Cato challenges SEC gag-order settlements

When the Securities and Exchange Commission settles with defendants, it extracts gag orders forbidding them forever after from making or causing to be made “any public statement denying, directly or indirectly, any allegation in the complaint.” We noted that fact briefly in yesterday’s roundup adding the question: Is it constitutional for the government to do that?

It isn’t according to the Cato Institute, which wants to publish as a book a businessman’s personal memoir telling his side of the story about his legal battles with the SEC, but cannot do so given that he consented to a settlement containing the gag order. Cato, represented by the Institute for Justice, has now filed suit seeking a court determination that the government cannot use gag orders in settlements to silence those it accuses of wrongdoing. [Clark Neily, Cato at Liberty]

IJ’s press release about the case has fun with redaction:

One Comment

  • Besides suits seeking determination of the SEC policy’s constitutionality, and humorous press releases, perhaps an additional broadside attack could be useful to end these abusive practices.

    Historically, the contemporaries Jonathan Swift and Alexander Pope demonstrated the power that anonymous publication can exert in shaping public opinion and government policy.

    Someone subject to a government agency’s gag order in settlement of an abusive complaint by the agency need not make, or cause to be made, any public statement denying any allegation made in the complaint.

    A third party author can make those statements, based on anonymous sources that the author claims he accidentally overheard discussing them, but whose identity the author claims he is not at liberty to reveal.

    The author would publish names, dates, places and particulars of abusive actions by the agency and its personnel, as well as claims that the subject of the abusive actions was entirely innocent of any wrongdoing.

    If the the individuals within the agency wish to sue the author for libel, they would have to prove the statements false. The author could offer the subject of the gag order as rebuttal testimony to any allegation of falsehood. The agency did not forbid, and cannot forbid, the subject of the gag order from testifying in court.

    If the agency seeks to punish the subject of the gag order, they would have to prove that he was the anonymous source cited by the author, and that he made the statements knowing that they would be published.

    Throw in whatever statutes and case law protects reporters’ anonymous sources, and the courtroom fulminations of the agency or its personnel would likely cause any judge or jury to laugh out loud. Any legal arguments made by the agency or its personnel would be so convoluted that they would likely put the judge to sleep.

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