SEC Defends Musk Settlement Over Twitter Share Disclosure, Calling It a ‘Compromise’
The U.S. Securities and Exchange Commission pushed back against judicial skepticism over its settlement with Elon Musk, arguing in a court filing late Monday that the $1.5 million penalty was the product of arms-length negotiations and reflected compromises from both sides, not improper collusion.
The filing came in response to questions from U.S. District Judge Sparkle Sooknanan, who at a May 13 hearing said the agreement raised “red flags” and questioned why the penalty targeted a trust controlled by Musk instead of the billionaire himself, and why it recouped just 1% of what the agency estimated as $150 million in ill-gotten gains.
The SEC’s case centered on Musk’s failure to disclose within the legally required 11-day window his accumulation of Twitter shares in March and April 2022. The regulator argued the delay allowed Musk to buy shares at artificially low prices before the market caught on. Musk has maintained the omission was inadvertent. He ultimately purchased Twitter for $44 billion in October 2022 and renamed it X.
In its defense, the SEC said the settlement, if approved, would have the “practical effect” of binding Musk whenever he acts through the Revocable Trust, an investment vehicle he uses to manage much of his wealth. The agency also noted that the $1.5 million penalty was the largest of its type for a disclosure violation, and that it reflected a recent policy shift allowing defendants to publicly deny allegations while still settling.
The case has taken on political overtones. Musk, a former adviser to Republican President Donald Trump, has accused the SEC of targeting him for political reasons. The Trump administration has broadly scaled back corporate enforcement activity as SEC Chair Paul Atkins refocuses the agency’s priorities. Meanwhile, former SEC enforcement chief Margaret Ryan, who abruptly left the agency in March after just six months on the job, had reportedly clashed with leadership over enforcement direction.
Lawyers for Musk did not immediately respond to requests for comment. The judge has not yet ruled on whether to approve the settlement, which would close one of several regulatory battles Musk has faced over his dealings with the SEC.