A US federal judge has criticised the Securities and Exchange Commission’s settlement with entrepreneur Elon Musk over his purchase of Twitter in 2022, saying it raised a string of “red flags” and that she could not “rubber stamp” the agreement.
Under the deal, a legal trust in Musk’s name would pay a $1.5 million (£1m) penalty, which although believed to be a record for the type of offence involved, is 99 percent lower than the SEC’s initial demand.
The regulator had said Musk illegally gained about $150m by delaying the mandated disclosure that he had acquired more than 5 percent of Twitter’s stock, ahead of his eventual purchase of the company.
‘Irregularities’
US District Judge Sparkle Sooknanan in Washington, DC on Wednesday met with lawyers for both sides to explain a string of “irregularities” in the settlement, Reuters reported.
After filing the case last year, shortly before the change of administration on 20 January, this month the agency removed Musk as a defendant and replaced him with a legal trust in his name.
Sooknanan suggested this was “for the sole purpose of Mr. Musk being able to say that no relief was entered”.
Musk is a former adviser to current president Donald Trump and was one of the largest backers of his election campaign in 2024.
In a prior hearing, SEC lawyers appeared surprised when lawyers for Musk said they had been in settlement talks with the agency, of which Sooknanan said, “That’s a red flag to me.”
‘Collusion or corruption’
“Given all the irregularities I have noted, I have concerns,” she said, adding that in deciding whether to approve the settlement, she must consider factors such as its fairness to both sides, whether it is consistent with the public interest, and whether it is “tainted by improper collusion or corruption”.
The SEC has been at pains to indicate that it is taking a business-friendly approach to enforcement, with the agency’s former enforcement chief Margaret Ryan leaving in March after six months after reportedly disagreeing with agency leaders over the direction of the enforcement programme.
