Later, More Lenient SEC Sweep Settlements Do Not Justify Modifying a Final Settled Order Absent Rufo-Type Changed Circumstances; Post Hoc Waiver Arguments Are Barred

1. Introduction

In Apex Clearing Corporation v. Securities and Exchange Commission (5th Cir. Aug. 25, 2026) (No. 25-60330) (per curiam, unpublished), a registered broker-dealer sought judicial review of the SEC’s denial of its motion to modify “undertakings” contained in an earlier SEC settled administrative order. The dispute arose from the SEC’s multi-year “off-channel communications” enforcement sweep under the Exchange Act’s recordkeeping regime, where Apex settled in August 2024 on terms that included undertakings triggering costly, heightened FINRA supervision. In January 2025, later-settling firms received materially less severe settlements that omitted those undertakings.

Apex’s central theory was inequity: similarly situated firms later received better settlement terms, and the SEC should modify Apex’s settled order to match. The SEC denied modification in Certain Off-Channel Commc'ns Settled Ords., Exchange Act Release No. 6874, 2025 WL 1101495 (Apr. 14, 2025). The Fifth Circuit affirmed, holding that the SEC’s denial was not arbitrary or capricious under the APA.

2. Summary of the Opinion

The Fifth Circuit denied Apex’s petition for review. It held:

  • The SEC could not newly argue in court that Apex waived judicial review of the settled order, because the waiver theory was not presented in the administrative record (invoking the Chenery/post hoc rationalization bar).
  • The “order under review” was the SEC’s denial of the motion to modify, not the original settled order; the correct inquiry was whether the SEC treated Apex’s modification request consistently with other modification requests and adequately explained its reasoning.
  • The SEC reasonably applied a demanding modification standard informed by Rufo v. Inmates of Suffolk Cnty. Jail, 502 U.S. 367 (1992): later parties receiving more favorable settlements is not a “significant change” in fact or law warranting modification; “settlor’s remorse” is insufficient.
  • Apex’s principal SEC precedent, Millennium Partners, L.P., Securities Act Release No. 4458, 2016 WL 3902753 (July 19, 2016), was distinguishable; it did not establish a general rule that inequity relative to later settlements requires modification.
  • Even accepting the apparent inequity across sweep waves, settlement terms may vary; agencies have discretion in settlement, and Apex consented to its undertakings.

3. Analysis

3.1. Precedents Cited

Administrative law and APA review

  • Chamber of Com. v. SEC, 85 F.4th 760 (5th Cir. 2023): Cited for applying APA standards to SEC actions reviewed under 15 U.S.C. § 78y and for the requirement that an agency “reasonably considered the relevant issues and reasonably explained” its decision. This anchors the court’s framework: Apex wins only if the SEC’s explanation fails APA reasoned-decisionmaking review.
  • Nat'l Ass'n of Priv. Fund Managers v. SEC, 151 F.4th 252 (5th Cir. 2025): Supplies the review template—legal questions de novo; factual findings conclusive if supported by substantial evidence—while still assessing the challenged agency action under APA standards.
  • Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) and Burlington Truck Lines v. United States, 371 U.S. 156 (1962): Provide the canonical “rational connection” requirement and the prohibition on courts supplying reasons the agency did not give. The opinion uses these cases to emphasize that Apex must show an explanatory failure, not simply an undesirable outcome.
  • Univ. of Tex. M.D. Anderson Cancer Ctr. v. U.S. Dep't of Health and Hum. Servs., 985 F.3d 472 (5th Cir. 2021) and Marsh v. Or. Nat. Res. Council, 490 U.S. 360 (1989): M.D. Anderson is pivotal to Apex’s “treat like cases alike” argument. The court construes that principle as part of State Farm’s reasoned-explanation requirement rather than an independent ground. This reframing narrows Apex’s path: it must show (i) disparate treatment of similarly situated parties and (ii) inadequate explanation for the departure.
  • Shenzhen IVPS Tech. Co., Ltd. v. FDA, 148 F.4th 306 (5th Cir. 2025) (quoting Burlington N. & Santa Fe Ry. Co. v. Surface Transp. Bd., 403 F.3d 771 (D.C. Cir. 2005)): Supplies the doctrinal statement that arbitrariness can arise when an agency fails to adequately explain why it treated similarly situated parties differently. The Fifth Circuit uses this as the operative two-step test (“two canal locks”).
  • Louisiana v. U.S. Dep't of Energy, 90 F.4th 461 (5th Cir. 2024) and SEC v. Chenery Corp., 318 U.S. 80 (1943): These cases drive the opinion’s rejection of the SEC’s appellate “waiver” argument. Under Chenery, agency action is judged on the reasons stated in the record; under Louisiana, new arguments not raised administratively cannot be advanced on review. This is a concrete procedural holding: even if waiver might have been a plausible defense, the SEC forfeited it by not making it below.

Modification standards and settlement finality

  • Rufo v. Inmates of Suffolk Cnty. Jail, 502 U.S. 367 (1992): The court treats Rufo (Rule 60(b)(5) consent-decree modification) as instructive for what qualifies as a significant change in facts or law. It stresses the theme of the Rufo examples—unworkability or public-interest detriment—and holds that later, more favorable settlements for other parties do not fit that theme.
  • Richard D. Feldman, Exchange Act Release No. 77803, 2016 WL 2643450 (May 10, 2016): Referenced by the SEC as Commission authority for the proposition that a settling party assumes the risk that litigating or later parties may obtain a better outcome; this supports the “settlor’s remorse” rationale the Fifth Circuit ultimately accepts as reasonable.
  • S.E.C. v. Citigroup Glob. Markets, Inc., 752 F.3d 285 (2d Cir. 2014) and Powell v. United States Sec. & Exch. Comm'n, 149 F.4th 1029 (9th Cir. 2025): Used to support the proposition that the SEC has discretion to settle on particular terms and is not required to offer identical settlements, even for similar violations. The Fifth Circuit uses these cases to undercut Apex’s fairness argument as a basis for compelled modification.

SEC modification “comparators”

  • Millennium Partners, L.P., Securities Act Release No. 4458, 2016 WL 3902753 (July 19, 2016): Apex relied on this as an SEC example of modifying undertakings. The Fifth Circuit, echoing the SEC, reads it narrowly: modification there turned on “particular circumstances,” including that the Division did not oppose relief, the order had become unworkable, and the modification would sunset an indefinite obligation. Those features were missing for Apex.
  • In re Putnam Inv. Mgmt., LLC, Rel. No. IAA-3600 (May 3, 2013); In re Mass. Fin. Servs. Co., Rel. No. IAA-3312 (Nov. 9, 2011); In re Janus Cap. Mgmt., LLC, Rel. No. IAA-3065 (Aug. 5, 2010); In re MDC Holdings, Inc., Rel. No. 34-39537 (Jan, 9, 1998): Mentioned but not analyzed because the opinion finds they do not address modification based on inequity.

3.2. Legal Reasoning

  1. Identify the reviewable action: The court accepts the SEC’s framing: judicial review targets the SEC’s denial of Apex’s modification motion (the “Order”), not a direct challenge to the original settled order’s substantive terms.
  2. Enforce Chenery constraints on appellate defenses: The SEC’s waiver theory (relying on 17 C.F.R. 201.240(c)(4)) was not raised in the record; therefore, the court refuses to consider it under Louisiana v. U.S. Dep't of Energy and SEC v. Chenery Corp. This preserves the integrity of record-based review and prevents agencies from salvaging decisions with new litigation positions.
  3. Translate “treat like cases alike” into a reasoned-explanation inquiry: Citing M.D. Anderson and State Farm, the court rejects Apex’s attempt to treat differential outcomes as a standalone violation. Differential treatment matters only insofar as it reflects inadequate explanation or irrational distinction.
  4. Apply a high bar for modifying settlements: The SEC required “compelling or extraordinary circumstances.” Looking to Rufo, the Fifth Circuit agrees that modification requires a significant change in fact or law, and that Apex’s asserted change—later firms negotiating better terms—does not qualify because it does not show unworkability or public-interest detriment.
  5. Distinguish the main SEC comparator: The court treats Millennium Partners, L.P. as fact-bound and non-generalizable, emphasizing (a) Division non-opposition, (b) unworkability, and (c) relief that terminated an otherwise indefinite obligation—none present for Apex.
  6. Accept settlement variability as lawful discretion: The court acknowledges the inequity but finds no APA defect: the SEC may settle differently across waves, and Apex consented to its undertakings. The opinion crystallizes this into a practical principle: absent a qualifying change in circumstances, “being early” in a sweep and receiving harsher terms does not itself make the SEC’s later refusal to modify arbitrary or capricious.

3.3. Impact

  • For respondents in SEC sweeps: The decision is a warning that “settlement disparity” arguments—standing alone—are unlikely to unlock post-settlement relief. Later, more lenient sweep settlements do not create an APA entitlement to retroactive equalization.
  • For SEC practice: The opinion reinforces that finality interests can justify a demanding modification standard and that varied settlements may be defended as an exercise of enforcement discretion. At the same time, the dissent quoted in the SEC’s underlying Order (not the Fifth Circuit) highlights reputational and legitimacy risks when sweep remedies shift without transparent explanation—pressure that may play out in policy rather than litigation.
  • For administrative law in the Fifth Circuit: The case operationalizes two important constraints: (i) “treat like cases alike” functions through State Farm’s reasoned-explanation lens, not as a free-standing cause of action; and (ii) Chenery bars agencies from introducing new defenses (like waiver) on appeal when not preserved in the administrative record.
  • For settlement modification doctrine by analogy: By embracing Rufo as “instructive,” the Fifth Circuit signals that parties seeking to alter SEC settlements should marshal evidence of unworkability, legal change, or public-interest harm—not simply comparative unfairness.

4. Complex Concepts Simplified

  • Exchange Act § 17(a)(1) and Rule 17a-4: These require broker-dealers to create and retain specified records for prescribed periods. In modern practice, that includes preserving business communications even when sent on personal phones or messaging apps (“off-channel communications”).
  • SEC “undertakings” in settlements: Undertakings are affirmative commitments imposed as settlement terms that go beyond basic statutory compliance—often compliance enhancements, reporting, certifications, or third-party reviews. Here, the key practical consequence was triggering FINRA processes that lead to heightened supervision and cost.
  • FINRA heightened supervision trigger: The opinion explains that certain SEC undertakings can cause an “immediate disqualif[ication]” from FINRA membership, requiring re-application and, upon approval, heightened supervision under FINRA rules—turning SEC settlement language into substantial operational burdens.
  • APA “arbitrary and capricious” review: A court does not decide what policy is best; it checks whether the agency considered relevant issues and offered a rational explanation grounded in the record.
  • Chenery / post hoc rationalizations: Agencies must stand or fall on the reasons they gave at the time. New justifications created during litigation—like the SEC’s waiver argument here—are generally barred.
  • Rule 60(b)(5) and Rufo (by analogy): In civil litigation, courts may modify prospective orders when continued enforcement is no longer equitable due to significant factual or legal change. The SEC and the Fifth Circuit treated that concept as a useful benchmark: modification is exceptional, not routine, and not justified by later parties receiving better deals.

5. Conclusion

Apex Clearing v. SEC solidifies (at least as persuasive, albeit unpublished, Fifth Circuit guidance) a disciplined framework for reviewing SEC refusals to modify settled orders: (1) courts review the denial of modification under APA reasoned-decisionmaking principles; (2) “treat like cases alike” operates through the requirement of adequate explanation, not as an independent veto; (3) later, more lenient sweep settlements are not a “significant change” justifying modification under a Rufo-informed standard; and (4) agencies cannot rescue their decisions with new appellate theories barred by Chenery.

The practical takeaway for regulated entities is stark: when settling, assume that later waves may get better terms, and structure negotiations accordingly—because post-settlement “equalization” is unlikely absent unworkability, legal change, or comparable extraordinary circumstances demonstrated in the record.