Are SEC Gag Orders Unconstitutional? – SEC Defendant Asks Court to Lift Restrictions

Stinson - Corporate & Securities Law Blog

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The New Civil Liberties Alliance has filed a Motion for Relief from Judgment with the U.S. District Court for the Southern District of New York on behalf of Barry D. Romeril. Mr. Romeril served as the Chief Financial Officer of the Xerox Corporation from 1993-2001.

NCLA has asked the court to remove a gag order placed on Mr. Romeril on June 5, 2003 as part of a Consent Order with the Securities and Exchange Commission (SEC) because it violates the First Amendment of the U.S. Constitution. Despite the passage of nearly 16 years, Mr. Romeril continues to be bound by the gag order provision.  You can find the associated Memorandum of Law here.

Left unsaid is what Mr. Romeril has to say after lo, these many years,

The Consent purports to permanently forbid him from contesting any of the allegations in the Commission’s Complaint against him, regardless of the accuracy of those allegations or the truth of Mr. Romeril’s remarks. He faces the threat of reopened and renewed prosecution even for truthful speech challenging the allegations. NCLA contends that the Gag Order is a content-based restriction of speech, a forbidden prior restraint, and that it gives the SEC unbridled enforcement discretion by silencing Mr. Romeril in perpetuity.

Six defendants, including Mr. Romerli, agreed to pay over $22 million in penalties, disgorgement and interest without admitting or denying the SEC’s allegations. The SEC’s complaint alleged that the Xerox executives, including Mr. Romerli, engaged in a fraudulent scheme that lasted from 1997 to 2000 that misled investors about Xerox’s earnings to polish its reputation on Wall Street and to boost the company’s stock price. The scheme involved the use of accounting devices that were not disclosed to investors, many of which violated generally accepted accounting principles. The complaint alleged that the defendants’ fraudulent conduct was responsible for accelerating the recognition of equipment revenues by approximately $3 billion and increasing pre-tax earnings by approximately $1.4 billion in Xerox’s 1997-2000 financial results.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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