A federal judge on Wednesday cast doubt on the motives behind the Securities and Exchange Commission’s $1.5 million settlement over Elon Musk’s purchase of Twitter, suggesting the deal may have been inked with the sole purpose of avoiding penalizing him personally.
US District Judge Sparkle Sooknanan in Washington, DC, last week had summoned attorneys for both sides to appear before her to discuss the settlement, which the judge said had a string of “irregularities” that required in-depth explanation. She reiterated that she could not “rubber stamp” their agreement.
Last year, the SEC accused Musk of waiting too long to disclose the buildup of his shares in Twitter in 2022. This month, the SEC removed Musk as a defendant and replaced him with a legal trust bearing his name.
The settlement also dropped demands for the return of $150 million in allegedly ill-gotten gains, and reduced the total amount sought by 99%. The judge said these terms were “red flags.”
“Given all the irregularities I have noted, I have concerns,” the judge said.
Sooknanan also noted that SEC lawyers at a prior hearing to discuss the case had appeared surprised when lawyers for Musk revealed that they had been in settlement talks with the agency.
“That’s a red flag to me,” Sooknanan said.
Representatives for Musk did not immediately respond to a request for comment. An SEC spokesperson declined to comment.
The judge has said she must consider several factors, including the settlement’s fairness to both sides, whether it is consistent with the public interest, and whether it is “tainted by improper collusion or corruption.”
Wednesday’s court hearing was the latest twist in a years-long dispute between the SEC and the Tesla boss over his $44 billion purchase of Twitter which closed in October 2022.
While the penalty the SEC imposed on Musk’s trust was a fraction of what it originally sought, it was still the largest in SEC history for the type of violation he was accused of, a person familiar with the settlement said at the time.
On Wednesday, Sooknanan asked lawyers for both sides to explain why they had structured the settlement to remove Musk personally as a defendant, suggesting it had been crafted “for the sole purpose of Mr. Musk being able to say that no relief was entered.”
Musk is a former adviser to President Trump, and has claimed the lawsuit was politically motivated. He has also said the delayed disclosure was inadvertent.
The Trump administration has curtailed some types of corporate enforcement activity as Chair Paul Atkins refocuses the regulator’s priorities.
Former SEC enforcement chief Margaret Ryan, who left abruptly in March after just six months on the job, had clashed with agency leaders over the direction of its enforcement program, Reuters reported.
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