US SEC defends settlement with Elon Musk over Twitter shares

The SEC also said that the settlement if approved will allow Musk to publicly deny its accusations, reflecting a recent policy change governing defendants who settle enforcement actions

The US Securities and Exchange Commission (SEC) defended its settlement with Elon Musk over his purchase of Twitter shares, saying it reflected “compromises” and was not tainted by collusion, after the judge overseeing the case said the accord raised “red flags.”

In a filing in the Washington, DC federal court, the SEC also said in a footnote that the settlement if approved will allow Musk to publicly deny its accusations, reflecting a recent policy change governing defendants who settle enforcement actions.

The settlement requires a trust in Musk’s name to pay $1.5 million to resolve SEC claims that he took 11 days too long in March and April 2022 to disclose his purchase of Twitter shares, letting him buy at low prices before investors caught on. Musk has said the delayed disclosure was inadvertent. He ultimately paid $44 billion for Twitter in October 2022 and renamed it X.

At a May 13 hearing, US District Judge Sparkle Sooknanan said she could not “rubber stamp” the settlement.

She questioned why the SEC fined the trust instead of Musk, and was content to recoup just 1% of his $150 million of alleged ill-gotten gains. The judge also said she must consider whether the settlement served the public interest, and was not tainted by collusion or corruption.

In Monday’s filing, the SEC said the fair, reasonable, and appropriate settlement was not the result of any improper collusion between the parties, but rather arose from arm’s length negotiations among counsel of record, and reflects compromises from each side.

It also maintained that the $1.5 million penalty was the largest of its type, and that settling with the trust mirrored the SEC’s practice in recent cases.

The public benefits from an injunction that has the practical effect of binding Musk whenever he acts through the Revocable Trust, an investment vehicle that he appears to use to manage much of his wealth, the SEC said.