SEC Sued Over Gag Order to Prevent Exposure of Its Abuses

‘The SEC shouldn’t be in charge of deciding who is allowed to criticize the SEC…’

Federal Lawsuit Challenges SEC’s Power to Coerce Settlements and Silence Victims

PHOTO: Cato Institute

(Michael Barnes, Liberty Headlines) The U.S. Securities and Exchange Commission is imposing a gag order on an American entrepreneur and his legal counsel, prohibiting them from talking about alleged abuses committed by the SEC.

According to the Institute for Justice, a public-interest law firm, the government agency has stripped the entrepreneur, who cannot be identified by name, of his First Amendment rights simply because “it wants to evade public oversight and criticism”—an all-too-common practice.

“The best way to determine if government agencies are overstepping their bounds is to have a public debate about it, which is exactly what the SEC is suppressing by unconstitutionally imposing gag orders,” said IJ senior attorney Robert McNamara.

The entrepreneur wrote a book about the experience, where the government threatened him with crippling fines and years of costly litigation unless he capitulated to a coercive settlement, though no wrongdoing was ever proved.


The Cato Institute, a Washington, D.C.-based libertarian think tank, agreed to publish the book, but doing so would be illegal.

As yet, the book remains unpublished.

Clark Neily, the Cato Institute vice president for criminal justice, denounced the SEC’s practice of imposing “lifetime gag orders,” and said, “It is vital for citizens of a democracy to know how their government operates, particularly when it accuses fellow citizens of wrongdoing.”

The SEC adopted its gag order policy in 1972, and has imposed it on hundreds of cases, including against billionaire Tesla founder and CEO Elon Musk in September 2018.

The alleged crime Musk cannot discuss? Misleading tweets.

The SEC targeted Musk on a Thursday, and coerced a settlement just two days later.

“Under its terms, Musk doesn’t admit or deny the allegations in the agency’s lawsuit but will step down as the chairman of Tesla’s board of directors for three years and pay a $20 million fine,” reported Business Insider.

Unlike criminal proceedings, the SEC’s settlement process is shrouded in secrecy, which the Institute for Justice hopes to change with its lawsuit.

“The SEC shouldn’t be in charge of deciding who is allowed to criticize the SEC. The government cannot use the threat of ruinous prosecution to ward off criticism of its actions,” said IJ attorney Jaimie Cavanaugh.