especially when the speech the SEC attempts to suppress concerns criticism of the agency itself. NCLA is pleased that two judges of the Fifth Circuit recognized that the gag rule constitutes a prior restraint, ‘the most serious and the least tolerable infringement on First Amendment rights’ per the Supreme Court. It is high time for courts to put an end to this unlawful, unconstitutional, secretive, and anomalous agency practice.”
Peggy Little, Senior Litigation Counsel, NCLA

For more information visit the case page here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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December 16, 2021 | NCLA Asks Fifth Circuit to End an SEC Lifetime Gag Order that Violates the First Amendment

Washington, DC (December 16, 2021) – For decades, the U.S. Securities and Exchange Commission (SEC) has silenced people with lifetime speech bans enforced through threat of reopened prosecutions. The New Civil Liberties Alliance has filed an opening brief in the U.S. Court of Appeals for the Fifth Circuit in U.S. Securities and Exchange Commission v. Christopher Novinger, et al., challenging a “Gag Order” included in Mr. Novinger’s settlement agreement with SEC, which violates not only his First Amendment rights, but also those of everyone who wants to learn more about his case.

On May 11, 2015, SEC filed a complaint against Mr. Novinger and ICAN Investment Group, where he formerly served as director. As a non-negotiable condition of settlement, SEC required Mr. Novinger and ICAN to sign a consent order that they would not question the merits of the Commission’s action against them. Mr. Novinger and ICAN continue to be bound by the Gag Order provision, yet desire to engage in truthful public statements concerning the SEC enforcement proceeding.

Mr. Novinger does not want to violate a consent order or suffer the consequences, so he has refrained from making truthful statements that might indirectly “creat[e] an impression” that the complaint lacked a factual basis or was otherwise without merit. For those reasons, on June 17, 2021, he and ICAN moved for relief from judgment under Rule 60(b).

The district court denied relief in August, holding that Appellants “consented willingly” to the mandatory gag, and thus “failed to meet their threshold burden” to establish a due process violation. But the First Amendment of the Constitution provides that “Congress shall make no law … abridging the freedom of speech,” so the First Amendment applies to this court action.

SEC published its Gag Rule in 1972, and for the next half-century, the agency has coerced the silence of hundreds of individuals, forever damaging reputations and livelihoods while securing settlements as the price of peace. But SEC lacked statutory authority to enact such a substantive rule. Furthermore, it did not follow the provisions of the Administrative Procedure Act, which require prior publication, notice and comment before enacting any rule that binds regulated persons or entities.

SEC’s Gag Rule is a forbidden prior restraint, an unconstitutional content-based restriction on speech, and an unconstitutional condition that violates a hornbook’s worth of First Amendment doctrines. The Gag Order also violates Appellants’ right to due process of law because it was never authorized by Congress, nor was it lawfully promulgated by SEC. It shields and encourages regulation by settlement, allowing SEC to pursue cases not well-founded in established law or rules—and the targets of those actions are forever silenced because the gag operates in perpetuity.

NCLA released the following statements:

“It is long past time that courts fulfill their unflagging duty to keep government power within constitutional bounds. The gag rule was invalid from the moment SEC deceitfully slipped it into the Federal Register in violation of law five decades ago. Time has only enlarged the scope and depth of damage to the rule of law and the devastation imposed in perpetuity upon the lives, livelihoods, and reputations of SEC targets.”
Peggy Little, Senior Litigation Counsel, NCLA

“SEC’s vision statement declares that the Commission seeks to be ‘worthy of the public’s trust and characterized by transparency[.]’ Ironically preferring its operations to remain in the shadows by demanding its targets’ silence, SEC’s gag rule subverts its vision. The unlawful silencing of individuals and businesses for decades has prevented important and transparent public discourse about how the Commission might better conduct its enforcement efforts. It is time for this punitive practice to stop.”
Kara Rollins, Litigation Counsel, NCLA

For more information visit the case page here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

June 17, 2021 | NCLA Lawsuit in Texas Seeks to End SEC’s Lifetime Gag Orders that Violate the First Amendment

Washington, DC (June 17, 2021) – In June 2016, Christopher Novinger and the U.S Securities and Exchange Commission (SEC) reached a settlement of the agency’s claims that he and his company, ICAN Investment Group, LLC (ICAN), violated federal securities law. SEC required Mr. Novinger and ICAN to sign a consent order claiming that he had agreed to be bound forever by a “Gag Order”—an administrative tool meant to silence people with lifetime speech bans related to their prosecutions. For nearly 50 years, SEC has insisted that all people who settle their cases with the agency must agree to a gag that violates nearly every free speech doctrine.

Today the New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed a Motion for Relief from Judgment in the U.S. District Court for the Northern District of Texas on behalf of Mr. Novinger and ICAN, challenging the constitutionality of the SEC Gag Order that continues to hold them—and the truth—hostage. Mr. Novinger simply wants to speak candidly about SEC’s enforcement proceedings without facing the threat of a reopened prosecution.

Mr. Novinger’s Gag Order is broad, all-encompassing, and fails to provide clear notice of what speech it forbids. Worse, the Gag Order never expires. The ban is longer even than a criminal sentence would have been for the charged violation, which is especially relevant here as Mr. Novinger was never criminally charged. Perpetually mandating silence on such unclear terms that forbid him to do what even convicted people have every right to do (i.e., speak about their cases) violates Mr. Novinger’s due process rights.

The Gag Rule violates the First Amendment for a multitude of reasons: 1) it is a forbidden prior restraint on future speech; 2) it is a content-based restriction of speech; 3) it grants SEC unbridled enforcement discretion and silences Mr. Novinger in perpetuity; 4) it forbids truthful speech; 5) it unconstitutionally conditions settlement upon surrender of Americans’ inalienable rights of free speech; 6) it compels speech; and 7) it abridges Americans’ rights of petition long protected by the First Amendment. Any rule that racks up a list of constitutional violations this lengthy compels the conclusion that it could never have been a valid rule in the first place.

And, in fact, it was not. As NCLA points out, SEC created this Rule in 1972 without notice and comment, in violation of the Administrative Procedure Act. SEC dishonestly called it a “Housekeeping Rule.” Such rules cannot bind anyone outside the government, but SEC’s gag orders always bind outside parties. The Gag Rule was void from the day it was snuck into the Federal Register.

NCLA released the following statements:

“SEC is notorious for issuing press releases that instantly destroy careers, reputations, businesses, and lives. It is hard to imagine a policy better designed to suppress the truth about these important matters than SEC’s Gag Rule, which contrives to give the agency the last word and render those it charges powerless to defend themselves in the court of public opinion. Fortunately, our Constitution does not permit that baleful bargain.”
Peggy Little, Senior Litigation Counsel, NCLA

“The SEC requires settling defendants to state that they do not deny the SEC’s allegations if they truthfully say they do not admit them. The First Amendment forbids such compelled speech. The Gag Order also requires individuals to impute their own guilt. The Fifth Amendment does not permit such coerced self-condemnation. It is high time for SEC’s enforcement apparatus to be made to work within the confines of the Constitution.”
Kara Rollins, Litigation Counsel, NCLA

For more information visit the case page here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

OPINION