The U.S. Securities and Exchange
Commission defended its settlement with Elon Musk over his
purchase of Twitter shares, saying it reflected “compromises”
and was not tainted by collusion, after the judge overseeing the
case said the accord raised “red flags.”
In a filing in the Washington, D.C. federal court, the SEC also
said in a footnote that the settlement if approved will allow
Musk to publicly deny its accusations, reflecting a recent
policy change governing defendants who settle enforcement
actions.
The settlement requires a trust in Musk’s name to pay $1.5
million to resolve SEC claims that the world’s richest person
took 11 days too long in March and April 2022 to disclose his
purchase of Twitter shares, letting him buy at low prices before
investors caught on.
Musk has said the delayed disclosure was inadvertent. He
ultimately paid $44 billion for Twitter in October 2022 and
renamed it X.
At a May 13 hearing, U.S. District Judge Sparkle Sooknanan
said she could not “rubber stamp” the settlement.
She questioned why the SEC fined the trust instead of Musk,
and was content to recoup just 1% of his $150 million of alleged
ill-gotten gains. The judge also said she must consider whether
the settlement served the public interest, and was not tainted
by collusion or corruption.
SEC SAYS PUBLIC BENEFITS FROM MUSK SETTLEMENT
In Monday’s filing, the SEC said the “fair, reasonable, and
appropriate” settlement was “not the result of any improper
collusion between the parties,” but rather “arose from arm’s
length negotiations among counsel of record, and reflects
compromises from each side.”
It also maintained that the $1.5 million penalty was the
largest of its type, and that settling with the trust mirrored
the SEC’s practice in recent cases.
“The public benefits from an injunction that has the practical
effect of binding Musk whenever he acts through the Revocable
Trust, an investment vehicle that he appears to use to
manage much of his wealth,” the SEC said.
Lawyers for Musk did not immediately respond to requests for
comment.
Musk, a former adviser to Republican President Donald Trump,
accused the SEC of being politically motivated and invading his
free speech rights by suing him six days before Democratic
President Joe Biden left the White House.
The Trump administration has curtailed some corporate
enforcement activity as SEC Chair Paul Atkins refocuses the
regulator’s priorities.
Former SEC enforcement chief Margaret Ryan, who left abruptly in
March after just six months on the job, had clashed with agency
leaders over the direction of its enforcement program.