US court approves Musk-regulator settlement over Twitter shares despite 'red flags'

A US judge approved the SEC's settlement with Elon Musk over delayed disclosure of Twitter share purchases. The order also raised questions about why the regulator eased its claims and settled through Musk's trust.

In Short

• Musk to pay $1.5 million for delayed disclosure of Twitter share purchases
• Judge questions SEC's decision not to seek disgorgement from Musk
• SEC defends settlement as largest penalty of its kind

A federal judge on Wednesday approved the US Securities and Exchange Commission's (SEC) settlement with Elon Musk over his purchase of Twitter shares, despite expressing "significant misgivings" about the agreement and highlighting several "red flags."

US District Judge Sparkle Sooknanan in Washington, DC, said her role was limited to determining whether the settlement met minimum standards of fairness and reasonableness or instead "makes a mockery of judicial power." At the same time, she questioned whether the Trump administration had allowed the world's richest person to avoid greater accountability.

"A court presented with a consent judgment is not a rubber stamp. But neither is it an ombudsman," Sooknanan wrote. "Whether the Executive Branch (through the SEC) has done enough to hold Mr. Musk to account for his alleged violation is, like many other issues, for our citizenry to decide at the ballot box."

Musk is a former adviser to Republican President Donald Trump. Sooknanan was appointed to the bench by former Democratic President Joe Biden.

An SEC spokesperson declined to comment, while Musk's lawyers did not immediately respond to requests for comment.

SETTLEMENT RESOLVES DISCLOSURE DELAY CLAIMS

Under the settlement, a trust in Musk's name will pay $1.5 million to resolve the SEC's claims that he took 11 days too long in March and April 2022 to disclose his early purchases of Twitter shares.

According to the SEC, the delayed disclosure allowed Musk to save $150 million by buying Twitter shares at lower prices before investors became aware of his stake.

Musk has said the delay was inadvertent. He later completed the $44 billion acquisition of Twitter in October 2022 and renamed the platform X.

The social media platform is now part of Musk's rocket and satellite company SpaceX. Musk also leads electric vehicle maker Tesla. According to Forbes magazine, he is worth $927.2 billion.

JUDGE QUESTIONS SEC'S HANDLING OF CASE

In her decision, Sooknanan questioned why the SEC dropped its demand for Musk to surrender alleged ill-gotten gains to compensate affected investors.

She said the SEC's argument that it had not historically sought disgorgement in similar cases "may or may not be fair," but added, "query what that says about the propriety of settling in the first place."

The judge also questioned why the SEC chose to settle with Musk's trust, allowing Musk to publicly claim he had been cleared of wrongdoing.

Sooknanan noted that during a May hearing, SEC lawyers appeared surprised when Musk's legal team revealed settlement discussions had taken place with the regulator.

"The court is left to wonder whether the SEC will afford other alleged securities-law violators such solicitude," Sooknanan wrote. "Or is this a one-time deal designed for Mr. Musk negotiated without the involvement of the SEC lawyers litigating this case?"

SEC DEFENDS AGREEMENT

The settlement was announced on May 4, after former SEC enforcement chief Margaret Ryan left the agency in March following only six months in the role. Ryan had clashed with agency leaders over the direction of its enforcement programme.

In a court filing, the SEC said the settlement did not result from collusion and described the $1.5 million penalty as the largest of its kind.

The regulator also said the public benefited from an injunction that effectively binds Musk when he acts through the trust, describing it as "an investment vehicle that he appears to use to manage much of his wealth."

- Ends