Securities and Exchange Commission v. Moraes
- Ronnie Abrams
- 1:22-cv-08343
- U.S. District Court · Southern District of New York
- 9
In Securities and Exchange Commission v. Moraes, Judge Abrams approved the settlement but criticized its speech ban as troubling under the First Amendment.
Fernando Motta Moraes, whose settlement was approved and whose agreement restricted public statements about the SEC’s allegations; the SEC, whose settlement policy was criticized; and other defendants who may be asked to accept similar provisions.
What happened
In Securities and Exchange Commission v. Moraes, Fernando Motta Moraes agreed to settle the Securities and Exchange Commission’s enforcement action. The agreement included a “No-Admit-No-Deny Provision” that barred him from publicly denying the allegations or creating the impression that they lacked a factual basis.
The court said the provision raises serious free-speech concerns because it can prevent defendants from criticizing the government or defending themselves publicly. It nevertheless approved the consent agreement because Second Circuit precedent allows parties to waive First Amendment rights in settlements.
Judge Ronnie Abrams approved the agreement reluctantly and criticized the SEC’s continuing use of the provision. She said it may operate as a government-imposed prior restraint and viewpoint-based speech restriction, but the court did not invalidate the provision in this case.
The detailed version
- Securities and Exchange Commission v. Moraes · No. 1:22-cv-08343
- Ronnie Abrams
- Oct. 28, 2022
Background
The Securities and Exchange Commission (SEC) brought an enforcement action against Fernando Motta Moraes. The parties submitted a consent agreement to settle the action. Moraes had signed the agreement, which included the SEC’s standard “No-Admit-No-Deny Provision.”
The provision barred Moraes from taking action or making public statements that directly or indirectly denied allegations in the complaint or created the impression that the complaint lacked a factual basis. It also barred statements that Moraes did not admit the allegations unless he also stated that he did not deny them. If he breached the agreement, the SEC could ask the court to reopen the action and restore it to the active docket.
Court’s analysis
The court explained that it must assess the basic legality, fairness, and reasonableness of a proposed SEC consent decree. The Second Circuit had previously held that parties may waive First Amendment rights in consent decrees and other settlements. Based on that precedent, the court concluded that it could approve the agreement.
The court nevertheless expressed serious concerns about the SEC’s policy. It said conditioning settlement on a defendant’s agreement not to deny the allegations may conflict with the constitutional-conditions doctrine, which generally prevents the government from conditioning a benefit on surrender of a constitutional right. The court also described the provision as having the characteristics of a prior restraint—a restriction imposed before speech occurs—and as a content- and viewpoint-based restriction because it allowed favorable statements about the SEC while restricting statements that could criticize or undermine the agency’s allegations.
The SEC argued that the provision was necessary to prevent the public from being misled when a defendant settled without admissions and later denied the allegations. The court was not persuaded that avoiding those potentially misleading impressions was a compelling governmental interest. Even so, the court did not hold that the provision was invalid in this case, because the Second Circuit’s decision in the earlier related proceeding required approval of the agreement.
Ruling
The court approved the consent agreement at the parties’ request. Judge Ronnie Abrams stated that she did so reluctantly because of the SEC’s continued use of the No-Admit-No-Deny Provision and its effect on public discussion of government enforcement actions. The opinion did not determine whether Moraes committed the alleged securities-law violations.
Read the full 9-page opinion on CourtListener, the free public archive maintained by the Free Law Project.