The New Civil Liberties Alliance, a nonprofit public interest law firm founded to combat what it views as unlawful uses of administrative power, announced that 16 research organizations, advocacy groups, and law firms have filed 11 amici curiae briefs in support of the group’s Powell, et al. v. SEC lawsuit in the U.S. Court of Appeals for the Ninth Circuit.
According to the NCLA, the suit challenges the U.S. Securities and Exchange Commission’s refusal to amend its “Gag Rule,” a 50-year-old policy that requires all defendants in enforcement matters to neither admit nor deny the allegations if they do not admit to wrongdoing during their settlement. The NCLA claims that the Gag Rule is unconstitutional and that it “denies legal due process, barring even speech that ‘indirectly creates the impression’ that any allegation of the SEC’s complaint is factually baseless.”
The NCLA played a significant role in the U.S. Supreme Court’s landmark decision last week to overturn the 40-year Chevron deference, which empowered federal executive agencies to interpret ambiguous laws enforced by the federal regulators.
Petitioners in the Powell suit include Thomas Powell, Cassandra Toroian, Gary Pryor, Joseph Collins, Michelle Silverstein, Rex Scates, Ray Lucia, Barry Romeril, and Christopher Novinger, who are appealing previous gag provisions. Additionally, the libertarian Reason Foundation and the Cape Gazette are also petitioning, alleging that the Gag Rule infringes on their First Amendment rights to freedom of the press.
An amicus curiae brief is submitted by an external third party to the court in a court case with the goal of presenting new information in the case and, ultimately, swaying the court to the presenter’s side. The filing of the amici curiae follows closely on the NCLA’s previous actions in this case.
In March, the group filed a petition with the U.S. Court of Appeals for the Ninth Circuit to review the SEC’s denial of its longstanding petition to amend the agency’s Gag Rule. The NCLA stated that the SEC ignored its initial petition challenging the rule for more than five years, only issuing a denial after the group filed a renewed petition in December 2023. The group followed up in June of this year, filing an opening brief in Powell, et al. v. SEC, asking the Ninth Circuit court to vacate the SEC’s refusal to amend its Gag Rule.
Excerpts of the briefs filed by amici curiae in support of the petitioners follow:
“[A]llowing ‘an agency of the federal government to shield itself from public view’ … is the same motivation that underlay de scandalis magnutum laws in the Middle Ages, and later sedition laws … used to silence criticism and promote only a favorable public perception [of government] regardless of truth. … Compelling or silencing speech to burnish agency reputation is not a legitimate function of government.”
— Americans for Prosperity Foundation, Foundation for Individual Rights and Expression, and Freedom of the Press Foundation
“This vague gag on the accused’s speech … prevents the public from being ‘their own governors’ … The SEC keeps as much of its enforcement activity out of the public eye as possible. The SEC has power and perverse incentives, and it largely operates in secrecy – the perfect trifecta for a threat to civil liberty. … The SEC believes it has the right to prevent anyone from examining how it goes about using the people’s power and the public purse. … Law enforcement in secret is a gateway to fascism. Our federal government must be better than that.”
— The Atlantic Legal Foundation
“The [Gag] Rule violated the Constitution the day it was promulgated, and no less today. … [Constitutional rights and protections] are lost both to Americans currently gagged and to future SEC enforcement targets who lack the nearly boundless resources and stamina needed to go toe-to-toe with the SEC. Any additional delay will give rise to new irreparable First Amendment injury.”
— The Buckeye Institute
“For over 50 years … the SEC’s complaint stands as the last word on the matter, and defendants – even those who have done nothing unlawful – must remain silent for life. The SEC’s Gag Rule means that the government’s side of the story will be the only side of the story the public ever knows. … The governmental interest, apparently, is the power of the government to protect its reputation by silencing potential critics. No court has held that that is a cognizable government interest in the First Amendment context.”
— Cato Institute
“The pressure to settle with the SEC is immense, and settling parties have no opportunities to negotiate [the Gag Rule]. The SEC’s policy of silencing settling defendants is an extortionate exaction of constitutional rights – not a voluntary waiver. Settlement … affords regulators ‘extraordinary discretion’ to press ‘novel legal theories’ that ‘no judge will ever scrutinize’ – since those regulators can simply ‘threaten the industries with the risk of such large penalties that they’ll agree to a deal[.]’”
— Chamber of Commerce of the United States of America
“There is some precedent in the law for the concern that someone could undermine confidence in the government or create the impression that the government did not have a basis for what it did, but that precedent does not help the SEC. That precedent is pre-Constitutional: it derives from the royal prerogative that the king of England could do no wrong. … This royal prerogative, however, cannot be exercised by the [SEC]. The First Amendment was intended to abolish such features of English law.”
— Competitive Enterprise Institute and Investor Choice Advocates Network
“[Press] petitioners … suffer a First Amendment violation because of their inability to receive this information from the gagged defendants. No one could claim they consented to the waiver of their right to receive information. … What results is a government commission forcing all but the wealthiest defendants into silence. … [P]rivate settlements typically put the defendants’ denial of the veracity of the claim directly into the agreement’s recitals … yet the sky has not fallen. [T]he SEC’s Gag Rule is an aberration.”
— Hamilton Lincoln Law Institute and the Manhattan Institute
“The SEC’s no-denial policy is remarkably similar to … the most famous violation of freedom of petition in American history: … gag resolutions against abolitionism. [John Quincy Adams] insisted that the resolutions ‘interfere[d] with the sacred right of petition.’ … SEC’s Gag Rule operates much like these pro-slavery gag resolutions. It singles out a particular topic – the past SEC settlement – as off-limits to government petitions. It prevents defendants from providing true information … or calling into question the SEC’s enforcement regime.”
— Institute for Free Speech
“The SEC asserts an entitlement to extort via pressure something that no court could ever impose: a perpetual prior restraint against criticism of the agency. … The prohibition on prior restraints is not simply at the core of our First Amendment jurisprudence – it was the motivation for the First Amendment in the first place. … The government has no interest – and can have no interest, consistent with the First Amendment – in censoring criticism of the government.”
— Liberty Justice Center
“The SEC’s approach has been to sue industry participants and extract a settlement that muzzles the defendant. With the defendant silenced, the SEC then tells only its story of the case. … These SEC-imposed blind spots do great harm – deterring potential participants from entering emergent industries and increasing compliance costs for those who do. This undermines the SEC’s self-described mission to foster capital formation. … Ironically, the SEC regularly requires transparency from the entities it regulates.”
— Texas Blockchain Council and AI Innovation Association
“While at odds with America’s traditional First Amendment principles, the SEC’s Gag Rule is perfectly consistent with the unfortunate tendency of government bureaucracies to use secrecy as a means to increase their own powers at the expense of the public. ‘Information is power, and it is no mystery to government officials that power can be increased through controls on the flow of information.’ …[C]ourts must exercise their authority to protect the public’s access to crucial information about its government rather than permit a powerful federal agency to regulate in the shadows away from public scrutiny.”
— Thomas More Society
The New Civil Liberties Alliance is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger with the goal of protecting 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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