A federal judge approved Elon Musk’s $1.5 million settlement with the Securities and Exchange Commission, while saying the deal raises serious concerns about whether the agency gave Musk unusually soft treatment.
US District Judge Sparkle Sooknanan, who sits in the District of Columbia and was appointed by President Joe Biden, said in an order that she had “significant misgivings” about the agreement. She also pointed to “red flags” in the SEC’s handling of the case. Even so, she concluded that the law gives courts only a narrow role when reviewing settlements negotiated by federal agencies.
“That means that this Court must accept the Parties’ consent judgment,” Sooknanan wrote. She added that whether the SEC did enough to hold Musk accountable is a question for voters, not for the court under the applicable precedent.
The settlement resolves a case the SEC filed in January 2025, shortly before Biden left office. The agency accused Musk of violating disclosure rules after he built a 9 percent stake in Twitter in 2022 and did not disclose it within the 10-day deadline required by US securities law.
According to the SEC’s complaint, the delayed filing let Musk keep buying Twitter shares at prices that did not reflect his growing position, causing selling shareholders to receive at least $150 million less than they otherwise would have. Musk later bought Twitter outright in 2022.
The penalty is far smaller than the alleged investor harm
Sooknanan noted that the SEC had previously sought disgorgement, a remedy meant to claw back allegedly improper gains, in the range of $150 million. The final deal requires a trust in Musk’s name to pay a $1.5 million civil penalty to the government.
The judge wrote that the penalty, while described by the SEC as the largest of its kind in the agency’s history, amounts to about 1 percent of the money allegedly at issue.
The SEC accused Musk of violating Section 13(d), a disclosure rule that applies under a strict liability standard. In plain English, the government does not have to prove that a late filing was intentional. Missing the deadline can be enough.
Under the settlement, Musk and the trust do not admit wrongdoing. The injunction against future violations applies to the trust, not to Musk personally, although Sooknanan wrote that it appears to bind him in his role as trustee. She said that structure could let Musk publicly claim he had been cleared.
The SEC also abandoned its request for disgorgement. Sooknanan wrote that this means the settlement will not compensate investors allegedly harmed by the late disclosure. The SEC told the court that it has authority to seek disgorgement but has not historically obtained that remedy in this kind of case.
The trust structure bothered the court
In May, Sooknanan told lawyers for Musk and the SEC that she would not rubber-stamp the agreement. She asked whether the deal was affected by improper collusion, corruption, or special treatment.
In the final order, she said the settlement met the “minimum” legal standards for fairness and reasonableness. The SEC and Musk’s lawyers told the court the agreement followed more than a year of negotiations, and that each side gave up something to avoid litigation risk.
Sooknanan still described the arrangement as unusual. The SEC acknowledged that it had not previously settled a Section 13(d) case with a trust while excluding the trustee or beneficiary. Here, the trust is revocable, and Musk is both its sole trustee and sole beneficiary.
The SEC told the court that Musk requested substituting the trust into the settlement, and that the agency accepted that as part of the compromise. Sooknanan wrote that the court was left to wonder whether other accused securities-law violators would receive the same consideration.
That concern was not enough to block the deal. Sooknanan said precedent prevents a district court from deciding whether a settlement is the best possible outcome for the public. The agreement imposes a penalty and includes an injunction tied to future violations, which was enough under the governing standard.
The result is an approval with clenched teeth: the court accepted the deal, while making clear that the SEC’s choices in the Musk case deserve scrutiny outside the courtroom.
This story draws on original reporting from Ars Technica.
