Judge Questions SEC’s Settlement with Elon Musk

A federal judge raised concerns on Wednesday regarding the motives behind the Securities and Exchange Commission’s (SEC) $1.5 million settlement related to Elon Musk’s acquisition of Twitter. The judge hinted that the agreement might have been crafted mainly to shield Musk from personal consequences.

U.S. District Judge Sparkle Skunanan, during a recent court session, called on attorneys from both sides to clarify the settlement’s details. She pointed out “irregularities” that warranted further scrutiny, emphasizing that agreements are not to be “rubber stamped.”

The SEC accused Musk last year of delaying the disclosure of his Twitter stake in 2022. Recently, the SEC replaced Musk as a defendant with a legal trust associated with him.

The terms of the settlement also included the withdrawal of a demand for $150 million in alleged ill-gotten gains, reducing the SEC’s original claim by a staggering 99%. The judge described these alterations as “red flags.”

“I have significant concerns given all the irregularities I’ve noticed,” the judge stated.

Judge Sukunanan also highlighted an incident from a preliminary hearing where SEC lawyers seemed caught off guard when Musk’s legal team disclosed they were negotiating a settlement.

“That’s a red flag for me,” Sukunanan remarked.

A representative for Musk did not provide a comment. An SEC spokesperson also chose not to respond.

The judge expressed the need to evaluate various factors, such as whether the settlement was equitable for both parties, aligned with public interests, and free from any questionable collusion or corruption.

This court hearing marks the latest chapter in an ongoing conflict between the SEC and Tesla’s president stemming from the $44 billion Twitter acquisition that concluded in October 2022.

Although the SEC’s fine against Musk’s trust was significantly lower than its initial request, it remains the largest fine in SEC history for such violations, according to settlement officials.

On Wednesday, Judge Suknanan pressed the attorneys to clarify why they opted for a settlement that excluded Musk personally, suggesting it may have been engineered “solely to allow Mr. Musk to assert there’s no personal liability.”

Musk, who previously advised former President Trump, alleges that the lawsuit is driven by political motives. He insists that any delay in disclosure was unintentional.

Under the Trump administration, some corporate enforcement efforts have been less stringent, as Chairman Paul Atkins has shifted the agency’s focus.

Margaret Ryan, who previously directed enforcement at the SEC, abruptly left her position in March after only six months, reportedly due to conflicts with agency leadership regarding enforcement strategies.