MW Inside the push to weaken Washington's toughest financial watchdog

By John C. Coffee, Jr. and Robert Pozen

The SEC used to intimidate corporate wrongdoers. Now its own commissioners are gutting its leverage.

Securities regulators are seeing their powers being shackled.

The current SEC commissioners are consciously weakening the agency's leverage in negotiations with large corporate defendants.

The Securities and Exchange Commission is generally regarded as one of the smartest, toughest agencies in Washington. But tough enforcement is not a hallmark of the Trump administration, which has substantially cut the SEC's budget and staffing. As a result, the SEC is bringing fewer enforcement actions. In fiscal 2025, the SEC filed 30% fewer stand-alone enforcement actions than in fiscal 2024, and stopped bringing certain kinds of enforcement cases ( for example, under the Foreign Corrupt Practices Act).

But something new and unprecedented is happening. At the end of May, the three SEC Commissioners, who are all Republicans, took away enforcement powers the agency has held for more than 50 years. Without advance notice or the chance for public comment, the SEC repealed its longstanding rule prohibiting defendants who settled enforcement cases "without admitting or denying" the SEC's allegations from later publicly disagreeing with those allegations or the related facts.

The ground rules for settlement are critical to the SEC's effectiveness, as the agency settles most enforcement cases because it cannot afford to litigate them at trial. The agency uses those settlements to communicate a clear and fact-specific standard to guide both the defendant and others in the future. Lawyers learn the parameters of that standard (and what facts are given special weight) by studying the precise wording of the SEC's settlements. Defendants are permitted to "neither admit nor deny" the SEC's allegations to protect themselves from liability to private plaintiffs, who are likely to bring follow-on litigation, which may seek much greater damages in the wake of an SEC settlement.

To protect its settlements and use them as a teaching device, the SEC adopted a formal rule more than 50 years ago that it will not settle with a defendant who contests the allegations after it enters the settlement. If the defendant does so, the SEC can invalidate any settlement and reopen the case. To drive home the SEC's position, its rule added that a defendant's "refusal to admit the allegations is equivalent to a denial, unless the defendant or respondent states that it neither admits nor denies the allegations."

What will be the impact of the rule's repeal? From now on, a settling corporation can say: "Yes, we paid $1 million to the SEC, but it would have cost us more to litigate. We thought the agency had the allegations all wrong, and we doubt other courts would agree with the SEC's position. But we did not want to take a chance, because pending private suits against us involve enormous damages and they would be greatly aided if the SEC won at trial."

Once such disdain for a settlement becomes possible, the SEC's ability to set a clear standard for future conduct is greatly compromised, and continuing bickering becomes likely after any settlement.

What motivated the SEC to reverse a 50-year-old position? Some considered the "no denial" rule to be a "gag" rule that violated First Amendment rights. However, the federal courts have repeatedly upheld the rule in prior litigation challenging its constitutionality. That's because the rule never forbade criticism of the SEC, but only a defendant's attempt to deny the allegations or facts in a settlement that it "neither admitted nor denied."

A more skeptical evaluation of the SEC's decision is that it allows defendants to weaken the settlement process. In justifying the repeal of its former rule, the SEC argued that repeal made negotiating settlements easier and cheaper - thus, sparing the SEC's scarce resources. But the repeal also made settlements less meaningful, because defendants can now assert that the SEC got everything wrong and they just settled because it was less costly than litigating.

Moreover, the repeal of this rule substantially alters settlement dynamics. Even if defendants are no longer legally prohibited from contesting or denying the SEC's allegations in a settlement, defendants can voluntarily agree not to contest or deny the SEC's allegations in return for concessions in the settlement. For example, defendants might agree not to contest or deny allegations if the SEC reduced the financial penalties or softened the language in the settlement.

What's new here is not simply the shrinking of the SEC's staff and budget, but the deliberate stripping of powers that the SEC long held. Yes, Congress can and does occasionally do this, but not the agency's own leaders, especially without advance notice or an opportunity for comment. The current SEC commissioners are consciously weakening the agency's leverage in negotiations with large corporate defendants.

Participants in the capital markets rely on SEC settlements not only for the dollars paid by defendants available for restitution but also for the signal the settlements send about what conduct crosses the line. This signal turns to static if defendants are allowed to repudiate allegations to which they just agreed "without admitting or denying" these very same allegations. The results will be fewer dollars paid by defendants in SEC settlements, and fuzzier standards of financial conduct.

John C. Coffee, Jr. is the Adolf A. Berle Professor of Law at Columbia University Law School and director of its Center on Corporate Governance.

Robert Pozen is a distinguished senior lecturer at the MIT Sloan School of Management and former president of Fidelity Investments.

-John C. Coffee, Jr. -Robert Pozen

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June 20, 2026 14:28 ET (18:28 GMT)

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