The Supreme Court has been asked to review the practice, which a judge called “a stew of confusion and hypocrisy” and which challengers say violates the First Amendment.
-
Send any friend a story
As a subscriber, you have “>10 gift articles to give each month. Anyone can read what you share.
Give this article
- +
- Read in app
A Securities and Exchange Commission policy does not allow defendants to speak about cases they settle with the agency.
WASHINGTON — In the summer of 2020, as the pandemic raged and the presidential election neared, Michael D. Cohen, President Donald J. Trump’s onetime lawyer and fixer, was put to a choice. Mr. Cohen wanted to serve out the balance of his three-year sentence, for campaign finance violations and other crimes, at home.
Federal authorities were inclined to allow that, but there was a catch: Mr. Cohen had to agree to give up his First Amendment rights. He had to promise, in the words of a form he was asked to sign, that he would have “no engagement of any kind with the media.”
Mr. Cohen, who had been on furlough because of the pandemic and was writing a book about Mr. Trump, refused to sign and was returned to prison.
Judge Alvin K. Hellerstein of Federal District Court in Manhattan soon ordered him released, saying the deal Mr. Cohen had been offered amounted to unconstitutional censorship.
“I have never seen such a clause,” Judge Hellerstein said.
According to a new petition seeking Supreme Court review, though, one government agency routinely puts people to a choice like that faced by Mr. Cohen. Since 1972, as a matter of consistent policy, the Securities and Exchange Commission has insisted on a vow of silence when it settles cases.
The agency allows defendants to resolve cases without admitting or denying wrongdoing. But they must also promise not to make “any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis.”
Judge Jed S. Rakoff, one of Judge Hellerstein’s colleagues, wrote a harsh critique of the policy in a 2011 opinion, calling it “a stew of confusion and hypocrisy unworthy of such a proud agency.”
“The defendant is free to proclaim that he has never remotely admitted the terrible wrongs alleged by the S.E.C.; but, by gosh, he had better be careful not to deny them either,” Judge Rakoff wrote.
He added: “This might be defensible if all that were involved was a private dispute between private parties. But here an agency of the United States is saying, in effect, ‘Although we claim that these defendants have done terrible things, they refuse to admit it and we do not propose to prove it but will simply resort to gagging their right to deny it.’”
The new case concerns Barry D. Romeril, a former Xerox executive whom the S.E.C. accused of participating in a scheme to mislead investors. He settled the case in 2003 without admitting or denying the accusations; paid more than $5 million, much of it reimbursed by Xerox; and agreed to the agency’s take-it-or-leave-it condition that he stay forever silent about any shortcomings in the government’s case.
In 2019, he sued the agency, seeking to be released from his promise. The S.E.C. responded that Mr. Romeril, represented by sophisticated lawyers, had intentionally given up his right to speak in a negotiated settlement. He had been free to go to trial, the agency said, and then to say whatever he liked whether he won or lost.
Instead, he made a deal, the agency said, “waiving any First Amendment rights.”
“He accepted silence as a condition of settlement rather than being forced into silence against his will,” the agency’s lawyers told the U. S. Court of Appeals for the Second Circuit, in New York.
A unanimous three-judge panel of the court ruled for the agency. “A defendant who is insistent on retaining the right to publicly deny the allegations against him has the right to litigate and defend against the charges,” Judge Denny Chin wrote for the panel. “Romeril elected not to litigate.”
Floyd Abrams, a noted First Amendment lawyer who represents Mr. Romeril in the Supreme Court, says there are some rights that cannot be bargained away.
“To impose a speech ban as an element of a settlement is, in my view, unconstitutional,” he said. “The idea that the government is demanding an enforceable promise not to speak ill of it is really troubling.”
The Supreme Court will decide whether to hear the case, Romeril v. Securities and Exchange Commission, No. 21-1284, in the coming months. The justices grant review in very few cases, but the question this one presents may intrigue them, as lower courts have adopted differing approaches to so-called gag orders in settlement agreements with the government.
In 2019, for instance, the Fourth Circuit, in Richmond, Va., rejected part of a settlement agreement between the city of Baltimore and a woman who said she had been beaten by police officers there. The agreement required the woman to remain silent about what had happened to her.
“We conclude that enforcement of the nondisparagement clause at issue here was contrary to the citizenry’s First Amendment interest in limiting the government’s ability to target and remove speech critical of the government from the public discourse,” Judge Henry F. Floyd wrote for a divided three-judge panel.
Thousands of S.E.C. settlements have included the contested provision. According to Mr. Romeril’s lawyers, only one other federal agency, the Commodity Futures Trading Commission, insists on a similar one.
The S.E.C. says there are exceptions to its requirement. “Romeril can make private statements regarding the allegations without breaching the no-deny provision,” lawyers for the agency wrote, and he can testify in court proceedings.
It is telling that the agency’s policy bars only public comments, Mr. Abrams said. “It’s a very self-serving effort by the S.E.C. to avoid criticism,” he said.
Source: nytimes.com
