US judge approves Elon Musk settlement with SEC despite misgivings, 'red flags'

By Jonathan Stempel

July 8 (Reuters) - A federal judge on Wednesday approved the U.S. Securities and Exchange Commission's settlement with Elon Musk over his purchase of Twitter shares, despite expressing "significant misgivings" about the "red flags" the accord raised.

U.S. District Judge Sparkle Sooknanan in Washington, D.C., said she had only a limited role in assessing whether the settlement meets minimum standards of fairness and reasonableness, or instead "makes a mockery of judicial power," and questioned whether the Trump administration let the world's richest person off too easily.

"A court presented with a consent judgment is not a rubber stamp. But neither is it an ombudsman," Sooknanan 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."

Musk is a former adviser to Republican President Donald Trump. Sooknanan was appointed to the bench by former Democratic President Joe Biden.

An SEC spokesperson declined to comment. Musk's lawyers did not immediately respond to requests for comment.

The settlement requires a trust in Musk's name to pay $1.5 million to resolve SEC claims that Musk took 11 days too long in March and April 2022 to disclose his early purchases of Twitter shares.

According to the SEC, the delayed disclosure saved Musk $150 million by letting him buy Twitter shares at low prices before investors caught on.

Musk has said the delay was inadvertent.  He ultimately paid $44 billion for Twitter in October 2022 and renamed it X.

The social media platform is now part of Musk's rocket and satellite company SpaceX. Musk also leads the electric-vehicle company Tesla. He is worth $927.2 billion according to Forbes magazine.

JUDGE WONDERS IF MUSK GOT SPECIAL 'ONE-TIME' TREATMENT

In her decision, Sooknanan questioned why the SEC dropped its demand for Musk to give up ill-gotten gains to compensate his alleged victims.

She said the SEC's argument that it had not historically sought disgorgement in similar cases may or may not be fair, "but query what that says about the propriety of settling in the first place."

Sooknanan also questioned why the SEC chose to settle with Musk's trust, allowing Musk to publicly proclaim he had been cleared of wrongdoing.

In May, the judge said SEC lawyers at a prior hearing appeared surprised when Musk's lawyers revealed there had been settlement talks with the regulator.

"The court is left to wonder whether the SEC will afford other alleged securities-law violators such solicitude," Sooknanan wrote. "Or is this a one-time deal designed for Mr. Musk negotiated without the involvement of the SEC lawyers litigating this case?"

The settlement was announced on May 4, following the departure in March of former SEC enforcement chief Margaret Ryan after only six months on the job.

Ryan had clashed with agency leaders over the direction of its enforcement program.

In a court filing, the SEC said the settlement did not result from collusion, and the $1.5 million penalty was the largest of its type.

It also said the public benefited from an injunction that effectively binds Musk when he acts through the trust, "an investment vehicle that he appears to use to manage much of his wealth."

(Reporting by Jonathan Stempel in New York, Editing by Franklin Paul and Matthew Lewis)