Judge doesn't like Elon Musk settlement with SEC, but says court can't block it - Ars Technica

A federal judge reluctantly approved a $1.5 million settlement between Elon Musk and the Trump administration despite raising numerous concerns about a deal that lets Musk get off lightly for a rule violation that allegedly harmed Twitter investors.

In an order approving the deal, US District Judge Sparkle Sooknanan said she “has significant misgivings about the settlement” between Musk and the Securities and Exchange Commission (SEC), and described “red flags” in the SEC’s decision-making. This isn’t surprising given that she previously questioned whether the deal is tainted by corruption. But there is a high legal bar for rejecting the settlement, and the circumstances do not meet “that high threshold,” she wrote yesterday.

“That means that this Court must accept the Parties’ consent judgment,” Sooknanan, a Biden appointee, wrote. “Whether the Executive Branch (through the SEC) has done enough to hold Mr. Musk to account for his alleged violation is, like many other issues, for our citizenry to decide at the ballot box.”

The settlement ends a lawsuit the Biden-era SEC filed after Musk purchased a 9 percent stake in Twitter in 2022 and failed to disclose it within 10 days as required under US law. The SEC investigated for nearly three years and finally sued Musk in January 2025, in US District Court for the District of Columbia, just before Biden left the White House.

The lawsuit alleged that by not disclosing the stock purchases before the legal deadline, Musk was able to keep buying shares at artificially low prices and underpay Twitter investors by at least $150 million for those shares. Musk went on to buy the entire company later in 2022.

“Elon Musk, the richest person in the world with a net worth close to $1 trillion, allegedly ignored his obligation to file SEC disclosures at the expense of other investors to the tune of $150 million,” Sooknanan wrote yesterday. “That is why the SEC previously sought disgorgement from Mr. Musk in the ballpark of $150 million. So the $1.5 million penalty in the consent judgment, though touted as the largest in the SEC’s history, is around 1 percent of the total amount of money that was potentially at stake in this case.”

Musk can keep “unjust” profits

Musk was accused of violating Section 13(d), which is enforced under a “ strict liability ” standard. That means it doesn’t matter whether a rule violation was intentional or inadvertent.

The Trump SEC and Musk agreed to a settlement in which a trust in Musk’s name would pay a $1.5 million civil penalty to the government. A settlement term prohibiting future violations of the disclosure law would be imposed on the trust instead of Musk himself, and the trust and Musk did not admit to any wrongdoing.

It appears that the injunction against future violations “binds Mr. Musk in his capacity as trustee of the Trust,” Sooknanan wrote. However, the consent decree naming the trust instead of Musk “allow[s] Mr. Musk to proclaim publicly that he has been cleared of wrongdoing,” she said.

The SEC dropped its request for disgorgement of Musk’s unjust enrichment resulting from the violation. That means investors allegedly harmed will not be compensated under this settlement, although Twitter investors who sued Musk over a different violation are seeking an estimated $2.6 billion in damages after a jury ruled that Musk made false statements.

“The SEC has decided not to press for relief that could compensate Mr. Musk’s alleged victims, instead settling on a form of relief that would go into the government’s pocket,” Sooknanan wrote yesterday. The SEC told the court that it originally asked for disgorgement because it “has the statutory authority” to do so but dropped the request because it has not historically obtained disgorgement in this type of case, she wrote.

Settlement meets “minimum” standards

In May, Sooknanan told the SEC and Musk lawyers, “I am not going to rubber-stamp this settlement, and I cannot rubber-stamp this settlement.” She told the sides to provide more information on how the deal was reached and asked whether Musk is “getting some kind of special treatment.” She said in an order that the court must consider whether the settlement “resolves the claims in the complaint, and whether it was tainted by improper collusion or corruption.”

Sooknanan said yesterday that the settlement met the “minimum” standards.