A federal judge appointed by President Biden has reluctantly approved the Securities and Exchange Commission's settlement with Elon Musk regarding his disclosures of Twitter share purchases. U.S. District Judge Sparkle Sooknanan expressed "significant misgivings" and noted "red flags" surrounding the accord.
In her decision, Sooknanan stated that her role in assessing the settlement's fairness was limited. She questioned whether the agreement adequately held Musk accountable and whether the Trump administration had been too lenient. "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."
The settlement requires a trust in Musk's name to pay $1.5 million to resolve SEC claims that Musk took 11 days too long in March and April 2022 to disclose his early purchases of Twitter shares. The SEC alleged that this delay allowed Musk to buy shares at lower prices before the market reacted to his significant investment.
Musk, who ultimately acquired Twitter for $44 billion in October 2022 and renamed it X, has stated the delay was inadvertent. He also leads Tesla and SpaceX and is considered one of the wealthiest individuals globally.
Questions About Disgorgement and Special Treatment
Judge Sooknanan specifically questioned why the SEC dropped its demand for Musk to forfeit any ill-gotten gains. She noted that the SEC's justification of not historically seeking disgorgement in similar cases raised questions about the propriety of the settlement. "Query what that says about the propriety of settling in the first place," she wrote.
She further probed why the SEC settled with Musk's trust, which allowed Musk to publicly claim he had been cleared of wrongdoing. Sooknanan wondered if this represented a "one-time deal designed for Mr. Musk negotiated without the involvement of the SEC lawyers litigating this case," implying a potential for special treatment.
The SEC has stated that the settlement did not result from collusion and that the $1.5 million penalty was the largest of its kind for such violations. The agency also argued that the public benefited from an injunction binding Musk when acting through his trust, an investment vehicle he uses for much of his wealth.