What Is Neither Admit Nor Deny?

What Is Neither Admit Nor Deny?

The phrase sounds perfectly balanced. You don’t admit wrongdoing. You don’t deny the charges. Both sides walk away with something – the government gets resolution, you get to avoid confession. It’s the reasonable middle ground that civilized parties reach when litigation becomes too expensive.

That’s the story everyone tells. The story is wrong.

Welcome to Spodek Law Group. Our goal is to explain what “neither admit nor deny” actually means in practice – not the version defense attorneys recite to justify settlements, but the version that governs your life after you sign. Todd Spodek has negotiated SEC settlements with clients who thought “neither admit nor deny” was a neutral outcome. They discovered it’s a gag order with a pleasant name. You don’t admit – that part is true. But you also can’t deny. Ever. The SEC publishes detailed allegations describing exactly what you supposedly did. They issue press releases. They announce your penalty to the world. And Rule 202.5(e) – a regulation from 1972 – prohibits you from saying a single word to contradict them. The “neither” is meaningless window dressing. The “nor deny” is the permanent muzzle.

The Phrase That Sounds Fair and Isn’t

Heres what the phrase actually means under federal securities law. When you settle with the SEC using “neither admit nor deny” language, you agree to three things simultaneously. First, you wont admit the allegations in the complaint. Second – and this is the part nobody explains properly – you wont deny them either. Third, you wont take any action that would “create the impression that the complaint or order for proceedings lacks factual basis.”

Read that third provision again. You cant even IMPLY the SEC was wrong.

The SEC publishes a complaint describing in detail how you supposedly defrauded investors. They hold a press conference. They issue a press release with your name and the penalty amount. Your settlement becomes public record, searchable forever in enforcement databases. Your professional reputation is shaped by the SEC’s version of events.

And your response? Silence. Permanent, legally-mandated silence.

Heres the irony prosecutors wont mention during negotiations. The SEC demands transparency from public companies. It requires full disclosure in financial statements. It prosecutes executives for hiding material information from investors. But when it comes to its own enforcement actions, the SEC demands the opposite – it requires defendants to hide there version of events, to suppress there explanation, to remain silent while the government speaks freely.

The asymmetry is structural. The SEC gets to characterize your conduct however it wants. It can describe the “scheme” you allegedly ran, the “victims” you allegedly harmed, the “fraud” you allegedly committed. And you – bound by Rule 202.5(e) – cant publicly respond without violating your settlement agreement.

If you think “neither admit nor deny” leaves your reputation neutral, your wrong. It leaves the SEC’s narrative as the only public record. Silence in the face of accusation isnt neutral. Its perceived as confirmation.

52 Years of Government-Mandated Silence

The rule isn’t new. It isn’t a modern development. Rule 202.5(e) was adopted in 1972 – fifty-two years ago. Thats older then most practicing securities lawyers. Thats older then the internet. Thats older then email, smartphones, social media. For more then half a century, the SEC has required defendants who settle to remain permanently silent about the allegations against them.

Heres what 52 years of the rule means practically. Generations of securities professionals have been silenced. Thousands of defendants who might have had compelling alternative narratives – who might have been able to explain the context, the market conditions, the reasonable business judgments that led to there conduct – were prohibited from ever telling there side of the story.

The SEC’s enforcement record is built almost entirely on unchallenged allegations. 98% of enforcement actions end in settlement. That means 98% of defendants agree to the gag. The public version of SEC enforcement – the version in press releases, in databases, in media coverage – reflects only what the SEC chose to allege. The defendants perspectives are systematically excluded.

Bill Casey adopted this rule as SEC Chairman. The government decided half a century ago that defendants should be muzzled. And despite legal challenges, despite academic criticism, despite dissent from sitting SEC commissioners – the rule remains in force today.

Think about how different the world looked in 1972. There was no internet. No email. No social media. No 24-hour financial news. The SEC could issue an enforcement action and most people would never hear about it. Today, everything is searchable forever. The SEC complaint against you appears on your first page of Google results. The rule designed for a pre-digital era now creates permanent digital stigma.

The SEC Speaks While You Stay Silent

Heres what happens when you settle “neither admit nor deny.”

The SEC holds a press conference announcing the resolution. They describe the conduct they investigated. They explain why the penalty is justified. They quote the commission’s determination that you violated securities laws. All of this becomes public record – searchable, citeable, permanent.

Then reporters call you for comment. What do you say?

Nothing. You cant say anything. Your settlement agreement prohibits you from denying the allegations. It prohibits you from creating the impression that the complaint lacks factual basis. Even saying “we disagree with the SEC’s characterization but decided settlement was more practical then litigation” would arguably violate the gag.

Heres what Chairman Gensler said in January 2024 when the SEC denied a petition to change the rule. He explained that modifying the gag would let defendants “deny wrongdoing in the court of public opinion and dismiss sanctions as the cost of doing business.” Thats the SEC’s own chairman explicitly confirming that the rule’s purpose is to prevent you from defending yourself publicly.

Think about what that means. The government official responsible for securities enforcement is telling you directly: we designed this rule so you cant challenge our narrative. The gag isnt an accidental byproduct of settlement procedures. Its the point.

The press release gets written. The articles get published. The database entries get created. Your name appears next to words like “fraud” and “violation” and “penalty.” And your only permitted response is silence.

Why Courts Keep Upholding the Gag

If the gag seems like a First Amendment problem – if it seems like government-mandated speech restriction – your not alone. The New Civil Liberties Alliance filed a petition in 2018 asking the SEC to amend Rule 202.5(e). They argued it was an unconstitutional prior restraint on speech.

The SEC denied the petition in January 2024. After more then five years of consideration, the commission voted to keep the gag exactly as it is.

Barry Pinkerton – a defendant subject to the gag – filed a lawsuit in the Ninth Circuit Court of Appeals. Powell v. SEC argued that permanently prohibiting defendants from speaking about settled allegations violates the First Amendment.

In August 2024, the Ninth Circuit rejected the challenge. The gag survived.

Heres why courts keep upholding what seems like obvious speech restriction. The SEC’s argument is that defendants VOLUNTARILY agree to the gag as part of there settlement. Nobody forces you to settle. You could go to trial. You could fight the allegations. The gag only applies if you choose to accept it.

The problem with this argument is that “choice” isn’t really a choice when 98% of defendants settle. When the SEC’s resources are unlimited and your resources are not. When trial means years of litigation, millions in legal fees, and the risk of far worse outcomes. When your business is dying while the investigation drags on.

The “voluntary” gag is voluntary in the same way that signing a confession is voluntary when your exhausted after 20 hours of interrogation. Technically true. Practically coerced.

A Lifetime Sentence of Silence

Most legal restrictions have expiration dates. Criminal records can be expunged. Probation periods end. Even bankruptcy falls off your credit report after seven years.

The SEC gag has no expiration.

When you sign a “neither admit nor deny” settlement, the prohibition on denial is permanent. Not for five years. Not until the statute of limitations runs. Not until you’ve served your penalty. Forever. You agree never to deny the allegations. You agree never to create the impression the complaint lacks factual basis. That agreement survives your settlement. It survives your career. It survives your lifetime.

Heres the consequence cascade that nobody explains upfront. You settle in 2024. In 2034, a journalist writes about securities fraud and mentions your case. You want to say “I always disagreed with those allegations but couldn’t fight a federal agency.” You cant. The gag still applies.

In 2044, you write a memoir about your career. You want to include a chapter explaining what actually happened during the investigation. You cant. The gag still applies.

In 2054, your grandchildren ask why there’s an SEC enforcement action connected to your name. You want to tell them the full story. You cant. Not publicly. Not in a way that could “create the impression” the SEC was wrong.

The settlement that was supposed to let you “move on” from the investigation actually prevents you from ever moving on. The SEC’s version of events becomes permanent history. Your version stays permanently suppressed.

When Plaintiffs Use Your Silence Against You

Heres the consequence most SEC settlement defendants dont anticipate until its to late. Private plaintiffs – shareholders, customers, counterparties – can file civil lawsuits based on the same conduct the SEC investigated.

When they do, they cite your SEC settlement as evidence.

They quote the SEC complaint describing your alleged fraud. They reference your penalty amount as proof of wrongdoing. They point to the settlement as an admission of liability – even though you specificaly didnt admit anything.

And when you want to respond – when you want to explain that you disagreed with the SEC’s characterization, that you settled for practical reasons, that the allegations were overstated or taken out of context – you cant. Rule 202.5(e) prohibits it. Your silence was the price of resolution. And now plaintiffs are using that silence to build there case against you.

The SEC settlement becomes a litigation roadmap. Private attorneys study the complaint to understand the government’s theory. They adopt the SEC’s characterization of events. They present the SEC’s version as if it were established fact.

At Spodek Law Group, we’ve seen clients blindsided by this consequence cascade. They settled with the SEC to make the nightmare end. They thought they were buying closure. Instead, they bought permanent vulnerability to follow-on litigation with no ability to publicly defend themselves.

Technically, the settlement dosent trigger collateral estoppel. The Supreme Court distinguished between cases that went to trial and cases that settled. Plaintiffs cant automatically win just by pointing to your SEC settlement.

But “technically” dosent matter in the court of public opinion. When a jury hears that you already paid $5 million to settle fraud charges – and you cant explain why – they draw there own conclusions.

Even SEC Commissioners Question the Policy

Heres something most defendants never learn. The SEC isn’t unified on the gag rule. Sitting commissioners have publicly questioned whether permanent silence is appropriate.

Commissioner Hester Peirce dissented from the January 2024 decision to deny the rule making petition. She wrote that the petition “warrants a spot on our rulemaking agenda.” She questioned wheather decades-old procedures still make sense in the modern regulatory environment.

Think about what that means. A current SEC commissioner – someone with voting power over enforcement policy – believes the gag rule should at least be reconsidered. The commission isnt unanimous. The policy isnt beyond question.

But Commissioner Peirce was outvoted. The majority kept the gag in place. The dissent is public record, but it dosent change the rule. If you settle with the SEC tomorrow, you’ll still be prohibited from denying the allegations. Forever.

Heres the uncomfortable truth that Commissioner Peirce’s dissent reveals. Even regulators recognize that 52-year-old rules might not serve there original purpose anymore. Even commissioners question wheather permanent gags are appropriate. But institutional inertia is powerful. Once a rule exists, changing it requires political will that rarely materializes.

The Numbers That Define Your Situation

The statistics tell the story the SEC dosent want to emphasize.

98% of SEC enforcement actions end in settlement. That means almost everyone faces the gag. Trial is theoretically possible but practically rare.

2.7% of settlements in the first three years after 2013 included admissions. When the SEC announced a “new policy” of requiring admissions in egregious cases, everyone assumed things would change. They didnt. The gag remains dominant. Admissions remain the exception.

52 years since Rule 202.5(e) was adopted. More then half a century of government-mandated silence. Generations of defendants prohibited from telling there stories.

January 2024 – the SEC denied the petition to change the rule. August 2024 – the Ninth Circuit upheld it against constitutional challenge. The gag isnt going anywhere.

If your facing an SEC investigation, these numbers define your reality. Settlement is overwhelmingly likely. The gag will apply. Your silence will be permanent. These arent possibilities to plan around. There the baseline expectation.

What You Should Actually Know Before Signing

So what does all this mean for someone facing SEC enforcement?

First, understand that “neither admit nor deny” isnt neutral. Its asymmetric. The SEC speaks freely. You stay silent. The SEC’s narrative becomes the only public record. Your perspective disappears.

Second, understand that the gag is permanent. Whatever you agree to in your settlement prohibits denial forever. Not for a reasonable period. Not until the matter is resolved. Forever.

Third, understand that your settlement will be used against you. Private plaintiffs, future business partners, licensing authorities – they’ll all see the SEC’s version of events. And youll be prohibited from providing context.

Fourth, understand that legal challenges have failed. The First Amendment arguments make logical sense. Courts havent agreed. The gag has survived every challenge.

Fifth, understand that even insiders question the policy. Commissioner Peirce’s dissent matters. But dissent dosent change the rule.

At Spodek Law Group, we negotiate SEC settlements with full awareness of what “neither admit nor deny” actualy means. We make sure clients understand that theyre not just avoiding an admission – theyre accepting a permanent prohibition on denial. The phrase sounds balanced. The reality is one-sided.

If your facing an SEC investigation and considering settlement, call 212-300-5196 for a confidential consultation. Understanding what you’re agreeing to before you sign is essential. The gag lasts forever. Make sure you understand what “forever” means before you accept it.

We put this information on our website becuase most people have no idea that “neither admit nor deny” is actualy a government gag order with a pleasant name. Every other explanation treats the phrase as reasonable compromise. We’re telling you its permanent silence while the government speaks freely. Know what your giving up before you sign anything. The SEC’s version of events, once published, becomes the only public version. Your side of the story stays locked away – not for years, but for life.