SEC defends Musk settlement over Twitter, saying it reflects ‘compromises’

By Jonathan Stempel

June 1 (Reuters) – 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 tomanage 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.

(Reporting by Jonathan Stempel in New York; Editing by Stephen Coates)