The U.S. Securities and Exchange Commission is asking a federal judge in Washington to approve a $1.5 million settlement with Elon Musk that would end the agency's claims that he dragged his feet in disclosing his stake in Twitter. Under the proposal, a revocable trust tied to Musk would pay the civil penalty and Musk would not admit any wrongdoing. The request, filed on Monday, follows a pointed May hearing where U.S. District Judge Sparkle Sooknanan pressed both sides on how the deal came together.
In its latest court filing, the SEC said the proposed agreement "reflected compromises" and "was not the result of any improper collusion between the parties," and it argued that using a trust to resolve the case "mirrored the SEC's practice in recent cases," according to Reuters. The agency called the $1.5 million penalty the largest of its kind and said the injunction would bind Musk when he acts through the revocable trust, the filing said. The SEC urged the court to weigh the settlement's public benefits as it decides whether to sign off.
Judge flagged 'red flags' in settlement
At a May status hearing, Judge Sooknanan told lawyers she could not simply "rubber stamp" the agreement and said the terms raised several "red flags." She pressed attorneys for the SEC and for Musk to explain why the fine would fall on a trust rather than Musk personally and why the deal would recover only about 1% of the damages the agency claims, according to Bloomberg.
Musk has insisted the late disclosure was inadvertent and has accused the SEC of political motives for filing the suit near the end of the previous administration, according to the court filings and his public comments. The SEC's complaint says Musk was 11 days late in reporting a stake that later grew to roughly 9.2% in April 2022, a lapse the agency says allowed him to save about $150 million before he went on to acquire Twitter for roughly $44 billion in October 2022, Reuters reports.
What judges look for in settlement approval
When judges review consent decrees, they are expected to examine whether the deals are fair, reasonable and free of collusion, and Sooknanan's pointed questions fit squarely within that role, legal observers note. As Law360 and other analysts have explained, courts can demand more briefing or evidence if a settlement's terms or the way it was negotiated looks unusual.
Both sides were ordered to respond to the judge's concerns about how the settlement was reached, and the SEC submitted a brief defending the deal on Monday. The court will review those filings before deciding whether to approve the agreement, Bloomberg reports. If the court declines to approve the settlement, the parties could attempt to renegotiate the terms or head back into full-blown litigation, leaving open broader questions about how the regulator handles high-profile enforcement fights involving marquee names like Musk.
