Former SEC Attorneys Ask Supreme Court to End 50-Year "Gag Rule" as Justices Weigh SEC Disgorgement Power in Sripetch

Amicus brief filed by ICAN in Powell v. SEC argues the agency charged with stamping out misleading omissions has itself operated "the most sweeping compelled-omission regime in federal regulatory practice."

FOR IMMEDIATE RELEASE April 23rd, 2026

LOS ANGELES, CA— The Investor Choice Advocates Network (ICAN) filed an amicus brief on Monday, April 20, 2026, asking the U.S. Supreme Court to review the Securities and Exchange Commission's so-called "Gag Rule" (17 C.F.R. § 202.5(e))—the five-decade-old policy that forces any defendant who settles with the agency to agree, for the rest of their life, never to publicly deny the SEC's allegations against them.

The brief in Powell v. SEC was filed on behalf of twelve former SEC attorneys, including former senior trial counsel, regional trial counsel, branch chiefs, and enforcement officials whose combined SEC service spans more than a century across four decades. It was filed the same day the Supreme Court heard oral argument in SEC v. Sripetch, a parallel case testing the SEC's power to extract "disgorgement" in cases where the agency has never identified a financially harmed investor.

"The agency that Congress charged with stamping out misleading omissions in the capital markets has for fifty years operated the most sweeping compelled-omission regime in federal regulatory practice," the brief states.

Read Full Brief

An Estimated 2,700 Defendants Silenced Since 2017

From 2017 to 2023 alone, an estimated 2,700 SEC defendants were silenced by the Gag Rule, unable to publicly contest the allegations in the SEC's complaint. The rule applies to the roughly 98% of SEC defendants who settle rather than take the agency to trial—not because they concede guilt, but because the cost of fighting the SEC is prohibitive.

The brief argues that this practice is fundamentally incompatible with the securities laws the SEC is charged with enforcing. Those laws—anchored in Section 17(a)(2) of the Securities Act, Section 11(a), and Rule 10b-5—treat the deliberate suppression of material facts as a form of fraud. The SEC has aggressively prosecuted private parties on exactly those grounds, including for inadequate disclosure of their own litigation and settlements.

"An SEC enforcement complaint is a one-sided charging document, drafted by one party, tested by no court, and stripped of every qualifying fact the defendant might offer," said Nicolas Morgan, founder and president of ICAN and counsel of record on the brief. "When the Gag Rule permanently suppresses the defendant's side of the story, the SEC's press release becomes the only public record of what happened. The market is left with a half-truth—exactly the kind of disclosure the agency prosecutes everyone else for making."

For the Accused, the Punishment Begins With the Press Release

The brief draws on published empirical research showing that SEC enforcement announcements impose substantial and measurable harm on the accused, independent of any finding of liability:

• Firms targeted by SEC enforcement lose an average of 38% of their market value on the announcement of charges.

  
  

• Roughly two-thirds of that loss is reputational, driven by the allegations themselves rather than any legal penalty imposed.

  
  

• 93% of individuals named in SEC enforcement actions for financial misrepresentation lose their jobs, most fired outright—often before any finding of liability.

  
  

The brief contrasts the outcomes of defendants who could afford to fight with those who could not. Mark Cuban turned down a $2 million settlement, spent $12 million in legal fees, and was acquitted unanimously in under five hours. Leon Cooperman settled because a trial would have cost an estimated $15 to $20 million, and under the Gag Rule, the defenses he insisted he would have presented are permanently sealed from the public.

After his acquittal, Cuban publicly said that the defendants "of lesser wealth... could have been bullied." The brief argues that is precisely the system the Gag Rule institutionalizes.

ICAN's Read on the Sripetch Argument

The filing of the Powell brief coincided with the Supreme Court's oral argument in Sripetch, where the Justices weighed whether the SEC may seek disgorgement without proving pecuniary harm to investors. ICAN filed two amicus briefs in Sripetch—one on behalf of its clients facing “victimless disgorgement”, and one representing the views of former SEC enforcement attorneys with co-counsel Sarah Concannon and Rachel Frank Quinton of Quinn Emanuel.

Morgan offered the following assessment of the argument:

"The headlines may say the Court was skeptical, but read the transcript carefully and a narrower path emerges. Justice Sotomayor herself handed the government a problem: if disgorgement without investor compensation serves only deterrence, it looks a lot like a penalty—and penalties require juries after Jarkesy. That gives the Court every reason to require proof of pecuniary harm so it can keep disgorgement in equity and off the jury-trial docket.

The statutory text reinforces the point: when Congress wants gain-stripping, it says so—that's exactly what the civil penalty provisions do. When it codified disgorgement post-Liu, Congress used the word Liu had just defined, paired it with penalties as a distinct and separate remedy, and added a savings clause protecting private plaintiffs' suits—a provision that only makes sense if disgorgement is compensatory, not punitive. Congress knows the difference between a scalpel and a sledgehammer. The question is whether the Court will notice."

A Supreme Court decision in Sripetch is expected by the end of the Court's term in July 2026.

For more information about ICAN's work, visit www.icanlaw.org or contact: info@icanlaw.org

About ICAN: The Investor Choice Advocates Network (ICAN Law) is a nonprofit organization dedicated to breaking down barriers to entry to capital markets and pushing back against regulatory overreach. ICAN advocates for fair and transparent regulatory practices, ensuring all individuals have equal access to investment opportunities and due process in the financial markets.

Contact Information: Investor Choice Advocates Network (ICAN) Email: info@icanlaw.org Website: www.icanlaw.org