A federal judge raised serious doubts on May 12 about the fairness of a proposed $1.5 million settlement between Elon Musk and the Securities and Exchange Commission in a lawsuit over Musk's delayed disclosure of Twitter shares [1, 2].
Judge Sparkle Sooknanan said she could not "rubber stamp" the agreement and highlighted multiple "red flags" during the hearing, questioning whether Musk was receiving special treatment [1, 2]. "Is Mr. Musk getting some kind of special treatment in this case?" she asked [2].
The SEC lawsuit alleges that Musk failed to disclose within 10 days his purchase of a 9 percent stake in Twitter in 2022, as required by law [2]. This omission allegedly allowed him to buy shares at artificially low prices, costing other shareholders at least $150 million [2]. The SEC had initially sought penalties of $150 million [2].
The proposed settlement requires Musk to pay only a $1.5 million civil penalty through a trust in his name and does not require him to admit any wrongdoing [2]. Judge Sooknanan expressed concern that the reduction from $150 million to $1.5 million and the use of a trust rather than Musk personally for payment raised questions about the deal's validity [2].
At a prior hearing, the judge was also troubled that SEC lawyers appeared surprised by the existence of settlement talks with Musk's lawyers, viewing this as an additional "red flag" [2].
The case highlights tensions over how enforcement actions against high-profile executives are handled. The judge’s response signals close judicial scrutiny of the settlement as she weighs whether to approve it.
The court has yet to decide on final approval of the settlement. Further hearings are likely as Judge Sooknanan reviews the details.
