There are many obstacles to publishing a book: editing, design, marketing, and more. But the Cato Institute, a D.C.-based think tank that has published hundreds of books, finds itself facing a new obstacle: the law. In 2018, Cato signed a contract to publish a book written by an American businessman who says he was the victim of egregious government overreach at the hands of overzealous officials from the Securities and Exchange Commission (SEC). The problem? Publishing the book is actually illegal.

The issue is that the author was the subject of an SEC investigation. Faced with mounting legal bills and the prospect of stiff criminal penalties, he—like many others facing similar enforcement actions—chose to admit no wrongdoing and settle with the agency, rather than fight it in court. But there was only one catch: he had to promise to never suggest (or allow anyone else to suggest) that he was not actually guilty of every single thing the SEC alleged.

Gag orders like these are astonishingly common. In fact, for more than 40 years, the SEC has refused to settle any enforcement actions unless the defendant agrees to exactly this sort of gag order. And other agencies do the same thing. Faced with the risk of truly staggering penalties and years of litigation, many people—including, most recently, Tesla co-founder and CEO Elon Musk—understandably agree to resolve the matter quickly by promising in return to never criticize their prosecutors.

But government officials cannot be allowed to use the threat of overwhelming penalties and costly litigation to coerce people into forfeiting their First Amendment rights to speak freely. Perhaps many of the SEC’s prosecutions are just; perhaps all of them are. But the best way to determine if government agents are overstepping their bounds is to have a public debate about it—which is precisely what these gag orders prohibit. Healthy debate about the SEC’s expansive discretion and enforcement powers is being suppressed because the SEC is using those enormous powers to coerce people into promising not to criticize how the SEC uses them.

This is unconstitutional. Simply put, the SEC should not be in charge of who is allowed to criticize the SEC. And the government certainly cannot tamp down criticism by forbidding private citizens from telling the stories of their own lives.

To vindicate those principles, the Cato Institute joined forces with the Institute for Justice to file a lawsuit challenging the SEC’s nationwide practice of demanding gag orders as a condition of settlement and to seek a court order allowing Cato to tell one man’s story notwithstanding the gag order in place. Unfortunately, the district court dismissed the case on standing grounds and, on July 6, 2021, the D.C. Circuit affirmed. As a result, the story at issue in the case will almost certainly never be told.

Case Team



Case Documents

Media Resources

Get in touch with the media contact and take a look at the image resources for the case.

J. Justin Wilson Vice President for Communications [email protected]

Press Releases

Censorship Embedded in Controversial Settlements

It is not unusual for federal agencies to enter into settlements that, like the one at the heart of this case, allow defendants to “neither admit nor deny” any of the allegations against them. Proponents of these settlements say that they are a way to save prosecutorial resources while securing results. But there are critics as well. They argue there is real danger in them: Unlike ordinary criminal law enforcement, where a defendant is either convicted after a trial or pleads guilty to specific conduct, these “neither admit nor deny” settlements allow the government to impose punishment without actually establishing that any law was broken. As Judge Jed Rakoff of the Southern District of New York has noted, “the potential for abuse in imposing penalties on the basis of facts that are neither proven nor acknowledged is patent.” 1

That is an important policy debate. And it is one that demands more oversight, not less. But by systematically silencing one of the most important parts of that debate—the accused individuals —agencies like the SEC do their best to keep the entire system shrouded in darkness.

The result is a system where the press and the public hear only one side of the story: The SEC issues press releases detailing its allegations at the beginning of an enforcement action, and then it enters into settlements in which the accused is forced to promise never to dispute any of those allegations in public.

That one-sided story is very much intentional. Indeed, the SEC has explicitly stated that the entire point of the gag-order requirement is to protect its reputation. In 1972, when it first instituted its policy of demanding gag orders in all settlements, the SEC explained that “it is important to avoid creating, or permitting to be created, an impression that a decree is being entered or a sanction imposed, when the conduct alleged did not, in fact, occur.” 2 In other words, the SEC demands gag orders in order to prevent bad publicity about its enforcement activities.

A Controversial Prosecution

Ordinarily, in an article of this sort, this is the part where we would tell you the story of the human being at the center of the controversy. An entrepreneur and a self-starter, he believes that  his business dealings were derailed by shifts in the global economy—and that the SEC falsely accused him of malfeasance, using its overwhelming power to bully him into settling. As part of that, he promised to not contest the SEC’s laundry list of allegations even though he admitted—at most—to inadequately supervising some junior employees. We would tell you the story of a man who made small mistakes—if he even made those—and was threatened with life-ruining litigation unless he promised never to speak out in the face of the SEC’s public efforts to paint him as a villain.

But we can’t tell you that story. And neither can anyone else. It’s illegal.

A Banned Book

The Washington, D.C.-based Cato Institute has long been concerned with the overwhelming power of law enforcement and particularly with the use of that power to coerce factually innocent defendants into plea bargains. No wonder, then, that Cato jumped at the opportunity to publish a firsthand account of an American entrepreneur who believe she was subject to just such a coercive plea bargain at the hands of a federal agency.

In 2018, Cato signed a contract to publish his account, a book-length first-person narrative of exactly what happens when government regulators decide you should be punished—no matter how innocent you believe yourself to be.

But, despite the contract and having made substantial investments in editing the book, Cato finds itself at a standstill because it is illegal to actually publish the book. As part of settling the SEC’s enforcement action, the author was required (as all defendants are) to sign a gag order preventing him from making any public statements questioning any of the allegations the SEC had made against him in the case even though he does not admit—and the SEC never proved—that he engaged in any serious wrongdoing at all. Under the terms of the gag order, the author can privately say whatever he wants—as he has to the staff at Cato—but he cannot legally make (or allow Cato to make) any public statements about what he believes to be the true history of his prosecution.

This violates the author’s First Amendment rights—and Cato’s. Nothing is more fundamental to the First Amendment than the right to publish a book critical of the government. And there is perhaps no right more personal than the right to tell your own story–to publicly recount events that happened in your own life from your own perspective. That is why Cato has joined forces with the Institute for Justice to file a lawsuit seeking to vindicate their right to publish a book critical of government officials and to put a stop to the nationwide practice of leveraging unchecked prosecutorial power to coerce people into waiving their First Amendment rights.

A Nationwide Pattern

Since the SEC’s adoption of its gag-order policy in 1972, other regulators have followed suit: federal enforcement officials like the Consumer Financial Protection Bureau and the Commodity Futures Trading Commission use similar language in settlement agreements, as do various state-level regulators. The trend is clear: All across the country, regulators are using the threat of overwhelming penalties to force people to waive their First Amendment right to criticize those very regulators.

These gag orders represent a troubling expansion of prosecutorial power. When law enforcement officials use other tools like plea bargains or non-prosecution agreements, law enforcement and defendants have to agree on a set of facts: defendants admit they did (or that the government can prove) certain things, and that basic factual agreement provides a basis for punishment or other further actions. But in gag-order settlements, the parties expressly note that they do not agree on the facts. Despite that disagreement, defendants are forced to promise not to publicly dispute any of the government’s allegations.

And defendants make that promise in the face of overwhelming government power. Enforcement actions can be ruinously expensive to defend, and if a defendant loses at trial, penalties can quickly reach seven figures or more. Faced with those costs and risks, it is no surprise that defendants of every stripe frequently agree to accept lesser penalties in order to escape life-ruining consequences. But, following the lead of the SEC, regulators are increasingly unsatisfied with traditional agreements where defendants agree to certain penalties and the agencies drop other charges (that, perhaps, they would have been unable to prove). Increasingly, regulators demand that defendants tack on an additional promise not to subject the regulators to public scrutiny. That promise is something that regulators could not hope to achieve through the litigation; instead, they are trading the threat of their overwhelming power in exchange for a promise that a defendant won’t interfere with their positive press coverage. That sort of trade is simply at odds with basic ideas of a free society: The public and reporters have a right to know how government agencies actually use their vast enforcement powers, and hearing both sides of the story is an essential first step in vindicating that right to know.

Legal Claims

Gag orders like the ones at the center of this case are content-based restrictions on speech. The Supreme Court has already struck down laws prohibiting criminal defendants from speaking about their prosecutions, and there is little question that a law or regulation prohibiting defendants from disputing the allegations in SEC enforcement actions would also be held unconstitutional.

The only question, then, is whether the SEC can use the threat of its enforcement powers to get by agreement what it could not get by regulation. But the Constitution is not so easily evaded: Courts have held that government officials may not use their vast powers to impose “unconstitutional conditions”—that is, they may not, for example, use their discretionary funding power to suppress ideas. The basic idea behind the doctrine is that the government has enormous powers—the power to spend huge sums of money, for example, or the power to subject alleged wrongdoers to enormous penalties or even just cripplingly expensive litigation. If the government can leverage these enormous powers to coerce people into giving up their constitutional rights–like their right to free speech—then those constitutional rights aren’t meaningful rights at all. Put differently, there is not much difference between a government official saying “I will fine you a million dollars if you criticize the government” and a government official saying “I will do something that costs you a million dollars unless you promise never to criticize the government.” If the first is unconstitutional—and it is—then so too is the second.

Simply put, the current system puts SEC officials in charge of who will be allowed to criticize SEC officials. The First Amendment does not permit government officials to wield this kind of power, and Cato’s lawsuit will reaffirm the basic American right to criticize the government.

The Litigation Team

The case is being litigated by IJ attorneys Robert McNamara and Jaimie Cavanaugh.

The Institute for Justice

The Institute for Justice is the national law firm for liberty. IJ is a public interest law firm that advances a rule of law under which individuals can control their destinies as free and responsible members of society. Through litigation, communication, outreach and strategic research, IJ secures protection for individual liberty and extends the benefits of freedom to those whose full enjoyment is denied by the government. IJ is based in Arlington, Virginia, and has offices in Arizona, Florida, Minnesota, Texas and Washington state, as well as a Clinic on Entrepreneurship at the University of Chicago Law School. IJ has fought nationwide to stop the use of government power to force people to give up their fundamental constitutional rights, challenging New York City’s practice of using the threat of forcible eviction to force tenants and business owners to give up their Fourth Amendment rights and successfully dismantling the City of Philadelphia’s unconstitutional use of civil forfeiture to force property owners to give up their rights.

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